Days after the IMF’s positive final statement following its Article IV mission visit to Saudi Arabia praising the progress made in reforms, the credit rating agency issued a report raising its outlook for the banking system in Saudi from stable to positive, while the outlook for the banking systems in the UAE, Bahrain, Oman, Qatar and Kuwait remained stable.
Moody’s outlook for the GCC banking systems takes into account bank liquidity and strong capital margins, with economic expansion expected to continue for 12 to 18 months, and the likelihood of government support for banks if they face financial problems.
“Banks in the Gulf countries benefit from operating conditions supported by high oil prices that boost private consumption and investment in the economy’s non-hydrocarbon sectors, particularly in Saudi through its reform plan, government spending, and the Kingdom’s growing ability to support banks in the event of crises,” said Moody’s Senior Principal Deputy Nitesh Bhujnagaruala. This is reflected in our decision to change our outlook for its banking system to positive.”
The agency said that the growing pace of business confidence and improved lending performance prompted it to improve its rating for Saudi banks, explaining that it raised the rating of eight such banks to “A-” from “BBB+”. The upgrade included Riyad Bank, Alawwal Bank “SABB”, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Saudi Investment Bank, Bank AlJazira, and Gulf International Bank – Saudi.
Moody’s predicted in May that the Saudi budget would continue to improve in the next few years, with structural reforms undertaken by the government to help the kingdom reduce economic and financial dependence on oil and diversify the economy.
Moody’s said the kingdom has a strong balance sheet backed by moderate debt levels and large financial reserves, as well as high economic resilience supported by effective policies and proven oil reserves with low extraction costs. It noted that the government has shown increasing effectiveness of its fiscal policy by judiciously dealing with the oil price shock in 2020, and a positive outlook for the Kingdom, which depends on diversifying the economy.
In March, Moody’s affirmed the Kingdom’s credit rating at “A+” with the outlook revised from “stable” to “positive.”
In April, Fitch Ratings upgraded the rating of eight Saudi banks after recently upgrading the kingdom’s sovereign rating.
On April 5, Fitch upgraded Saudi Arabia’s rating to “A+” from “A”. The agency attributed the Kingdom’s upgrade to domestic and external fiscal strength, including the debt-to-GDP ratio and strong sovereign net foreign assets, with a stable outlook.
The IMF mission to Saudi Arabia expected at the end of the Article IV consultations for the year 2023 that the inflation rate in the Kingdom would stabilize at 2.8 percent in 2023 thanks to the strength of the currency, subsidy subsidies and gasoline price ceilings, adding that the intervention of the Saudi Central Bank twice eased liquidity pressures last year and returned the differences between SIBOR and LIBOR to their historical averages.
The IMF welcomed the Saudi government’s efforts to decouple spending from oil price fluctuations by establishing and implementing a fiscal rule. It recommended that Saudi Arabia should expand the scope of social programs in parallel with the pace of eliminating energy subsidies, and continue the efforts of the Expenditure Efficiency and Government Projects Authority, in addition to continuing to rationalize the wage bill in the public sector.
The Kingdom’s economy grew by 3.8 percent in the first quarter of 2023, driven by a recovery in the non-oil sector and growth in government activities.
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