| Saudi Arabia’s financial services is among the sectors leading efforts to mitigate the economic impact of the pandemic.
The Saudi Arabian Monetary Authority (SAMA) and the banking sector played a pivotal role in providing support to individuals, small and medium enterprises (SMEs), exporters and importers, and large businesses, so that the wheels of the economy keep turning despite lockdowns and curfews.
“SAMA has the task, in particular during crisis and stress periods, to ensure financial services are available, there is confidence in the financial markets and financial stability is safeguarded,” the central bank said in its latest Financial Stability report. “In this regard, and in response to the coronavirus outbreak, SAMA intervened to reduce uncertainty, ensured the credit markets are operating satisfactorily and managed system liquidity in such a manner as to minimise financial system disturbance and the risks of failure of the financial institutions it supervises.”
The central bank slashed interest rates by 50 basis points on 8 March and another 75 basis points on 16 March and activated its own business continuity plans to support the economy.
SAMA also unveiled a SAR 50 billion Private Sector Financing Program, which focused on deferred payment programme (SAR 30 billion), funding for lending programme (SAR 13.2 billion), loan guarantee programme (SAR 6 billion), support for fees of point and sales and e-commerce (SAR 800 million), and financed repayment arrangements for institutions affected by the measures taken in the cities of Makkah and Madinah.
“A robust support programme by SAMA meant that panic-driven measures such as foreclosures, un-economical debt restructurings and forced liquidations have not been rampant,” said Khalil Ibrahim Al Sedais, office managing partner at KPMG Saudi Arabia.
Very early on in the crisis, SAMA issued a circular requiring all financial institutions to establish a risk management committee, update their business continuity plan, and encouraged them to promote e-services and payment systems to mitigate health risks.
As such, point-of-sale transactions using near field communications technology (i.e., the transaction was down remotely) jumped to a record SAR 2.97 billion, while sales using cards remotely also hit a record SAR 14.68 billion, according to latest available data from SAMA. Saudi British Bank also saw strong engagement with its customers online. The bank saw its monthly app downloads rise 27% as it encouraged customers to avoid going to the branches.
“SABB now has a top-rated banking App following a recent upgrade, adding over 30 new services, such as face ID, Apple Pay and an improved dashboard for better money management. The upgrade came after SABB legally merged with Alawwal bank, where it promised to connect customers to the best digital banking experience in the kingdom,” SABB said in a statement.
FINANCIAL SECTOR
The Saudi banking sector’s key indicators underscores the financial industry’s underlying strength.
“Financial soundness indicators suggest high resilience of the system and ability to withstand economic shocks,” SAMA said in its recent report. “Taking into account domestic and global economic outlook, the financial sector is expected to encounter a reduction in activities in 2020, which will reflect negatively on profitability and possibly increase defaults. Given the current comfortable financial position of the sector, breaching SAMA’s requirements in terms of financial soundness indications are highly unlikely.”
Total bank deposits grew 10.4% in May 2020 compared to the same period last year, SAMA data shows, while bank credit rose 10.95% during the period.
In May, Moody’s Investors Service affirmed the ratings of 11 Saudi banks to “reflect the resilience in their financial performance underpinned by strong capital buffers, favourable funding profiles and ample liquidity buffers.”
The banking sector could also see more consolidation. In June, Samba Financial Group said it is in talks with National Commercial Bank for a potential merger. Neither parties are obligated to proceed with the transaction.
“The total consideration payable by National Commercial Bank to Samba shareholders, should the Proposed Transaction complete within that range, will be between approximately 1,441 million to 1,540 million new National Commercial Bank shares,” Samba said in a statement. “At a closing share price of SAR 37.25 per National Commercial Bank share on 24 June 2020, the Proposed Transaction, if completed within that range, would value each Samba share at SAR 27.42 – SAR 29.32, which represents a premium of 19.2% - 27.5% to the Samba share price as of 24 June 2020.”
Consolidation will create a more robust and vibrant banking sector, which will be vital as the kingdom prepares to revive the economy. |
Contact SAB
