Impact of COVID-19 on Saudi banks 'contained', says Fitch

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The impact of the COVID-19 pandemic on Saudi banks has been contained, while pressures on the operating environment have eased, Fitch Ratings said in a new report.

Economic activity is gradually recovering, supported by higher oil prices, it added.

The deterioration in asset quality and profitability was “limited” and the banks’ financial metrics have stabilized. These have been underpinned by government support measures that included interest-free deposits and the strong loan growth in 2020 and H1 2021, which was boosted by the sustained momentum in retail mortgages, the credit rating agency said.

However, the delayed recognition of impairments remains a key risk. Fitch believes the impact on the sector’s asset quality and overall financial profiles will be contained.

According to the report, pressures on the operating environment from the pandemic and lower oil prices are easing, helped by recovering global oil demand and increasing non-oil economic activity.

"Some sectors remain under pressure and the operating environment has not fully recovered but we believe the downside risk for banks has reduced," it noted.

Saudi banks' weighted average viability rating of ‘bbb+’ remains the highest in the Gulf Cooperation Council, Fitch noted.