Alvarez & Marsal Releases Saudi Arabia Q2 2022 Banking Pulse | Alvarez & Marsal | Management consulting

  • Return to profitability for Saudi banks with moderate growth of 2.7%
  • Loans and advances (L&A) growth continued to outpace deposit growth
  • Net interest margin (NIM) improved for the first time in the last four quarters, supported by higher benchmark rates

Kingdom of Saudi Arabia – September 04, 2022 – Leading global professional services firm Alvarez & Marsal (A&M) has released its latest Saudi Arabia (KSA) banking pulse for the second quarter of 2022. The report suggests that the profitability of the top 10 KSA banks showed moderate improvement, with growth of overall net profit being 2.7% from Q1’22 resulting in a 41 basis point increase in return on equity (RoE). At the same time, L&A and filing growth slowed as NIM’s expansion and improved profitability continued.

L&A of major Saudi banks increased by 4.2% QoQ (QQ) while deposits increased by 3.2% QQ in Q2’22. The NIM rose to 3% and the credit yield increased to 5.3% due to higher benchmark rates.

Return on assets (RoA) decreased by 3 basis points quarter-on-quarter due to an increase in total assets relatively greater than net profit. Asset quality deteriorated slightly as the ratio of non-performing loans (NPLs) to net loans fell from 1.5% in Q1’22 to 1.6% in Q2’22.

A&M’s KSA Banking Pulse examines data from the 10 largest listed banks in Saudi Arabia, comparing Q2’22 results to Q1’22 results. Using independently published market data and 16 different metrics, the report assesses key areas of bank performance, including size, liquidity, revenue, operational efficiency, risk, profitability and the capital.

The 10 largest listed banks in the country analyzed in A&M’s KSA Banking Pulse are Saudi National Bank (SNB), Al Rajhi Bank, Riyad Bank (RIBL), Saudi British Bank (SABB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Alinma Bank, Bank Albilad (BALB), Saudi Investment Bank (SIB) and Bank Aljazira (BJAZ).

The dominant trends identified for Q2 2022 are as follows:

  1. L&A and filings grew at a slower pace in Q2’22 compared to the prior quarter. The L&A aggregate increased by 4.2% quarter-on-quarter in Q2 22, while the deposit aggregate of the top 10 banks increased by 3.2% quarter-on-quarter. As a result, the sector-wide loan-to-deposit ratio (LDR) increased by 1.0% quarter-on-quarter to 93.6%.
  2. Operating profit increased slightly primarily due to growth in total interest income. Total operating income edged up 3.8% QoQ in Q2’22, relatively slower from 5.8% QoQ in Q1’22. Aggregate non-interest income (NII), the main driver of operating profit growth, rose a substantial 16.2% quarter-on-quarter. Operating income was more than offset by higher total interest expense of +75.5% qoq due to the Saudi Arabian Interbank Offered Rate (SAIBOR) increase of 84 bps qoq quarterly.
  3. NIM has expanded with the increase in referral rate in all areas. Aggregate NIM rose for seven of Saudi Arabia’s 10 largest banks, with aggregate net interest income rising 8.7% for the quarter. Additionally, credit yield increased by 0.5% to 5.3% due to higher benchmark rates in Q2’22. Cost of funds rose 29bps to 0.7% in Q2’22 as SAIBOR rose.
  4. Overall operational efficiency improved as banks continued to streamline branches and increase digitalization. The cost/income ratio (C/I) improved by 28 basis points quarter on quarter to reach 32.8%. Cost efficiencies were driven by operating profit growth of +3.8% vs. quarter above operating expense growth of +2.9% vs. prior quarter.
  5. The cost of risk (CoR) edged up 7 basis points quarter-on-quarter to 0.5% in Q2 2022 as banks reported higher impairment charges. Total impairment provision increased 21.3% quarter-on-quarter in Q2 22 to SAR 2.7 billion. Six of the 10 largest banks reported a deterioration in CoR, while SABB reported a 127.3% quarter-on-quarter increase in impairment charges.
  6. Saudi banks’ aggregate net profit rose +2.7% QoQ in Q2’22, much slower than in the previous quarter. Aggregate RoE improved 0.4% QoQ to 13.5%, mainly due to higher growth in total interest income. The +2.7% QoQ in aggregate net profit was more than offset by financing charges of +75.5% QoQ and an increase in impairment charges of +21.3% QoQ. However, the ROA of the top 10 Saudi banks declined by 3 basis points QoQ to stand at 1.9% in Q2 2022, as total assets growth was relatively higher than net profit.


The table below presents the key indicators:

Source: Financial statements, investor presentations, A&M analysis

Mr. Asad Ahmed, Managing Director and Head of Middle East Financial Services at A&M, said: “Rising oil production supported by high crude price along with rising benchmark interest rates point to a positive outlook for the Saudi banking sector. Strong growth is expected in fiscal 2022 for Saudi Arabia’s economy and this expectation stems from the International Monetary Fund (IMF) forecast of GDP growth of 7.6% in 2022 and 3.7% in 2023, as global oil demand and l Improving non-oil business is recovering.Furthermore, we expect the Central Bank of Saudi Arabia (SAMA) to continue to follow the US Federal Reserve’s rate hike policies, which will help the profitability of the banking sector.

About Alvarez & Marsal

Businesses, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Privately held since its inception in 1983, A&M is a leading global professional services firm providing consulting, business performance improvement and turnaround management services. When conventional approaches aren’t enough to create transformation and drive change, clients seek out our deep expertise and ability to deliver practical solutions to their unique problems.

With more than 6,000 people on four continents, we deliver tangible results to businesses, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders and their teams leverage A&M’s restructuring legacy to help companies act decisively, propel growth and accelerate results. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what is really needed to turn change into a strategic business asset, manage risk and unlocking value at every stage of growth.

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CONTACT: Kiran Makhija/ Prerna Agarwal, +971 55 471 0294/ +971 52 787 3189

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Sandra Sokoloff, Senior Director of Global Public Relations
Alvarez & Marsal, +1 212-763-9853

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