Saudi Arabia’s banks are expected to do well in 2024 as potential interest rate cuts lead to corporate loan growth while the lenders’ robust asset quality moderate any downward risks, investment bank and asset manager SNB Capital said in a recent note.
The banking sector has a 2024 price-to-book (P/B) ratio of 1.7x, inline with last 10 years average of 1.6x, the investment bank said.
With the US Federal Reserve turning towards a softer monetary stance, there is an increased focus to identify banks that benefit from rate declines, the report said.
This would usually favour retail focused banks over corporate banks, given lower sensitivity of retail loans to rate change. However, as the strong loan growth of the last few years reduced funding room, the pricing power of banks to lower cost of funds will be reduced.
“Hence, we expect cost of funds to remain generally upward sticky. Overall, we expect the sector’s NIMs (net interest margins) to marginally decline from 3.3% in 2023f to 3.2% in 2024f,” analyst Nauman Khan said.
Source: Zawya
