GCC banks to post strong profits in 2022, close to pre-COVID levels: S&P Global

S&P Global Ratings said that Gulf banks are expected to record profits close to pre-COVID levels by the end of 2022, driven by the economic recovery, as banks benefited from high oil prices, improved confidence and major government projects, especially in Saudi Arabia.

The rating agency also stated that its expectations for the Gulf banks for 2023 do not seem as certain as for 2022, as it sees several risks represented in a projected slowdown in the global economy, which may affect the region in terms of oil prices. This is besides banks’ exposure to high-risk countries such as Turkey and Egypt, in addition to potential restrictions on liquidity to finance growth as domestic and global liquidity becomes less abundant.

Despite these risks, about 35% of S&P’s ratings of banks were positive, while the remainder had a stable outlook. This indicates the expected flexibility of banks and their supportive operating environment.

Growth of Saudi banks in the first half of 2022, according to the rating agency, continued strongly, backed by real estate and corporate loans. It further pointed out that banks capitalize on the large zero-interest deposits, and high interest rates, noting that the cost of risks decreased during this period, but is expected to return to normal levels.

Corporate lending is set to contribute to the future growth of banks, in light of the implementation of Vision 2030 projects. This is in addition to real estate loans, albeit at lower rates compared to the past two years, in conjunction with the maturity of the sector and a somewhat lower demand due to high interest rates.

Furthermore, S&P indicated that the growth of deposits was less than that of lending, which constrained liquidity and prompted the Saudi Central Bank (SAMA) to pump more liquidity to ease the pressure. It expects SAMA to continue to intervene whenever needed, given that the banking sector is the main pillar in implementing the Kingdom's Vision 2030.