Alvarez & Marsal’s Banking Pulse Suggests Subdued Profitability Outlook for Banks


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Comserve Inc.

Sep 15, 2020, 07:00 EST


Bronx, United States, Sep 15, 2020, 07:00 /Comserve / -- Alvarez & Marsal (A&M) has released its latest Saudi Arabia Banking Pulse for Q2 2020 report. According to the report, the outlook of profitability for banks remains subdued.

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Riyadh, Kingdom of Saudi Arabia, Sept. 14, 2020 – Alvarez & Marsal (A&M) has released its latest Saudi Arabia Banking Pulse for Q2 2020 report. According to the report, the outlook of profitability for banks remains subdued. This is mainly due to the dropping price of oil along with Covid-19 lockdowns which might impact credit demand and asset quality. As compared to the preceding quarter, the top ten banks of Saudi Arabia reported a marginal increase in deposits. This led to the improvement in the funding positions of banks.

As the cost to income (C/I) ratio saw a decline for the second consecutive quarter, Saudi banks continued to raise their efficiency. This was due to a regimented approach to cost optimization along with lower expenses for operations during the lockdown. Even with an incessant decline, the C/I ratio is still above the average that was achieved in 2019 (34.6%)

According to the reports, there was a significant increase in the provisions of loans for banks that reported their second-quarter earnings.  There was a rise of 64.7% quarter-on-quarter in the total provisioning to SAR 5.1 billion in Q2 2020. There was a decline in the coverage ratio to reach 146.25% for the fifth consecutive quarter. This was due to a rise in non-performing loans by 9.6%. Considering the future macroeconomic factors, there could be a continuation of reserve building in the approaching quarters.

For the top ten Kingdom of Saudi Arabia (KSA) banks Q2 2020, aggregate loans & advances stood at 1.9% which was the slowest in the last five quarters. But the deposit saw a marginal improvement of 1.8%. The credit demand was impacted on the account of slowing economic activity due to the lockdown. But aggregate loans to deposit ratio (LDR) increased to 86.1% from 86% in Q1 2020.

According to A&M’s latest UAE Banking Pulse report for Q2 2020, the top 10 banks announced a 21.1% jump in their net profits. This was during the April-June quarter mainly due to lower provisioning and increased cost-efficiency.

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