Fiscal reforms may hit bank sector profitability, says Al-Issa

While the banking sector in Saudi Arabia and the GCC region are well-positioned to cope with government revenue short falls arising from low oil prices, the sector’s profitability may decline in the initial stage of the fiscal reform program, said Abdullah Mohammed Al-Issa, chairman of Riyad Bank, according to Alriyadh newspaper.

This dip in profits would be due to governments and oil companies reducing their deposits in the banking system and thus delaying loans granted to the private sector.

Al-Issa said that while the lifting of subsidies in energy prices implies a radical shift in economic and social policies in Saudi Arabia and the GCC countries, the new tariffs in Saudi Arabia are low when compared to other countries, both international and regional.

Meanwhile, he expects Saudi Arabia’s fiscal deficit to remain at 8 percent of the gross domestic product, or at SAR 170 billion, due to the possibility of higher oil revenues than estimated.