TASI, Nomu gain; bank shares rally — Closing bell

RIYADH: Banks in Saudi Arabia will benefit from a potential rise in interest rates this year, as they see a shift from demand deposits to savings accounts, according to an S&P Global report. 

Interest rates to increase net profit 

According to S&P Global Ratings credit analyst Puneet Tuli, for every increase in the benchmark interest rate of 100 basis points, banks in the nation record a rise in net profit of 13 percent and a return on equity of 1.5 percentage points. 

“Higher rates will help banks promote savings products, in line with Vision 2030. Higher profits will continue to support the strong credit profiles of rated Saudi banks,” said S&P Global in the report released on Monday. 

The report noted that Saudi Central Bank used to mirror US Federal Reserve rate actions. On March 16, Saudi Central Bank had raised its repo rate by a quarter of a percentage point to 1.25 percent and the reverse repo rate by 0.25 percent to 0.75 percent, following the Fed increase. 

The S&P Global report added that Saudi Arabian banks’ credit growth will stay steady at about 12 percent in 2022. 

“Higher rates will gradually cool off lending growth. We believe that mortgage growth will start to moderate, even in nominal terms, in 2022 as the market becomes more saturated,” the report stated. 

Saudi banks unaffected by Ukraine war

Banks in Saudi Arabia have performed well amid the ongoing war between Russia and Ukraine. 

“Rated Saudi banks have little direct exposure to Russian or Ukrainian counterparties. We do not expect to see any significant direct effects of the conflict on their asset quality indicators,” S&P said in another report.