Saudi Islamic banks positioned for robust growth amidst economic expansion: Fitch Ratings 

According to the report, Islamic banks demonstrate a better impaired financing ratio compared to conventional banks. Shutterstock
Short Url
Updated 26 June 2024
Follow

Saudi Islamic banks positioned for robust growth amidst economic expansion: Fitch Ratings 

RIYADH: Saudi Islamic banks are poised to maintain a robust performance this year and in 2025, buoyed by non-oil economic growth and favorable operating conditions, a new report stated. 

According to Fitch Ratings, these banks leverage a substantial retail customer base which helps improve profitability, secure lower-cost funds, and maintain high-quality, diversified assets. 

In the Kingdom, where all residential mortgages must comply with Islamic law, strong demand for Shariah-compliant financial products leads individuals to Islamic banks for mortgages and other services, thereby increasing deposits. 

“In general, financing growth has outpaced lending over the past few years, supported by the requirement for residential mortgages to all be Shariah-compliant. Islamic banking is dominant in Saudi Arabia, with the largest proportion of Islamic financing (85 percent) of any country that allows conventional banks to operate alongside Islamic banks,” the agency added. 

Customers’ trust in Islamic banking principles further encourages them to deposit funds in banks that uphold these values. Additionally, mandatory Shariah compliance for mortgages also solidifies Islamic banks as the preferred option for such financing. 

Asset quality 

According to the report, Islamic banks demonstrate a better impaired financing ratio compared to conventional banks, attributed to their lower exposure to risky corporate financing. This ratio stood at 1.5 percent for Islamic banks, contrasting with slightly over 2 percent for conventional banks. 

Islamic banks also improved their impaired financing ratio from 1.7 percent in 2022 to 1.5 percent in 2023, indicating enhanced loan performance.

This progress was bolstered by robust financing growth, which facilitated portfolio diversification and reduced overall risk. Favorable economic and regulatory conditions further supported these gains, leading to better borrower performance and reduced default rates.   

This key financial metric, also referred to as the non-performing financing ratio, is used to evaluate the quality of loans within banks or financial institutions. It specifically measures the proportion of loans that are experiencing difficulties or are at risk of default. 

Profitability 

According to the agency, Islamic banks show higher profitability with operating profit relative to risk-weighted assets exceeding 3 percent, compared to approximately 2.5 percent for conventional banks. 

In 2023, sector profitability remained stable at high levels, despite facing increased funding costs that offset the benefits from credit growth and reduced impairment charges. 

Islamic banks stood out with profit exceeding that of conventional banks, largely due to their ability to maintain higher margins supported by lower funding costs. 

This advantage stemmed from their strong retail franchises, which attracted a larger base of non-profit-bearing deposits compared to conventional banks. These stable and cost-effective funding sources allowed Islamic banks to sustain profitability levels above their counterparts, highlighting their resilience in a challenging financial environment. 




Fitch Ratings produced the report analyzing the Saudi Islamic banking sector. Shutterstock

Capital levels 

Islamic banks maintained a strong capitalization with an average common equity Tier 1 ratio of 16.4 percent as of the end of 2023, closely aligned with conventional banks’ ratio of 16.6 percent. 

This ratio indicates robust core equity capital relative to risk-weighted assets, ensuring solid financial stability. Additionally, Islamic banks’ lower risk-weighted assets to total assets ratio of 70 percent — compared to 84 percent for conventional banks — reflects a strategic emphasis on retail banking and reduced off-balance-sheet activities. 

These factors collectively enhance Islamic banks’ resilience by minimizing risk exposure and supporting sustainable growth amid challenging financial conditions.   

Conventional banks’ capital adequacy ratio, which measures their financial health by comparing capital, including equity and reserves, to risk-weighted assets, ensuring sufficient capital to absorb potential losses, stood at around 20 percent, similar to Islamic banks. 




Al Rajhi Banking stands out by having a more diversified retail deposit base than other institutions. Shutterstock

Funding and liquidity 

As of the end of 2023, customer deposits constituted 80 percent of the funding for Islamic banks, slightly less than the 84 percent observed for conventional banks, the agency noted in its report. 

