Audit, tax and advisory services provider KPMG says capital demand is expected to fuel a strong interim performance of Saudi Arabian banks over the next year.
Banks across Saudi Arabia are expected to maintain the existing prioritisation of liquidity demand. KPMG suggests that despite enhanced earnings, banks in the region are to focus on raising Tier I capital in form of debt issuances; mostly in the form of Sukuk.
Issuances worth £3.8billion were conducted from January to the end of September 2022. This number is expected to significantly grow in the coming months. This is because banks are looking to fuel increased demand in the public and private sectors.
KPMG’s predictions are based on its ‘KPMG Banking Pulse Q3 2022 Report’. The report found an increase in net profit by 26.21 per cent year-on-year for the banking sector.
Saudi Arabia has seen ‘continued growth’
Khalil Ibrahim Al Sedais, office managing partner at KPMG in Saudi Arabia, explained what the financial service provider had analysed. He said: “An upsurge in Tier I capital issuance has been noted across the banking participants as banks are further strengthening their equity base.”
Al Sedais expanded on the trends found in the first nine months of 2022. “We have witnessed continued growth in economic activities during the nine-month period in 2022. While global supply chains have been under pressure due to challenges including geopolitical apprehensions, oil prices being consistently on the higher side has helped the Saudi economy to thrive and expand on its Vision 2030 ambitions.”
Ovais Shahab, head of financial services at KPMG in Saudi Arabia, discussed his expectations for the future. He said: “As we look to the next three years, risks are more interconnected than ever; emerging technology rises as the top risk and greatest threat to organisational growth. Operational risk, regulatory changes and reputational concerns are the other risks jumping in priority.”
Shahab also explained an expectation that banks will attempt to reduce enhanced market risk due to “volatility in the interest rate”. He expects end-of-the-year statistics to show this, as banks “resolve on disclosures of ESG and Basel reforms.”
KPMG also found that advancing digitalisation and connectivity are linked to attracting and retaining talent. Recruitment and keeping talent also emerged as the top operational priority to achieve growth over the next three years. The financial service provider explained that this could grow increasingly flexible working arrangements. It also explained mitigating cyber security threats is a high priority.