（英文）行業(yè)資料 【bcg】Saudi Arabia's Banking Sector - 2022 in Review and The Path Ahead

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SaudiArabia’sBankingSector:

2022inReviewandThePathAhead

ByMarkusMassiandMartinBlechta

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–approximately$1.4trillionoverthenextfiveyearsifcurrentglobaleconomicconditionspersist.MuchofthiswillflowtoexportersintheGCC,whichnumberamongthetopenergy-exportingnationsintheworld.

Theworldeconomyisinaprecariousposition.Interest

ratesrisingintandemwithsky-highinflation,uncertainty

fromnewandongoingglobalpoliticalconflicts,anda

Chineseeconomystillreelingfromtheimpactof

COVID-19,havemadeforheadwindsstrongenoughfor

Additionally,theKingdomofSaudiArabia(KSA)isacceleratingthetransformationofitseconomyinlinewithitsambitiousVision2030initiative.Aspartoftheplan,theKingdomisproceedingfullsteamaheadwiththedevelopmentofaraftofmega-projects,modernizationinitiatives,aswellasreformsanddevelopmentplansthatwilldiversifyitseconomyandopenthecountryuptotheworldinawaythatithasnotattemptedbefore.ThesedevelopmentsarebeingmirroredintheperformanceofthebankingsectorinSaudiArabia,whichisexperiencingaperiodofmuch-welcomedprofitability.

somecountriestodeclarethattheyfacethepossibilityof

aprotractedandarduousrecession.

However,theeconomicclimateintheGulfCooperation

Council(GCC)countriesseemsnoticeablybrighter.

Elevatedenergyprices,abatementofCOVID-related

measures,andanincreaseintourismresultingfrom

majorglobaleventshaveprecipitatedwhatbyall

accountswouldbeclassifiedasaneconomicboom.High

energypricesarebenefittinghydrocarboneconomiesand

theInternationalMonetaryFundestimatesthatenergy

exportersintheMiddleEastandCentralAsiawillneta

windfallof$320billionmorethanithadearlierforecast

4SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

TheUnitedStates(US),Germany,andtheUnitedKingdomrecordedaverageinflationratesof8.1%,8.1%,and9.1%respectivelyin2022asgeo-politicaleventscreatedmoredisruptionstoglobalsupplychains.IntheUS,theworld’sbell-weathereconomy,theFedFundsRateroseseventimesin2022;by25BasisPoints(bps)inMarch,50bpsinMay,75bpseachinJune,July,September,andNovember,and50bpsinDecember.DespiteasubstantialincreaseintheFedFundsRatefrom0.08%inMarchto4.33%inDecember,inflationremainsstubbornlyhighandisleadingmanyanalyststoexpectfurtherratehikesin2023.

Theburdenofinflationisaffectingeconomiesglobally,butinthecaseoftheGCC,hasnotbeenasproblematic.ThissituationholdsparticularlytrueinKSA.Fromhistoricallylowlevelsin2020and2021,theSaudiArabianMonetaryAuthority(SAMA)raisedpolicyratesin

I

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nflationaroundtheworldresultedfromanunprecedented periodofmonetaryexpansionpursuedbycentralbanksto combattheeconomicslowdownresultingfromtheCOVID-19pandemic,followedbyasurgeinconsumerspendingonceeconomiesreopened.

Macroeconomic

Overview

InterestRatesandInflation

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Exhibit1:InterestratesandinflationintheGCC,US,andEurope

Interestrates(%)

5

4

3

2

1

..

0201120122013201420152016201720182019202020212022

KSAreporateKSAreversereporate3MSAIBORrateE?ectiveFederalFundsRate

9

In?ation(%)

88

6

5

4

4

4

4

3

3

3

222

33

3

3

3

22

333

2

22

2

22

2

22

2

12

1

1

1

1

1

12

1

1

1

1

1

1

0

0

10

00

-1

-2-2-2

201120122013201420152016201720182019202020212022

SaudiArabiaUnitedArabEmiratesUnitedKingdomUnitedStatesGermany

Source:BCGBankingPools,SAMA,OxfordEconomics

Note:Interestratesaremonthlyaverages

linewiththeUSFederalReserve,inevitably,astheSaudiRiyalispeggedtotheUSdollar.Intandem,SAMAalsoraisedreporatesseventimesovertheyear,from1%inMarchto5%inDecember.However,withlessimpactfromcurrentgeo-politicaleventsandhighoilprices,inflationinthecountryhassofarlargelybeencontrolled.

