Saudi Arabia’s banking sector needs to “shun its conservatism and start lending to the SMEs and the housing sector”, according to a report from Alkhabeer Capital.
The report noted that the conservative approach to lending has hampered the growth of the Kingdom’s banks.
Loans-to-deposit ratio for Saudi lenders stood at 80 per cent in 2013, which fell below the Saudi Arabian Monetary Agency’s (SAMA) prescribed 85 per cent, and those recorded by its European and US counterparts.
“Although the loan-to-deposit ratio can be looked upon favourably as a means of cushioning the banks from the impact of a global downturn, it has constrained the industry’s growth potential in terms of lending,” Alkhabeer said in the report.
The asset management firm also urged banks to be more innovative and to expand their offerings to better address the needs of the population, adding that lenders should leverage technology to deliver products in a quicker more efficient manner.
“This would not only bring significant value to the banks’ customers but also help banks in managing costs and expected growth in their scale of operation,” Alkhabeer argued.
The firm also said that the implementation of Basel III will not pressurise Saudi banks as they have a high capital adequacy ratio.
The percentage of gross non-performing loans from the total loans in the Kingdom declined during the third quarter of 2013 compared to the end of 2012, according to the report.
Saudi banks have also been profitable as their return on equity stands at over 10 per cent compared to single digit returns at larger European and US banks.
Alkhabeer forecast a stable outlook for the Kingdom’s banks but warned that the economy should strengthen its non-oil sectors to buffer itself from long-term effects.
According to local media, Saudi commercial bank profits increased in 2013, with lenders logging a combined profit of SAR37.6 billion, up seven per cent from 2012.
Saudi Arabia’s banks were recently publicly criticised by the Kingdom’s deputy crown prince, who is also the second-in-line to the throne.
“I call them a saw – they chew when they go in and chew when they go out,” Prince Muqrin was quoted as saying by al-Hayat newspaper.
“They are on the short side in many things. They give little compared to the benefits they receive from citizens and from the state,” he added, responding to a question on the possibility of setting up banks for the poor.