Riyadh – Mubasher: Profits achieved by Saudi Arabia’s largest five banks may face pressures during 2018 on the back of reduced government spending, which negatively impacts economic growth, Moody’s Investors Service said in a report released Wednesday.

 This results in “dampening credit demand and weakening corporate, and to a lesser extent, consumer borrowers' ability to repay debt”, the global ratings services agency added.

The Kingdom’s five largest banks are: the National Commercial Bank (NCB), Al Rajhi Bank, Samba Financial Group, Riyad Bank, and Banque Saudi Fransi (BSF).

"As the Saudi government reins in spending, we expect lending to slow and 
problem loans to rise. However, the big-5 banks will be able to use their pricing power to offset these pressures and keep profit steady over the coming 12 to 18 months," said vice president – senior analyst at Moody’s Ashraf Madani.

Al Rajhi is expected to maintain its profitability in the coming quarters on the back of its strong retail-focus, its large Islamic franchise, and low cost retail deposit base.
The report also noted that an increase in interest rates “will offset the impact on banks’ profitability of higher provisions and lower fees and commissions,” which will allow these banks to achieve better returns on their investments. An example of this is seen in Riyad Bank’s strong growth in net interest income in Q1-17 despite logging a decline in total earning assets.