“Fitch”: Saudi banks recovering well from pandemic pressures

Higher interest rates in 2022-2023 would further support it
“Fitch”: Saudi banks recovering well from pandemic pressures
Saudi banks

Credit rating agency, “Fitch”, confirmed that Saudi banks are recovering well from the pressures of the Corona pandemic.

And “Fitch” said in a report today, seen by “Economy Middle East”, that the economic activity of the banking sector in Saudi is showing good recovery, supported by an increase in oil prices that boosts government spending.

“The impact of the pandemic on Saudi banks has been contained, and pressures on the operating environment have been largely eased. The economic activity of the sector is recovering well, buoyed by higher oil prices that support government spending. Banks’ financial metrics have mostly stabilized and Fitch expects them to be further supported by raising interest rates in 2022,” said “Fitch”.

The agency explained that these positive trends were reinforced by government support measures that included interest-free deposits, and continued strong loan growth in 2020 and 2021 (14.9 percent and 15.5 percent, respectively), which was reinforced by the continued momentum in retail real estate loans.

It added, “Delays in recognizing the declines are no longer a major risk as the deferral procedures were completed at the end of the first quarter of 2022.”

“The weighted average VR feasibility rating of Saudi banks from BBB remains the highest in the GCC,” according to Fitch.

Also, “Fitch” raised its future outlook for the Kingdom to “positive” from “stable” while maintaining an “A” rating, as a reflection of improvements in the public budget after the rise in oil revenues and the consolidation of public finances.

The agency expected that Saudi Arabia would record budget surpluses in 2022-2023, for the first time since 2013, equivalent to 6.7 percent and 3.5 percent of GDP, respectively, assuming that Brent crude prices average $100 per barrel and $80 per barrel, respectively.

Fitch also revised its outlook for Aramco from stable to positive, with an affirmation of its rating at “A,” and its expectation that Aramco’s annual capital expenditures would rise to between $40 billion – $50 billion in 2022, compared to $32 billion in 2021.

It was also natural for Fitch’s revision of the future outlook for the Public Investment Fund (PIF) to be “positive”, consistent with the amendment that affected Aramco.