Muhammad Damaq, Senior Credit Analyst and Global Head of Islamic Finance at S&P Global Ratings, confirmed that Saudi banks have many solutions to overcome the liquidity pressure caused by higher loans than growth in deposits.
In an interview with Al-Arabiya, Damaq said that the ratings and expectations are positive for the banking sector in the Kingdom.
Damaq stated that 25% of the ratings have positive expectations and are mainly driven by the positive outlook for the sovereign rating in Saudi Arabia or unique factors specific to the banks themselves.
He expected that banks will achieve good profits in 2023 and will continue to benefit from high interest rates, adding: “We believe that despite the slowdown in economic growth in the Gulf countries in general, the impact on asset quality will be relatively under control, and capital will continue to support the creditworthiness of Council banks.” Gulf Cooperation.
With regard to financing and liquidity, Damak said that some countries will face pressure, such as Saudi Arabia, or reduce external financing, such as Qatar.
“The risks will be under control and we have reflected this in our ratings,” he noted.
He stated that “the banking system in the Kingdom has grown significantly in the past few years, and this growth was mainly driven by real estate loans and the adoption of Vision 2030 and its objectives such as increasing the percentage of home ownership, which prompted real estate loans to grow.”
He continued, “Last year, we witnessed pressures on liquidity because the growth of loans was much higher than the growth of deposits, which prompted the Saudi Central Bank to intervene and inject 50 billion riyals last year.”
And whether the banking system alone will be able to contain all the projects of Vision 2030, Damak said: “No, it will not be able, because despite the strength of its capital, it will not have the ability to contain all these projects, and we believe that some of the projects must find their way to the capital markets.” local money”.
And Damaq indicated that banks have different solutions to overcome the liquidity pressure, whether by trying to increase their deposits from the government or the institutional sector, or by diversifying their investments in some assets, pointing out that they were unable to do so last year due to the increase in the interest rate.
Damak stated that “the withdrawal of investments by banks from fixed-income instruments, for example, would have led to the crystallization of realized losses. The withdrawal of investments from real estate loans may be logical, as banks may issue guarantees for housing loans or secured (covered) bonds, or they may use the infrastructure prepared for this purpose.” It is the Saudi Real Estate Refinance Company that was established to purchase real estate loans from banks and issue real estate loan bonds to the market in order to refinance them and in order to help the bank provide additional room in the balance sheet to meet new real estate loans or new projects or return to the government or the Central Bank of Saudi Arabia to request more of support.”