Islamic banks saw their average financing-to-deposits ratio rise to 102 percent, up from 99 percent in 2022, indicating that their financing activities grew faster than their deposit base. 

Fitch Ratings noted that deposit concentration, where a substantial proportion of a bank’s deposits originates from a limited number of depositors or sources, tends to be prevalent among Islamic banks.

However, Al Rajhi Banking and Investment Corp. stands out due to its advantage of having a more diversified retail deposit base. 

Despite challenging financial conditions, Islamic banks have effectively managed liquidity, supported by increased availability of government sukuk and liquidity-management tools provided by the central bank.   

These measures ensure that Islamic banks maintain adequate liquidity levels to meet their financial obligations and operate smoothly amidst fluctuating market conditions. 

According to another June report from the agency focusing on emerging markets debt, Saudi Arabia is actively working to expand and strengthen its sukuk and debt markets. 

This strategic initiative is primarily motivated by the Kingdom’s need to address budget deficits effectively. By deepening these markets, Saudi Arabia aims to not only raise essential funds to bridge fiscal gaps but also to foster greater liquidity and diversification within its financial sector. 

This approach not only supports the government’s financial planning and infrastructure development goals but also strengthens the overall resilience and attractiveness of the Kingdom’s capital markets on a global scale. 

Saudi Arabia’s sukuk and debt capital market have demonstrated robust growth, with annual increases of 7.9 percent overall and 9.6 percent for unlisted issuances, as reported by the Capital Markets Authority in the same month. 

The market size for unlisted sukuk and debt expanded from SR72 billion ($19 billion) in 2019 to approximately SR105 billion by 2023. Corporate sukuk and debt reached SR125 billion by 2023, up from SR95 billion in 2019, with the number of issuing companies tripling. 

Government contributions dominated, comprising 70 percent of the market at SR529.8 billion by 2023. Market activity surged, with traded value hitting SR2.5 billion and transactions rising to 36,961. 

The Capital Market Authority aims to enhance market attractiveness through regulatory improvements and infrastructure expansions, supporting economic diversification and international investor interest in Saudi Arabia. 

According to Fitch Ratings, in 2024, GCC countries, Malaysia, Indonesia, and Turkiye have significantly increased their issuance of US dollar-denominated debt within emerging markets, collectively accounting for 51 percent of total EM dollar debt, up from 43.7 percent in 2023 and 32.8 percent in 2020. 

This rise reflects governmental efforts to develop debt capital markets, diversify funding sources, finance fiscal deficits, and manage maturing debts. Sukuk, a pivotal Islamic financing tool, comprised 12.4 percent of EM dollar debt issuance during this period. 

Their inclusion in global bond indices has bolstered demand from international investors, prompting Fitch to upgrade ratings for several countries due to improved fiscal outlooks and investor-friendly policies. 

Outlook 

In Fitch Ratings’ outlook for 2024 and 2025, Saudi Islamic banks are anticipated to maintain robust standalone credit profiles. 

This strength is bolstered by high oil prices and favorable operating conditions. However, strong credit growth is expected to exert pressure on banks’ capital, funding, and liquidity positions. 

To mitigate these pressures, Islamic banks are likely to diversify their funding sources beyond traditional deposits. This diversification includes increasing reliance on wholesale funding options such as sukuk issuance, which are expected to play a larger role in their funding mix. 

Despite this shift, deposits are anticipated to remain the primary and most stable source of funding for Islamic banks. Overall, while facing challenges related to capital, funding, and liquidity, Saudi Islamic banks are poised to uphold strong credit profiles supported by favorable economic conditions and strategic funding diversification efforts. 