NetInterestMargin

NetInterestMargin(NIM),whichreflectsthedifferencebetweenincomefrominterestchargedtocreditorsversusinterestpaidtodepositors,movesintandemwithchangesintheinterestrateenvironment.Between2015and2019,thethree-month(3M)SaudiArabianInterbankOfferedRate(SAIBOR)yearlyaverageroseby175basis

points(bps),andNIMovertheperiodincreasedby81bps,implyingaNIMbetaof46%.From2019-2021,3MSAIBORdeclined182bpsowingtopressuresstemmingfromtheglobalpandemic,NIMovertheperiodalsorecededby46bps,resultinginaNIMbetaof25%.

However,followingmultipleratehikesinlinewiththeUSFED,SAMA’slastratehikeinDecember2022raisedthe3MSAIBORby~200bps,taking2022NIMhigherthanthepeaklevelsof2019.WithFEDexpectedtomaintainthetightmonetarypolicyin2023tocombatinflation,andSAMAlikelytofollow,interestratesareexpectedtoremainhigh,portendingfavorablyfortheKSA

bankingsector.

6SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

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LoanandDepositVolumes

etween2011and2022,thetrajectoryoftheSaudi bankingsector’sloananddepositvolumeshasclose- lymirroredthemovementinoilprices,reflectingachangingeconomy.Overall,loanvolumesgrewat9.6%

Closerlookat

thecurrent

CAGRwhiledepositsgrewat6.8%,resultinginaLoan-To-Depositratio(LDR)growthfrom77%to101%.

From2011-2014,highoilpricesledtostrongincreasesinlendingvolumes(roughly13.9%CAGR)anddepositvolumes(12.3%CAGR),withbothretailandcorporateloanproductsregisteringsignificantgrowth.Between2015and2018,asoilpricesdeclinedtohistoriclows,loanvolumesgrewatonly2.3%CAGRwhiledepositgrowthremainedflat.Between2018and2022,asoilpricesrosesteadily,loananddepositvolumesalsoreboundedto12.1%CAGRand8.1%CAGRrespectively.

?Mortgages:Thefour-yearperiodfrom2018-2022sawmortgageproductsoutpacingcorporateloangrowth,risingatroughly41%CAGR.ThisdevelopmentisdrivenbytheSaudiHousingProgram(partofSaudiVision2030,whichispushingtoachieve70%homeownershipinthecountryby2030)andthesupportprogramsoftheRealEstateDevelopmentFund(REDF)toenableSaudicitizensto

stateofthe

Saudibanking

sector

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87%

88%

97%

91%

101%

80%

81%

80%

81%

89%

87%

77%

0.7%

Exhibit2:Saudibankingsectorloananddepositvolumefrom2011-2022

CAGR2011-22

Volume(SARbn)

4,506

+10.0%

4,018

3,574

+8.1%

+1.1%

9.6%

2,266

3,206

Loanvolume

3,076

3,052

3,046

2,979

1,975

2,759

+13.0%

2,452

1,705

1,433

1,422

1,435

1,498

2,162

1,337

1,911

1,227

1,097

958

830

6.8%

2,240

2,043

Depositvolume

1,869

1,2041,355

1,5321,6431,6111,6301,6431,708

1,082

..

201120122013201420152016201720182019202020212022

Loantodepositratio(%)

Source:BCGBankingPools,SAMA

Note:Volumedataisperiodaverage

volumesaresurgingonceagain.Monshaat(TheSmallandMediumEnterprisesGeneralAuthority)launchedtheSmallandMediumEnterprises(SME)bankin

2021inlinewiththeKingdom’sVision2030toimprovefinancingtoMSMEs.AsaresultofeconomicrecoveryandSAMA/Monshaat’ssupportmeasures,loanstoMSMEsincreasedby10.7%YoYinQ42021.

obtainmortgageloans.Asaresult,homeownershiphas

alreadyincreasedfrom47%in2017to60%in2020.

