Saudi Arabia's five big banks will be under increased pressure as the government lowers its spending, Moody's said Aug. 9, citing an analyst report.
National Commercial Bank, Al Rajhi Banking & Investment Corp., Samba Financial Group, Banque Saudi Fransi and Riyad Bank could face problems such as a slowdown in lending coupled with a rise in problem loans, according to Moody's senior analyst Ashraf Madani.
However, these banks could leverage their size to influence prices and maintain profits, he added.
With Saudi Arabia's non-oil GDP growth pegged at just 2%, the banks' credit growth is predicted to be subdued at around 3%, according to Moody's. Already, all banks except Al Rajhi Bank have registered flat credit growth.
Further, Al Rajhi Bank's strong retail-focused approach, with its limited exposure to the corporate sector and large Islamic franchise, means it is "well positioned" to maintain profitability over the coming quarters, Moody's said.
The rating agency cited a strong increase in Riyad Bank's net interest income, despite a fall in total assets, to state that effects on the five big banks' profits from higher provisions, as well as lower fees and commissions, will be balanced by rising interest rates. Repricing floating-rate corporate loans and higher returns on investment portfolios could help banks maintain profits, Moody's added.
Corporate-focused banks like Samba Financial Group, Banque Saudi Fransi, Riyad Bank and National Commercial Bank are more vulnerable to rising provisioning costs and falling fee income.
Lower infrastructure investment and lower trade and foreign-exchange volumes have affected all banks except National Commercial Bank, which has managed to protect and even grow its foreign-exchange business, Moody's said.
The five banks are equipped with sufficient liquidity and strong capital buffers. With each bank's Tier 1 capital ratios above 15%, they enjoy high loss-absorption capacity, the rating agency said.