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Soaring oil price heralds Saudi lending boom

Black Gold Faith
Photo: Getty Images

Rate rises, combined with the soaring price of oil, mean that Saudi banks enjoy unprecedented liquidity. This will accelerate the change already under way in the sector.

War in Europe has sent investors scrambling for safety, and in a world of rate hikes and soaring commodity costs, few havens stand out quite like the Kingdom of Saudi Arabia. A currently fading pandemic and rising energy prices have returned the economy to growth rates not seen in almost a decade. The renewed surge in oil prices will further swell government coffers and spill through into a banking sector undergoing an unprecedented transition.

As the world entered 2022, the Saudi banking sector was awash with optimism. Analysts pointed to strong revenue growth, robust asset quality and a pipeline of government projects expected to drive loan growth. Confirmation came in the form of healthy full year financial results. Al Rajhi Bank – the country’s largest – recently announced a net income rise of almost 40% in 2021 to SR14.74 billion ($3.9 billion). Saudi National Bank – the second largest – reported net income was up over 10% at SR12.6 billion. Smaller lenders, who struggled more during the pandemic, posted even sharper rises. Common factors in the recovery included higher income from financing and investment, and lower impairment charges for expected losses.

A month or so later, even with the outbreak of war in Ukraine and the spectre of stagflation, that optimism is largely undiminished.

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