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Saudi banking profits rise despite pressure on assets, says Fitch

Saudi Arabia, August 11, 2019

Profitability for Saudi banks improved in 2018 despite continued pressure on asset quality from a challenging operating environment, according to a new report by Fitch Ratings.

The ratings agency said Saudi banks saw little new business and subsequent low loan growth affected by lower government spending and weaker consumer confidence.

It added that funding and liquidity remained sound, with deposit and loan growth roughly in line, and capital ratios solid.

For 2019, Fitch said loan growth is likely to be at most mid-single digits while asset-quality metrics will remain under pressure, particularly in contracting and retail/wholesale trade, until the effects of higher government spending are visible on the private sector.

'We expect some continued loan restructuring,' the agency said in a statement.

Fitch's report said that in 2018, Saudi banks saw a decline in loan impairment charges (LICs) to average gross loans and write-off ratios but remained high.

It noted that operating profit/risk-weighted assets improved in 2018 due to stronger net interest margins, lower LICs and better cost efficiency.

Funding pressures continued to ease in 2018, owing to greater liquidity in the system with higher oil prices, a rise in deposit growth, low loan growth and new large issuance by the government and related entities, Fitch said.

It added that the average gross loans-to-deposits ratio was stable at 85 percent while core capital ratios remained strong in 2018, with low loan growth and reasonable internal capital generation.