?Corporateloans:Corporateloanvolumesaccountedfor

roughly65%ofloansbetween2011-2018.Withhighoil

prices,theeconomicrecoveryofthenon-oilsector,and

thelaunchofnewVision2030projects,corporateloan

Exhibit3:Saudibankingsectorloanvolumevsoilpricesoverthepastdecade

LoanvolumegrowthYoY(%)

112112109

99

101

71

64

72

53

55

45

43

15.9%

14.7%

14.5%

5.6%

15.5%

13.8%

5.4%

11.8%

8.1%

3.5%

8.4%

-0.1%

8.9%

2.0%

11.0%

8.6%

4.3%

4.5%-0.2%

8.1%

7.4%

2.1%

4.5%

8.9%

1.3%

4.5%

8.4%

0.5%

5.4%1.3%

7.3%

-0.3%

3.7%

1.2%

3.3%

0.9%

0.8%

5.1%

0.3%

1.6%

0.2%

-0.8%

0.3%

-1.4%

0.6%

-0.9%

-0.1%

201420152016201720182019202020212022

2011

2012

2013

Oilprice($/barrel)RetailCorporatePublicsector

Source:BCGBankingPools,SAMA

Note:Volumedataisperiodaverage

8SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

?Autoloans:Followingthe5%VATannouncementon1Jan2018,decliningautoloanratesworsenedfurtherduringthepandemicwhenVATincreasedto15%.Thissituationhasbeencompoundedbyaglobalshortageofsemiconductorscausingareducedsupplyofcarsinthemarket.

?Deposits:WithmostretailavenuesclosedduringCOVID-19,economicuncertaintypromptedmostconsumerstocommitdisposableincomestosavings,makingdemanddepositstheprimarygrowthdriverfordepositsin2020-2021.Corporationsalsodivertedexcesscash/creditindemanddepositstomaintainliquidityandmitigatethepossibilityofadversefinancialeventsstemmingfromthepandemic.Publicsectordepositsalsoincreasedsharplyduring

+7.9%

42

50

31

30

40

36

1

9.1%

Revenue

109

95

92

82

78

74

-29

-9

-29

-9

-31

-8

-14

-33

-35

-40

-13

Operatingexpenses

Loanlossprovision

Tax

8.2%

7.5%

104%

0

0

-12

-24

-5

-6

2021

-5

2020

-7

the2016-2022periodsawasteadyreturntogrowth.ProfitaftertaxesandpaymentsfortheSaudibankingsectorgrewat7.9%CAGRdrivenbystrongrevenuegrowth–recordedat9.1%CAGR–andoperatingcostsandloanlossprovisionsgrewat8.2%and7.5%CAGRrespectively,slowerthanrevenuegrowthrates.Profitaftertaxesandpaymentssufferedadeclinein2020asbanksincreasedloanlossprovisionsduetocreditrisksposedbythepandemic.However,revenuegrowthreboundedswiftlyin2021asloanlossprovisionsalsodeclined,leadingtoasharpriseinprofits.

Weighingonprofitswasthecostoftaxesandpayments.InKSA,banksaresubjecttoanannualIslamicShariah-based‘zakat’paymentandcorporatetaxes.In2018,theGeneralAuthorityofZakatandTax(GAZT)began

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theperiodasSAMAinstitutedpandemic-relatedassistancetobanks.

Profitability

collectingadditionalzakatpaymentsfrombanksthathadbeenwaivedinpreviousyears.Thisledtoasharpriseinthecollectivezakatandtaxcostsleviedonbanksinthecountry.

Followingatougheconomicclimateresultingfromthecollapseofoilpricesfromhistorichighsin2014,

Exhibit4:Saudibankingsectorprofitsaftertax2016-2022

Pro?taftertax(SARbn)

CAGR2016-22

57

125

-46

-14

2018

2016

2022

2019

2017

2

Source:CapitalIQ(SNL)

1.RevenueincludesNetinterestincome,Non-interestincomeandotherincome(suchastradingincome,dividendincomeandothernonoperatingincome)

2.2022dataispreliminaryestimate

Throughoutthe2016-2022period,theretailsegmentregisteredthehighestrevenueincrease,withloans(mortgages,creditcards,andcorporateloans),payments,andinvestmentproductsbeingthebiggestdriversofgrowth.Non-PerformingLoans(NPL),whichincreasedin2020duetopandemicrisks,havedeclinedoverthelasttwoyearsgiventherapideconomicrecovery.Similarly,profitabilityratioswereimpactedin2020duetohigherprovisionsbutrecoveredtopre-pandemiclevelsbyQ12022.

