The latest KPMG Banking Pulse Quarterly, with the financial performance of 10 listed Saudi banks, presents insights from the firm’s recent CEO Outlook pulse Survey, interviewing 60 bank CEOs from around the world. The survey provides a timely snapshot into CEOs’ expectations on business growth resumption, the impact of vaccine roll-outs, evolving organizational requirements, and business transformation priorities.
While Covid-19 certainly brought disruption to the financial services sector in Saudi Arabia, the sector has weathered the storm well, and has thrived again from a financial performance perspective.
Khalil Ibrahim Al Sedais, Office Managing Partner – Riyadh at KPMG in Saudi Arabia, said: “Although we have been experiencing our fair share of trials and tribulations over the past year, we clearly see a bright future for Saudi Arabia’s banking industry which performed better than it ever has over the past year. With the sector’s total assets crossing SAR 3 trillion ($799.9 billion) and total deposits approaching the SAR 2 trillion ($533.2 billion) mark, generally the banking system is in great shape.”
The survey indicates that 45% of CEOs globally envision their companies’ return to normality happening sometime in 2022. All survey respondents agreed that a successful vaccine roll-out is the most important factor in bringing back a sense of normality. Further, nine out of 10 CEOs are keen to ensure their staff’s safety by asking employees to notify them when they’ve been vaccinated. Still, 50% of bank leaders are concerned that not all employees will have access to the Covid-19 vaccines, which could potentially jeopardize their operations and competitive advantage.
Furthermore, the survey found that 56% of bank CEOs have a newfound appetite for M&A – and the recently concluded merger between SAMBA and NCB may pave the way for further consolidation in the Kingdom’s banking sector. The top drivers for investment have shifted into the digital realm to transform the customer experience and value proposition while increasing market share and transforming business models at a significantly faster pace. Moreover, the changes which have taken place over the pandemic have pushed CEOs to reconsider their firm’s priorities. That being so, customer-centricity and technology are now at the forefront of their minds, alongside investments in data security measures, digital communications and cloud computing.
The survey also highlighted the enduring focus on environmental factors and climate risk by linking them to trust and reputation within the financial industry. Likewise, there is a heightened focus on the “S” component of ESG, and in line with that, 88% of bank CEOs are looking to lock in the gains in sustainability and climate change which were brought about by the pandemic as opposed to 55% in the previous year.
On the diversity and inclusion front, the report noted 62% of bank leaders believe that progress has moved too slowly, with an overwhelming majority of 85% of leaders agreeing that there is still much to be done in regard to gender diversity on boards.
KPMG earlier recorded the gradual decrease in credit losses which translated to approximately 19%, courtesy of the various measures taken by the Saudi government, SAMA and banks themselves. There was a strong increase in loan books which translated into 20% growth in average net income across the sector. Positive progress was made in terms of the maintenance of an average coverage ratio: to illustrate, an average above 169% which in conjunction with the average capital adequacy ratio of 21% created a decent reflection of the sector’s shock absorption capacity.
Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia, commented: “Among the positive performance indicators across various fronts, Saudi banks have shown stellar growth in the real estate finance division over the past two years in particular. With an astounding increase of approximately 100% since FY 2018, and the total financing on this front fast approaching the SAR 500 billion ($133.3 million) mark. In fact, statistics show the number of new residential mortgage contracts being written have grown almost ten times over the last three years, to approximately 300,000.”