KPMG: Saudi banks on the journey of customer endurance based on strong capital and liquidity base

KPMG, the leading provider of audit, tax and advisory services in

Saudi Arabia, published the latest edition of its “Banking Pulse,” a quarterly report series,

highlighting the latest developments in the Kingdom's banking sector following the

disclosure of third-quarter 2020 financials by listed banks. 

The report states that the Saudi banking sector in the third quarter of 2020 experienced a

range of regulatory changes, including the value-added tax (VAT) reforms and the

institutionalization of the real estate transaction tax (RETT), with mortgage finance

continuing to record significant growth.

“The lending space in the Saudi banking sector has been rife with continued growth in

mortgage financing throughout the COVID-19 environment. It is an endorsement of the

housing demand in the country and testament of government support measures,”

commented Khalil Ibrahim Al Sedais, Office Managing Partner – Riyadh KPMG in Saudi

Arabia.

As per the latest available statistics, house ownership levels climbed well over 50% which

was previously identified as a milestone point by the end of FY 2020 as part of the Vision

2030. In essence, the mortgage loan books across the banking sectors witnessed a period-

on-period double-digit growth during the nine months ended September 30, 2020. 

“Retail property buyers have welcomed the step-down of the tax rate from 15% back to 5%

being a non-claimable component of the purchase cost in general. If these past trends are

representative for the last quarter, then the introduction of RETT and sale drives witnessed

each year-end, it is quite likely that the overall banking sector will end FY 2020 without

major impact on profitability,” Al Sedais noted. 

The overall loan growth contributed towards a total asset increase of 9.8% since December

2019 reaching to SAR 2,686 billion (US$716.17 billion). Moreover, the customer deposit

base during the same period rose by 5.7% and closed at SAR 1,912 billion (US$509.80

billion)

Overall net profitability declined by 6% for the nine months period, excluding goodwill

impairment in SABB, relative to the corresponding period of FY 2019, mainly due to higher

expected credit losses of SR 12billion - a period-on-period increase of 41%. At present, the

process of loss quantification continues to be a challenge for banks in the absence of 'days

past due (dpd) backstops' for facilities subject to payment holiday and useful

qualitative information of borrowers in general. 

Apart from predominant efforts towards customer endurance; another key element

gathering swift momentum in the sector is the aspect of Environmental, Social and

Corporate Governance (ESG), referring to three central factors in measuring the

sustainability and societal impact of a business.  

“We foresee that the final quarter of this already eventful year is likely to be a nexus of

several divergent themes and in the grand scheme of things the closure would depend on

the continued tenacity and resilience of the sector founded on measures already taken by

both the the Saudi Central Bank (SAMA) and individual banks,” said Ovais Shahab, Head

of Financial Services KPMG in Saudi Arabia.

“We have observed multiple efforts towards customers endurance at the back of the strong

capital base and funding structure of the industry. We do not foresee a different proposition

for the rest of the year,” he concluded.