Riyadh Air signs 11 deals to boost global reach and promote Saudi culture and hospitality

Updated 01 May 2025
Follow

Riyadh Air signs 11 deals to boost global reach and promote Saudi culture and hospitality

  • The airline, which is preparing to begin operations, plans to connect with more than 100 cities by 2030 and contribute $20bn to the Kingdom’s economy between now and then
  • Senior VP Osamah Al-Nuaiser said the deals will help deliver exceptional travel experiences across Europe, Africa, the Middle East, Asia, Australia and New Zealand

JEDDAH: New Saudi airline Riyadh Air signed 11 strategic agreements this week it said will expand its global footprint, elevate the travel experience, and help promote the Kingdom’s culture and hospitality.

The deals, finalized during the Arabian Travel Market in Dubai, which began on Monday and concluded on Thursday, involve sales and distribution service providers in more than 125 countries.

Riyadh Air, which is owned by Saudi Arabia’s Public Investment Fund, aims to connect with more than 100 international cities by 2030, and contribute more than $20 billion to the Kingdom’s economy between now and then, the Saudi Press Agency reported on Thursday.

The airline said it plans to enhance the travel experience by leveraging digital technologies to streamline bookings and airport procedures, thereby catering to the country’s young, tech-savvy population, as previously highlighted by CEO Tony Douglas.

Osamah Al-Nuaiser, senior vice president of marketing and corporate communications at Riyadh Air, said the agreements signed this week reflect the airline’s commitment to becoming a global leader in aviation.

They are designed to build long-term, mutually beneficial relationships that help deliver exceptional travel experiences across Europe, Africa, the Middle East, Asia, Australia and New Zealand, he added.

As authorities in the Kingdom continue to invest billions into massive development projects as they work to diversify the national economy and reduce its reliance on hydrocarbons, one of their goals is to gain a larger share of the global travel market, including business travel.

Riyadh Air received approval from the Kingdom’s General Authority of Civil Aviation in April to begin flight operations. It was granted its Air Operator Certificate after fulfilling all regulatory, safety, and operational requirements, marking a key milestone in the run-up to the official launch of commercial flights.

Riyadh Air said the flexibility offered by the adoption of the most modern technologies, free from the constraints of legacy systems, will enable the airline to innovate with agility and offer seamless booking, distribution and other services across its global network.

Douglas said recently that the startup is ready to purchase Boeing aircraft originally ordered by Chinese airlines, should they become available as a result of the escalating US-China trade dispute.

The fledgling airline has also placed major orders of its own with manufacturers, including a deal in October last year for 60 narrow-body A321-family jets from Airbus, and another in March 2023 for up to 72 Boeing 787 Dreamliners.


PIF announces pricing of $1.25 billion international sukuk offering

Updated 01 May 2025
Follow

PIF announces pricing of $1.25 billion international sukuk offering

  • The sukuk will be listed on the London Stock Exchange’s International Securities Market
  • PIF’s Ahmed Alrobayan said: ‘The strong investor demand for this new sukuk offering underscores PIF’s robust credit profile’

RIYADH: The Public Investment Fund on Thursday announced the pricing of a $1.25 billion sukuk offering, with the proceeds of the dollar-denominated offering to be used for PIF’s general corporate purposes.
The seven-year sukuk was more than 6.5 times oversubscribed, with orders exceeding $9 billion, according to a media statement.
The sukuk will be listed on the London Stock Exchange’s International Securities Market as part of PIF’s international sukuk issuance program.
Ahmed Alrobayan, head of public markets, global capital finance, at PIF, said: “The strong investor demand for this new sukuk offering underscores PIF’s robust credit profile, along with its role as a key driver of Saudi Arabia’s economic transformation.”
The transaction represents a continuation of the established and diversified financing strategy, which draws strong support from international investors, Alrobayan said.
PIF’s long-term capital-raising strategy includes a diverse range of instruments, including sukuk and bond programs.
PIF has completed its inaugural murabaha credit facility since earlier this year, and last August renewed a revolving credit facility.
PIF is rated Aa3 by Moody’s with a stable outlook, and A+ by Fitch, also with a stable outlook.