TheprescriptionsoutlinedinSaudiArabia’swide-rangingVision2030developmentplanarepoisedtoenablethebankingsectortoexperiencedramaticgrowthoverthedecade,especiallyastheglobalpandemicrecedesfurtherintotherearview.BankingassetsinthecountrysurpassedSAR3,515billioninQ22022,threeyearsaheadoftime,indicatingthatstronggrowthisalreadyunderwayandwillonlycontinue.

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119

+9.6%

Exhibit5:DriversofSaudibankingsectorrevenuegrowth2016-2022

CAGR2016-22

Revenue1breakdownbycustomersegment(SARbn)

103

94

90

Retail

64

10.1%

78

70

55

69

51

47

39

35

36

8.7%

46

Corporate

42

36

32

36

29

6

28

9.9%

9

7

7

7

6

Publicsector

5

..

20162017201820192020202120222

Source:BCGBankingPools

1.Revenuedoesnotincludeotherincome(suchastradingincome,dividendincomeandothernonoperatingincome)

2.2022dataispreliminaryestimate

10SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

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LoanandDepositVolumes

TheSaudibankingsector’soverallloanvolumesareforecasttogrowat8.5%CAGRfrom2022-2027,withretailloans(11.3%CAGR)mainlydrivenbymortgage,outpacingcorporate(6.2%CAGR)andpublicsector(6.2%CAGR)volumes.

Outlookforthe

Saudibanking

?Mortgages:WhilePhasetwoofKSA’sHousingProgram,whichwillrununtil2025,willfocusonaffordablehousing,stronggrowthinmortgageloansat16.3%CAGRisexpectedonthebackoftheRealEstateDevelopmentFund’splanstoprovidefinancialsupporttomorethan420,000mortgagecontracts.Housingpricesremainataffordablelevels,demandexistswithinthelower-incomesegmentofthepopulationthatthegovernmentissupportingviasubsidies,andthecountry’slargeyoungpopulationisexperiencingadeficitofhousingoptions.However,cutsingovernmentsubsidyprogramsaredownsiderisksformortgagevolumegrowth.

sector

?CreditCardsandInstallmentloans:Creditcardloansareexpectedtoaccountforthesecondlargestdriverofretailloanvolumes.Growthisexpectedat10.2%CAGRgiventheproduct’slowmarket

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2,939

29%

1%17%

0%

48%

32%

1%

16%

0%

46%

2,713

27%

1%17%

0%

49%

2,496

25%

1%

18%

0%

51%

2,266

23%

1%

19%

1%

52%

5%5%5%5%4%4%

7.0%2,762

2,946

54%

15%

31%

2,588

2,424

2,240

55%

55%

56%

56%

57%

17%

26%

15%

30%

16%

16%

28%

16%

27%

29%

202220232024202520262027

Exhibit6:ExpectedSaudibankloananddepositvolumesgrowth2022-2027

Loanvolume(SARbn)

3,408

3,171

31%

1%16%

0%

47%

8.5%

CAGR2022-27

Mortgage

Creditcard

1

Installment

Auto

Corporate

Publicsector

16.3%

10.2%

4.3%

0-.3%

6.2%

6.2%

202220232024202520262027

Source:BCGBankingPools,SAMA

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care,Tourism&travel,otherloans

Note:Volumedataisperiodaverage

1.InstallmentincludesloansforRenovation&homeImprovement,Furniture&durablegoods,Education,Health

Depositvolume(SARbn)

3,142

Retail

Corporate

Publicsector

CAGR

2022-27

6.0%

4.7%

10.4%

Source:BCGBankingPools,SAMA

Note:Volumedataisperiodaverage

penetrationrate.Installmentloansarealsoexpectedtocontinuetogrowasthecountry’seconomyfurtherrelaxesCOVID-19restrictionsandconsumerspendingpicksup.

?Autoloans:Autoloanvolumesareexpectedtoremainlowoverthenextfewyearsbutcouldregisteraneventualuptickinvolumes.

?CorporateandPublicSectorBorrowing:Corporateandpublicsectorloanvolumegrowthisforecasttobestrongasimprovingeconomicconditions,highoilprices,

progresstowardsVision2030,andthelaunchofmajorconstructionprojectsdriveoverallcreditgrowthinthekingdom.Corporatelendingvolumeswillalsobenefitascompaniesvieovereachotherintheeconomicrecoveryandprivatesectoractivitypicksupthepaceinresponsetothegovernment’sdevelopmentagenda.

