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SAUDI ECONOMIC FORUM

This report discusses the current state and future prospects of the Saudi banking sector, highlighting major economic indicators, growth drivers, and potential challenges. With a focus on the government's expansionary fiscal policies and significant reductions in debt, the banking sector displays resilience and opportunities for growth, particularly in infrastructure and SMEs. However, challenges such as geopolitical tensions and low-interest rates present hurdles ahead. This analysis is essential for stakeholders aiming to understand and navigate the evolving financial landscape in Saudi Arabia.

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SAUDI ECONOMIC FORUM

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  1. SAUDI ECONOMIC FORUM Banking in KSA and Challenges Ahead March 2 2011

  2. TABLE OF CONTENTS • Highlights of the Saudi Economy • Overview of the Saudi Banking Sector • Potential Growth Drivers • Challenges 2

  3. Highlights of the Saudi Economy • Largest budget announced for 2011 • Government spending and oil revenue key to economic growth • Sound fiscal position provides ample scope for sustained growth 3

  4. Highlights of the Saudi Economy Source: SAMA • Government has been consciously reducing debt from around 80% of GDP to 10% • Foreign assets are currently US$440 billion 4

  5. Overview of the Saudi Banking Sector Source: SAMA • Continued Growth in Financing despite the financial crisis. • Increasing trend in deposits – pre and post financial crisis. 5

  6. Overview of the Saudi Banking Sector • Total assets increased – pre and post financial crisis. • Net Income declined pre crisis but was constant post financial crisis. Source: SAMA 6

  7. Overview of the Saudi Banking Sector (SAR in million) Source: SAMA, Al Inma • Total equity shows a rising trend in both pre and post financial crisis. • CAR showed an increasing trend. 7

  8. Overview of the Saudi Banking Sector 2.28 10.06 Source: Bloomberg • Role of banks critical in contributing to corporate growth • Shareholder equity not always the most efficient way to fund growth (cost of equity greater than cost of financing) • Low relative corporate leverage in Saudi compared to international benchmarks provides scope for growth through bank financing and capital market issuance 8

  9. Saudi Banks – Post Financial Crisis • Effect of the crisis on Saudi banks was very limited • General Implementation of more robust controls • Improved credit assessment and corporate due diligence 9

  10. Potential Growth Drivers • Infrastructure (power, water, transportation) • Housing (affordable low cost units) • SME (potential for growth but with government support through awareness / grants / guarantee) • Innovation and Product Development (alternative investment products to optimize returns) • Development of capital market activity (secondary market for bonds / Sukuks and securitization) • Financial planning solutions such as education financing schemes, retirement plans etc. 10

  11. Challenges Ahead • Geopolitical situation • Continuing low interest rate environment • Limited capacity to grow under current traditional banking 11

  12. THANK YOU

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