Soaring oil prices herald boom in Saudi loans

The war in Europe has left investors scrambling for safety, and in a world of rate hikes and soaring commodity prices, few havens stand out quite like the Kingdom of Saudi Arabia. A currently waning pandemic and rising energy prices have brought the economy back to growth rates not seen in nearly a decade. The new oil price spike will further swell state coffers and ripple through a banking sector in transition.

As the world entered 2022, the Saudi banking sector was awash with optimism. Analysts pointed to strong revenue growth, robust asset quality and a pipeline of government projects that should drive loan growth. Confirmation came in the form of strong financial results for the year as a whole. Al Rajhi Bank – the largest in the country – recently announced an increase in its net income of nearly 40% in 2021 to reach SR 14.74 billion ($3.9 billion). The Saudi National Bank – the second largest – reported net profit up more than 10% to SR12.6 billion. Smaller lenders, which have struggled more during the pandemic, posted even steeper gains. Common factors in the recovery included higher financing and investing income and lower impairment charges for expected losses.

About a month later, even with the outbreak of war in Ukraine and the specter of stagflation, that optimism is largely intact.