Qassim region sees 25% growth in business sector over 7 years: Ministry of Commerce

Updated 01 May 2025
Follow

Qassim region sees 25% growth in business sector over 7 years: Ministry of Commerce

JEDDAH: Saudi Arabia’s Qassim region has experienced 25 percent growth in its business sector over the past seven years, reflecting increased economic activity and contributing to the Kingdom’s goal of balanced development.

The number of commercial records in the central region rose from 68,000 in 2018 to 85,000 by the end of the first quarter of this year, the Ministry of Commerce reported in a post on its official X account.

The latest figures showed that the Qassim region saw 1,342 e-commerce registrations, contributing to the overall 6 percent year-on-year increase in the sector.

The increase comes as the Kingdom pushes ahead with its economic diversification strategy, aiming to increase the private sector’s share of the gross domestic product from 40 percent to 65 percent by 2030.

This effort is reflected in a 60 percent increase in commercial registrations in 2024 across the Kingdom, with a total of 521,969 records issued, according to the Ministry of Commerce.

Business registrations continued to rise in early 2025, with 154,638 commercial records issued in the first quarter alone, representing a 48 percent year-on-year increase.

The ministry report highlighted “critical sectors” for the Kingdom include technology, tourism, and entertainment, as well as research and development.

The report added: “These sectors offer businesses significant opportunities to grow and expand partnerships.”

According to the Ministry of Commerce, a commercial registration certificate verifies a business’s official status within Saudi Arabia. These records are essential for operating in the Kingdom, as they are required to open a bank account, hire employees, sign contracts, and conduct other business activities.

The data also showed that 71 percent of the total commercial records issued were concentrated in three key regions: Riyadh, Makkah, and the Eastern Province.

This surge in registrations aligns with recent reforms to Saudi Arabia’s business registration system, including the introduction of the new Commercial Register Law and Trade Names Law.

Subsidiary registers have also been abolished, meaning that one commercial register now covers all businesses, and companies no longer need to specify the city of registration, as a single enrollment is now valid nationwide.

The bulletin also revealed that 45 percent of the total commercial records issued to institutions are owned by women.

In an interview with Arab News in April on the sidelines of the Human Capability Initiative held in the capital, Zeger Degraeve, dean of Prince Mohammed Bin Salman College of Business & Entrepreneurship, emphasized that ensuring balanced regional development is crucial as Saudi Arabia accelerates its economic diversification efforts under Vision 2030.

The rise in business registrations in Qassim is aligning with its growing industrial sector, supported by its rich mineral resources, which are a key focus of Saudi Arabia’s Vision 2030 diversification plan.

The region’s SR122 billion ($32.5 billion) in untapped mineral wealth, including significant deposits of gold, copper, zinc, and phosphate, contributes to the area’s industrial development, which has seen substantial growth.


Closing Bell: Saudi main index closes in red at 11,543  

Updated 01 May 2025
Follow

Closing Bell: Saudi main index closes in red at 11,543  

RIYADH: Saudi Arabia’s Tadawul All Share Index dipped on Thursday, losing 127.90 points, or 1.10 percent, to close at 11,543.67.  

The total trading turnover of the benchmark index was SR5.09 billion ($1.35 billion), as 52 stocks advanced, while 193 retreated.  

The MSCI Tadawul Index decreased by 16.97 points, or 1.14 percent, to close at 1,471.91. 

The Kingdom’s parallel market Nomu also dipped, losing 147.4 points, or 0.52 percent, to close at 28,129.77. This came as 32 stocks rose, while 41 fell. 

The best-performing stock on the main index was Saudi Printing and Packaging Co., with its share price surging by 6.18 percent to SR13.06.  

Saudi Cement Co. saw the steepest decline on the main index in Thursday’s session, with its share price slipping 5.75 percent to SR43.40.  

In a bourse filing, Banque Saudi Fransi announced that it has completed its $650 million offering of US dollar-denominated Additional Tier 1 capital notes.  

The issuance, conducted under the bank’s Additional Tier 1 Capital Note Programme, was offered to eligible investors in Saudi Arabia and internationally, with settlement set for May 7.  

