Current deposits decline; corporate sector to support lending growth: Riyad Bank CEO

Tareq Al Sadhan, CEO of Riyad Bank

Lending is likely to grow this year at the same pace as last year, supported by the corporate sector, CEO of Riyad Bank Tareq Al Sadhan said in an interview with Al-Arabiya.

Interest rates will remain at high levels during 2023, so the picture will not change significantly, he added.

However, the economic mobility in Saudi Arabia and mega projects will help mitigate the impact of high interest rates on lending, and allow for good growth similar to that of 2022. The momentum in government projects will boost the corporate sector.

Al Sadhan noted 2022 was unique regarding sources and diversity of income, and the rise in interest rates played a major role in increasing revenues. But lending growth also contributed to the rise in returns.

The year was also characterized by a good contribution of service fees and foreign currency fees to net revenues, he added.

He explained that the bank's lending portfolio consists of two parts – two-thirds for corporate financing and one-third for retail financing. SMEs credit portfolio represents nearly 14.7% and the real estate finance sector is 23%.

The CEO said 99.5% of the corporate lending portfolio is with variable interest, therefore, when interest rates rise, prices change for clients. Thus, the bank is not significantly affected by the high interest rates.

On the other hand, the interest in the retail portfolio remains constant, and with rising interest rates the bank’s benefits diminish. It can also be damaging at times.

The accelerated rise in interest rates in 2022 was unexpected, and we witnessed a significant shift from inexpensive current deposits to interest-bearing accounts, as they fell from 66% at the beginning of last year to less than 60%, which is normal with the increase in interest rates.

Al-Sadhan also stated that 2022 witnessed significant changes at the global investment level and saw an increase in investment provisions by virtue of banks' investment in international bonds and sukuk. This is because the rapid change in interest rates affects the valuation of investments. As outlook on global economic conditions improves, there is no need for such provisions.

He added that credit provisions were at normal level with their growth consistent with the growth of lending and there were no defaults in general. The cost of risk declines annually in light of the balanced growth in strong projects, which enhances the non-necessity to form provisions.

Regarding the doubtful debts, the CEO said that non-performing loans represent 1.7% of the total loans, which is a very good ratio at the global level, with a coverage ratio of 112%.

According to data available on Argaam, Riyad Bank’s net profit rose 17% to SAR 7.01 billion by the end of 2022, compared to SAR 6.02 billion in 2021.