Al-Rajhi Financial for Arabia: 3 variables that make Saudi banks among the best sectors

A report by Al Rajhi Capital predicted that real estate loans in the Kingdom will continue to grow questyear, especially during the first half of quest’year.

The report added that Al-Rajhi, Al-Jazira and Al-Bilad banks have the greatest exposure to home loans and are the biggest beneficiaries of the increased volume of these loans.

The report predicted a growth of loans to the corporate sector of 5 to 6% questyear, suggesting that the National Bank of Saudi Arabia and SABB Bank would benefit from it over other banks.

Mazen Al-Sudairi, head of research at Al-Rajhi Capital, said the banks in the Kingdom questyears have 3 variables that make them a favorite industry, and these variables are the growth of home loans, business loans and high interest rates.

Benefit

Al-Sudairi added to Al-Arabiya that if interest rates were raised by 150 basis points, that would mean a net profit of 1.5 billion riyals for Saudi companies.

He added that the banks will increase their profitability with the support of the interest rate hike of 7.8 billion riyals, while the non-financial corporations sector will increase the cost by 6.3 billion riyals, equal to 1, 3% of profits in 2021, and if Aramco is excluded from the calculation, it will be 4% of the expected profit.

Al-Sudairy explained that the impact of the interest rate hike will be positive in favor of the market, as the profits of the banking sector will outweigh the negative impact on non-financial corporations.

He said the sectors most affected by negative inflation are the retail and food sectors.

He stressed that the focus will be on industries that can pass inflation on to the last consumer, as the banking sector will benefit, the petrochemical sector and some real estate sectors, and the medical industry sector will have good surprises.

As for the retail sector, there are several factors that will affect it, according to Al-Sudairy: global supply is low, inflation is high, and consumer behavior of individuals has changed, so there is the spending on real estate loans and entertainment, and this will put pressure on the retail sector.

He pointed out that in the case in which mortgages in Saudi Arabia decrease from 300,000 contracts worth 12 billion riyals to 180,000 contracts quest’year, the mortgage will become monthly at around 7.2 billion riyals and with two expectations that the Saudi government will stop taking in loan, the banks can move to issue sukuk or increase the loans between them.

oil

Al-Sudairy indicated that we do not have a clear price of oil, but there is an indicator, which are the reserves of OECD countries for global consumption, the pressure on display.

He said savvy companies are constantly revising their expectations for oil prices, but the media global is 72 dollars a barrel.

He pointed out that well erosion is between 12 and 17 million barrels and therefore requires high expenditure, and so far there is no clear picture of the spending of international companies.

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