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Saudi Economic Outlook & Banking Beyond the Crisis Continued

King Fahd University Of Petroleum & Minerals December 2010. Saudi Economic Outlook & Banking Beyond the Crisis Continued. Said A. Al-Shaikh National Commercial Bank. Outline. Global Economic Update Saudi Arabia Economic Outlook Budgetary Developments & Fiscal Policy

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Saudi Economic Outlook & Banking Beyond the Crisis Continued

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  1. King Fahd University Of Petroleum & Minerals December 2010 Saudi EconomicOutlook & Banking Beyond the CrisisContinued Said A. Al-Shaikh National Commercial Bank

  2. Outline • Global Economic Update • Saudi Arabia Economic Outlook • Budgetary Developments & Fiscal Policy • Economic Growth Forecasts & Megaprojects • Inflation & Monetary Policy • Banking & Financial Markets

  3. Inflation & Monetary Policy

  4. Inflation is expected to remain elevated above historical rates, as government stimulus, housing demand and recovery in global commodity prices will drive local prices higher Sources: SAMA

  5. Retiring of public debt and accelerating of government expenditure on rising oil earnings inflows besides FDI and external debt inflows contributed to booming credit in the period 2004-2008 Sources: UNCTAD, WEO, IIF

  6. To curb inflation, SAMA increased reserve requirements and issued T-bills that came along with bidding for currency revaluation. Emerging global financial crisis forced a reversal in flows widening spread temporarily, not before reversing early decisions Sources: SAMA and Thomson Reuters

  7. Banking & Financial Markets

  8. Saudi Banking Assets grew rapidly in line with faster economic growth over the recent period with Assets to GDP ratio reaching nearly 90% in 2009, indicating broader access to bank financing

  9. Owing to robust economy, total deposits and loans showed strong growth over 2004-2008, as loans to deposits ratio reached its peak at 84% in 2008, but loans contracted in 2009 due to financial crisis 

  10. Credit to private sector decelerated in 2009 as banks became more cautious and companies delayed their expansion plans, yet signs of recovery are emerging in 2010 Sources: SAMA

  11. Non-performing loans to total loans improved from 4.7% in 2003 to 1.4% in 2008, but deteriorated due to financial crisis and rose to 3.5% in 2009, as the coverage ratio worsened, falling from 171% in 2006 to 90% in 2009

  12. Excess bank’s deposits and net foreign assets rose sharply in 2009 as banks became more risk averse, however providing banks with more liquidity resources to deploy in 2010 and beyond Sources: SAMA

  13. Due to the crisis cost to income ratio reached 34% in 2008 compared with 26% in 2006, but cost control contributed to slight improvement in 2009 to 33.7%, and improvement is expected to continue

  14. Banking sector depends on net special commission income (72.5%), and despite slowdown in activity it rose 5.5% in 2009, while banking fees and exchange income decreased 8.4% and 8.6%, respectively

  15. Despite continued sizable provisions since the 4Q 2008, due to deteriorating investment and loan portfolios, Saudi banks remained profitable and well capitalized

  16. With declining profits on deteriorating asset quality and rising provisions, return on average assets and average equity declined to 2% and 15.5% in 2009, respectively, but banks remain well capitalized with Capital Adequacy Ratio above 16%

  17. Saudi Stock Market Index performance is still divergent from the strong macro fundamentals and robust corporate profitability, and remains largely influenced by international developments Sources: Tadawul

  18. Equity financing through IPO’s as well as debt issuances lost attractiveness due to risk aversion and higher cost of funding, yet improving recently, and expected to improve further in 2011. * Announced Sources: IFIS and Tadawul

  19. Thank you

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