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Arabian Put up Employees
Excessive rates of interest and tight liquidity situations have weighed on credit score progress in Saudi Arabia’s banking sector, though it remained strong at 10% in 2023, S&P mentioned in a report.
Additionally, after robust progress over the previous few years, new mortgage lending has slowed considerably. On the identical time, deposits have been lagging lending progress.
Saudi banks will seemingly report strong-but-slower credit score progress of 8%-9% in 2024 as a result of decrease mortgage lending progress and tight liquidity. This compares with 10% credit score progress reported on Dec. 31, 2023, which was according to expectations, S&P mentioned. Company lending progress will profit from Imaginative and prescient 2030 initiatives and the following stronger financial exercise, it added.
S&P mentioned it expects mortgage lending progress to gradual additional in 2024 as a result of excessive charges and market maturity. Banks reported year-to-date mortgage lending progress of 8% over Sept. 30, 2023, in contrast with 19% in September 2022.
Regardless of excessive rate of interest over the previous two years, asset high quality indicators have been broadly secure. Excessive publicity to mortgages, primarily for presidency or its associated entities workers, and systematic write-offs of impaired retail exposures supported the banks’ NPL ratios in 2023.
However, S&P expects excessive rates of interest to start out weighing on company creditworthiness in 2024. Based mostly on a pattern of 150 corporations throughout sectors, leverage elevated barely in September 2023 however remained manageable on common. On the identical time, stage 2 loans marginally elevated to five.4% of complete loans in September 2023 versus 5.2% in 2022.
The credit score progress is anticipated to assist banks’ profitability. The banks’ RoA is prone to stabilize at 2.2%, much like the estimate for 2023. Towards the second half of 2024, slight margin compression from decrease rates of interest could also be anticipated. Virtually half of Saudi banks’ lending e book is company loans with floating charges, whereas virtually 50% of the banks’ funding was non-interest-bearing as of December 2023. Company loans will reprice downwards resulting in some strain on the banks’ web curiosity margins. Nonetheless, as rates of interest elevated quick over the previous 18 months, some impression on company creditworthiness is seen resulting in larger NPLs, though the impression is prone to be marginal as a result of Saudi corporates have comparatively manageable leverage.
Additionally printed on Medium.
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