The notes were issued at a return of 6.375 percent per annum and are perpetual in nature, with a call option exercisable after six years. A total of 3,250 notes were issued, each with a par value of $200,000. 

According to the bank, the instruments may be redeemed prior to the scheduled call date under certain conditions outlined in the base offering circular.  

The notes will be listed on the International Securities Market of the London Stock Exchange and were offered in reliance on Regulation S under the US Securities Act of 1933, as amended. 

The bank’s share price traded 0.54 percent lower on the main market to reach SR18.30.

Halwani Bros. Co. also announced its interim financial results for the first three months of the year, with net profit amounting to SR11.51 million, a 4.58 percent decline compared to the previous quarter last year.  

The company attributed the decrease to higher general and administrative expenses, as well as increased selling and distribution costs. It also said that this was due to an increase in other income as a result of the reversal of provisions that are no longer needed.  

Halwani Bros. Co’s share price traded 0.52 percent lower on the main market to reach SR47.95.  

In the first quarter of 2025, Fourth Milling Co’s net profit rose 25.154 percent quarter on quarter to SR52.6 million, according to a filing on the stock exchange.  

The group attributed the increase to sales growing by 2 percent, amounting to an increase of SR3.4 million, and zakat and tax payments decreasing by SR1.4 million.  

The company’s share price traded 0.25 percent lower on the main market to reach SR3.97.  

Saudi Steel Pipe Co. also announced its interim financial results for the first three months of the year, with net profit amounting to SR69 million, an 81.57 percent surge compared to the previous quarter.  

The company attributed the increase to higher volume, improved efficiency and product mix of products sold, and administrative expenses decreased to SR14 million in the first quarter 2025 from SR19 million in the fourth 2024. 

The company’s share price traded 0.18 percent higher on the main market to reach SR56.10. 


Arab Monetary Fund reports 4.3% annual gains across region’s stock markets

Updated 01 May 2025
Follow

Arab Monetary Fund reports 4.3% annual gains across region’s stock markets

RIYADH: Stock markets across the Middle East and North Africa began 2025 on a strong note, with the Arab Monetary Fund Composite Index rising 4.37 percent year over year, according to a new report.

On a quarterly basis, the index — which tracks the performance of 16 Arab stock markets— posted a 1.55 percent increase, reflecting investor confidence amid shifting global monetary policy and geopolitical headwinds.

The figures were released as part of the AMF’s quarterly bulletin, which noted that sectors such as banking, real estate, and basic materials, as well as transportation, and financial services performed well, contributing to gains in several markets. 

The strong performance comes amid reforms across Arab markets to deepen liquidity and attract foreign investment. Saudi Arabia’s Capital Market Authority is advancing its 2024-2026 strategy to elevate its global market position and enhance investor safeguards, while Abu Dhabi Securities Exchange recently launched the “New ADX Group”— a market infrastructure overhaul aligned with the emirate’s long-term economic vision. 

In its report, the AMF said: “This performance unfolded amid a tightening global monetary policy environment during the first quarter of 2025, as most central banks, both globally and across the Arab region, adopted a cautious approach to monetary easing following the US Federal Reserve’s decision to keep interest rates steady.”

The fund highlighted that while some Arab exchanges saw notable gains, others experienced declines. 

Casablanca Stock Exchange led the region with a 20.19 percent rise in its index, driven by strong performances in the banking and telecommunications sectors. 

Tunisia and Kuwait followed with increases of 10.25 percent and 9.66 percent, respectively, while Egyptian Exchange and Amman Stock Exchange posted gains of 7.68 percent and 6.12 percent.

However, not all markets fared as well. Saudi Stock Exchange, the largest in the region by market capitalization, saw a slight decline of 0.10 percent, while Abu Dhabi Securities Market and Palestine Exchange recorded drops of 0.53 percent and 0.46 percent, respectively. 

Beirut Stock Exchange faced the steepest decline, plummeting by 12.69 percent, attributed to ongoing economic challenges in Lebanon.

Despite Lebanon’s ongoing economic crisis since 2019, recent data from the Central Administration of Statistics shows signs of easing inflationary pressures. 

