Saudi domestic banks in aggregate reported a 7.5 per cent year-on-year increase in net profit for the first quarter, said Moody’s Investors Service, adding the results are credit positive.
The rise in net profit is mainly due to lower interest expenses and provisioning charges, Moody’s said in a new report.
According to Moody’s, interest expenses declined 12.5 per cent year-on-year (and 2 per cent quarter-on-quarter), reflecting improving funding conditions in Saudi Arabia compared with 2016.
Improving liquidity and funding conditions since 2017 have narrowed the Saudi Arabian Interbank Offered Rate’s (SAIBOR) spread against US dollar-denominated London Interbank Offered Rate, even reaching negative spreads in March 2018, said the report.
Since April 2018, the SAIBOR has risen to around 2.4 per cent, its highest level since 2009, following a decision by the SAMA to increase its repo rate in response to a decline of Saudi money rates below US rates, it added.
However, Moody’s didn’t expect that this increase will create immediate upward pressure on interest expenses given limited credit growth and Saudi banks’ favorable funding profile.
