The credit outlook for the Saudi banking sector is positive, reflecting the banks' good positioning and ability to benefit from the country's robust economic performance, Moody's Investors Service said in its latest report the country's banking industry.
"Moody's positive outlook for the direction of credit conditions in the Saudi banking system is primarily underpinned not only by the country's robust economic performance, benefiting from oil revenue windfalls, and strengthened government finances, but also by the government's commitment to diversification, which has partly been demonstrated by announced infrastructure projects worth in excess of US$350 billion over the next few years," said Constantinos Kypreos, a Moody's Vice-President/Senior Analyst and author of the reports.
Kypreos said that challenges remain – high inflation, geopolitical tension and over-dependence on oil -- but that the overall impact on the banking sector will be positive, at least over the short-to-medium term. The accommodative operating environment has also allowed Saudi banks to maintain strong financial fundamentals. Although the banking sector's financial indicators may have peaked in 2006 and 2007, Moody's anticipates that they will remain strong.
The Saudi banks have also improved their risk management culture in recent years and display a moderate risk appetite, one reason for their relatively low exposure to sub-prime/structured products.
"However, certain structural factors weigh on the upside potential of the Saudi banks' ratings. These include concentrations in lending and deposits, mismatches in the maturity profile of assets and liabilities, limited geographical diversification and pool of experienced human capital, the economy's still limited diversification beyond the hydrocarbon sector and volatility in the country's real and nominal output, and strong loan growth in recent years that has not yet matured or been tested under more adverse conditions," Kypreos added.
The Saudi Arabian banking system has proved to be robust, well-regulated and relatively stable thanks to a strong operating environment resulting from solid government finances and continuous efforts to diversify the economy. Moody's views Saudi Arabian Monetary Agency, central bank, as a prudent regulator and one of the best in emerging markets.