The annual inflation rate dropped sharply to 14.2 percent in March, down from 70.36 percent a year earlier — a notable improvement attributed largely to the stabilization of the Lebanese pound, which has held steady at approximately 89,500 Lebanese pounds per US dollar since mid-2023.

Casablanca Stock Exchange led the rises across the region. Shutterstock

Market capitalization and trading activity 

The total market capitalization of Arab stock markets decreased by 1.45 percent in the first quarter of 2025, reaching $4.32 trillion, down by $63.77 billion compared to the last quarter of 2024. 

This decline was primarily due to significant losses in the Abu Dhabi and Saudi markets, which shed $18.23 billion and $75.06 billion, respectively.

In contrast, Casablanca Stock Exchange added $21.26 billion to its market value, while Kuwait Stock Exchange saw an increase of $13.77 billion. 

Trading values also reflected this mixed performance. Total trading value across Arab markets fell by 2.60 percent to $250.53 billion.  

Kuwait Stock Exchange stood out with a 45.09 percent surge in trading value, reaching $21.95 billion. This strong performance builds on 2024’s momentum, when 113 out of 142 listed companies reported profits, as highlighted in an Al-Shall Consulting report.

Meanwhile, Abu Dhabi Securities Market saw a 31 percent drop in trading value.

Sectoral performance and global influences 

Global factors played a significant role in shaping market trends, with sectors scuh as insurance, consumer services, and media faced declines. “The cautious monetary policies of most global and Arab central banks, following the US Federal Reserve’s decision to stabilize interest rates, positively impacted lending and financing stability,” the study stated. 

However, it also warned that “the escalation of US trade policies, including new tariffs, has raised concerns about slowing international trade and rising production costs, which could directly affect global growth expectations, inflation rates, and investor confidence.”

Geopolitical tensions and fluctuations in oil prices further influenced market dynamics. “Oil prices experienced significant volatility during the first quarter of 2025 due to escalating geopolitical tensions and increased production from some countries, impacting markets closely tied to oil and affecting liquidity and the performance of the energy sector,” the AMF explained.

Individual market highlights 

Saudi Stock Exchange is the largest in the region by market capitalization. Bloomberg

Saudi Stock Exchange, which accounts for 61.13 percent of the total market capitalization of Arab exchanges, saw its value drop to $2.64 trillion. The media and utilities sectors were among the worst performers, declining by 31 percent and 13 percent, respectively.

Despite the recent dip, Saudi Arabia’s capital markets remain a regional powerhouse.

Speaking at February’s Capital Markets Forum in Riyadh, Saudi Exchange CEO Mohammed Al-Rumaih said:  “2024 was a great year for us. We did more than 55 listings; around 45 in the equity market, 13 on the main market, which doubled compared to 2023, and the rest in the parallel market. It put us as No.1 not just in the region, but globally as the fastest-growing exchange in the world.”

Egyptian Exchange rose by 7.68 percent, with trading volumes surging by 27.28 percent, reflecting renewed investor confidence.  

Kuwait Stock Exchange outperformed other Gulf markets, with its index climbing 9.66 percent, supported by robust activity in the banking sector. 

Casablanca Stock Exchange’s 20.19 percent jump was fueled by gains in electricity, mining, and telecom stocks, with firms like Attijariwafa Bank and Maroc Telecom leading the charge.  

Risks and outlook 

The report cautioned that several risks could destabilize Arab and global markets in the coming months.

“Potential risks include trade-related pressures linked to tariffs, a possible global economic slowdown, rising inflation, fluctuations in oil prices, high debt levels in some Arab economies, and geopolitical tensions,” it stated.

Despite the relative stability of Arab exchanges in the inaugural quarter of 2025, these factors could pose challenges to future performance. 

The AMF also emphasized the importance of continued cooperation among Arab markets to enhance integration and support economic growth in the region. 

“The Fund hopes that these efforts will contribute to developing cooperation and integration among Arab financial markets, serving common interests and promoting economic growth in the Arab region,” the analysis concluded.