Riyadh – Mubasher: Banks operating in Saudi Arabia have been facing a challenging operating environment since the first quarter (Q1) of 2020, pressured by the coronavirus (COVID-19) pandemic and falling oil prices, Fitch Ratings said in a recent report.

This resulted in “heightened pressure on the sector's asset quality and profitability,” the international credit rating agency pointed out.

Nevertheless, the weighted average viability rating (VR) of Saudi banks at 'bbb+' is still the highest in the GCC region.

During the first 10 months of the year, loans provided by Saudi banks grew by 12.7% on the back of “the sustained momentum in retail mortgages”, along with the operating environment showing signs of recovery.

“The Negative Outlook on Saudi Arabian banks' ratings reflects heightened pressures on the operating environment and the Negative Outlook on the sovereign rating.”

Asset-quality metrics of the banking sector were stable in the January-September period on the back of government forbearance measures and strong growth, spurred by corporate agreements and retail mortgages before the crisis.

“This will likely be undermined by higher corporate defaults in a weaker operating environment, but also delayed asset-quality problem recognition from Q1-21, as government forbearance measures expire.”

The Saudi banking sector is still well-capitalised, registering an average common equity tier 1 ratio of 17.8% at the end of Q3-20, one of the highest rates in the world.