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Fitch warns Saudi Arabian banks of possible rise in NPLs

Banks in Saudi Arabia could see an increase in nonperforming loans because of a slowdown in the economy, although liquidity in sector has improved significantly since 2016, Fitch Ratings said Oct. 12.

The agency noted that deposit outflows triggered by falling oil prices in 2016 have since been reversed, with most banks having liquidity coverage ratios above 200% at the end of June.

However, Fitch said the Saudi banking industry's NPL ratio may increase and demand for credit may slow down in the second half of 2017 and in 2018, as the country's GDP growth declined to 1.4% in 2016 from 3.4% in 2015. The agency expects the GDP growth to be below 1% in 2017 and 2018.

"Earnings metrics for Saudi banks are solid by global standards, with a sector return on assets of 1.8% for 2016," Fitch said, adding, however, that "credit growth has slowed and, as a result, earnings have plateaued for many banks and started to decline in some cases."