Saudi banks will benefit from the current atmosphere of higher oil prices, rising interest rates, and strong credit growth in 2022-2023, Fitch Ratings said on Wednesday.
“The banks have largely absorbed the pandemic shock, helped by a strong economic rebound, while the operating environment should remain favorable, supporting credit performance and liquidity,” the international credit rating agency said in a statement.
Oil prices are on the rise, mainly due to supply uncertainties with the EU planning to ban Russian oil and a warning from oil-producing countries of serious supply concerns once demand fully recovers from the COVID-19 slump.
Also, the Russia-Ukraine war has further accelerated the rise in consumer prices all around the world, putting additional pressures on central banks to hike rates to curb rising costs of living.
Fitch now projects higher interest rates to underpin profitability and capital generation, while banks to maintain strong capital ratios.
“Saudi banks’ weighted average Viability Rating of ‘bbb+’ is one of the highest in emerging markets. Most Saudi banks’ Long-Term Issuer Default Ratings are on Positive Outlook, reflecting that on the sovereign,” it underlined.
According to the agency, Saudi lenders are well-positioned to benefit from higher interest rates given that about two-thirds of the sector’s deposits are non-interest-bearing.
The U.S. Federal Reserve hiked its benchmark rate by 50 basis points last week and Fitch Ratings expected it to continue raising the rate throughout 2022, “a path which the Saudi central bank is likely to mirror given the peg with the US dollar.”
It also expected the banks’ capital positions to remain a credit strength. “The sector maintained high capital ratios in 2021 despite strong financing growth.”