?Deposits:Volumesareforecasttogrowat7.0%CAGRbetween2022and2027.Publicsectordepositgrowthisexpectedtoaverage10.4%CAGRonthebackofhighoilprices.Retailandcorporatevolumesareexpectedtorecord6.0%CAGRand4.7%CAGR,respectively.

12SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

Revenues

180

101

+8.6%

Withthegrowthinvolumesforecastearlier,andmarginsalsoexpectedtorise,bankingrevenuesareexpectedtogrowat8.6%CAGRinthe2022-2027period,drivenbystronggrowthfrompublicsectorclients(13.9%CAGR)andretailclients(9.5%CAGR).Revenuesfromcorporateclientsareprojectedtogrowata6%CAGR.

?Retail:Deposits,payments,mortgages,andcreditcardloanswilldriverevenuesinthissegment.Depositrevenuesareexpectedtogrowat11.7%CAGR,drivenbyastrongrecoveryinmarginsasinterestratescontinuetorise.Paymentrevenuesareforecasttogrowat

9.2%CAGRasthegovernmentpushestoachieveitsVision2030targetof70%non-cashpaymentsby2030.Meanwhile,loanrevenuegrowth(8.4%CAGR)willbemainlydrivenbyfastvolumegrowthinmortgagesandcreditcardloans.

?Corporate:Deposits(11.6%CAGR)andtransactionrevenues(8.0%CAGR)areforecastedtodriverevenuegrowth.Revenuesfrominvestmentbanking,whichrosesharplyduring2019-21(duetohigherM&AandIPOactivity)areexpectedtocomedown.

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Exhibit7:Saudibanksrevenuegrowthforecast2022-2027

Revenue1breakdownbycustomersegments(SARbn)

166

153

140

128

119

92

85

77

69

64

57

61

54

51

48

46

18

14

16

99

11

1122

202220232024202520262027

Revenue1breakdownbyproducts(SARbn)

RevenueCAGR22-27(%)

18

15

Deposits

Retail

Corporate

Publicsector

CAGR2022-27

9.5%

6.0%

13.9%

12

9

6

3

Deposits

Deposits

Otherfeeproducts

Payments

Payments

Investments

Loans

Loans

Loans

0

-303691215182124

RevenueCAGR16-22(%)

BubblesizerepresentsSAR5bnrevenuein2022RetailCorporatePublicsector

Source:BCGBankingPools

1.Revenuedoesnotincludeotherincome

(suchastradingincome,dividendincomeandothernonoperatingincome)

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iventheforecastspresentedintheprevioussection, thefollowingfouravenuesemergeasviableoptions forSaudibankstoconsiderwhenpursuingstrate-giestostrengthentheirposition:

?Managefundingeffectively:Despitehealthyloangrowth,tighterfundingconditions(asaresultofhigherborrowingcostsandgovernmentinflowsrecedingfollowingasofteninginenergyprices)couldimpactloanvolumesandNIMgrowth.Saudibanksshould

Avenuesfor

Saudibanking

sectorgrowth

revisittheirdeposit-gatheringstrategyandinparallel,proactivelyencouragesearchingforotherfundingsourcessuchastermdepositsandwholesalefunding.

?Revisitandre-balanceproductstrategies:Bytakingadvantageoffavorableinterestrates,bankscanacquirenewcustomersthrougharangeofsavingsproducts.Campaignstoimprovefinancialliteracy,asprescribedbyVision2030todrivegrowthinthebankingsector,canalsohelpraisethesavingsratefrom6%to10%oftotalhouseholdincome.

beyond2022

?Investforgrowth:Byleveragingfavorablemacroconditionsandstrongsectorgrowth,Saudibankscanpursuestrategicinvestmentstogrowrevenues

14SAUDIARABIA’SBANKINGSECTOR:2022INREVIEWANDTHEPATHAHEAD

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andoptimizecosts.Areaswithpromisinginvestmentopportunitiesincludeemergingdigitalinitiatives,re-imaginedcustomerjourneys,andtheupgradeofunderlyingtechnologyinfrastructure.

?Leveragepartnerships:Tocounternewdigital

competitors,banksshouldconsidertappinginto

growingconsumerspendingtrendstoexpandtheirportfolioofpartnerships.Forinstance,bypartneringwithe-commercebusinessesandretailersonagencybankingandPOSmicrofinancingsolutions,bankscanexpandtheircustomerbase.Bankscanalsoworkwithnon-bankingfinancialinstitutionpartnerstoextendlow-costfinancingoptionstotargetedSMEs.

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