Saudi Arabia: Saudi Arabia’s banking sector continued to outperform its regional counterparts in 2021 with assets growing by a record 10 percent to SR3.3 trillion ($880 billion), said a report by The Banker.

The Banker’s Top 100 Arab Banks ranking showed that Saudi lenders’ combined Tier 1 capital base is higher than any other country in the region.

The ranking was issued for the year 2022 and data used for the listing pertained to 2021.

Tier 1 capital represents the strongest form of capital, consisting of shareholder equity, disclosed reserves, and certain other income. Under the Basel III standards, banks must maintain the equivalent of 6 percent of their risk-weighted assets in Tier 1 capital. This allows them to absorb unexpected losses and continue operating as a going concern.

While higher oil prices helped economic growth in the Kingdom recover to 3.1 percent in 2021, up from a 4.1 percent contraction the previous year, it is the country’s booming mortgage market — fueled by government initiatives to help Saudi nationals acquire property — that continues to boost banks’ balance sheets.

The Saudi National Bank, which ranks 67th in The Banker’s Top 100 World Banks ranking for 2022, has had a stellar year thus far, reporting a near doubling of profits for the second quarter on the back of higher net special commission income and fees.

The Saudi lender’s Tier 1 base stood at $32.6 billion at the end of 2021, putting it ahead of the region’s previous leader Qatar National Bank, whose base grew 2.6 percent to $26.4 billion.

While SNB is likely to remain Saudi Arabia’s largest lender for some time to come — its asset base is nearly 50 percent higher than its closest rival Al Rajhi Bank. SNB is dragged down by lower scores for profitability, asset quality, and return on risk, but comes in first for growth and liquidity, the report said.

HSBC subsidiary Saudi British Bank, which rose two places to eighth position in the Top 100 Arab Banks ranking for 2022, topped Saudi Arabia’s performance rankings for the first time, with table-topping scores for profitability, return on risk, and soundness.

Al Rajhi Bank comes in third in terms of overall performance, with high scores for operational efficiency, growth, and profitability offset by lower marks for leverage and soundness. 

The bank recorded an impressive showing in this year’s main ranking, with a 20.8 percent rise in Tier 1 capital and a 33 percent jump in assets — the largest organic growth figures in this year’s top 10.

Al Rajhi also scores highest in terms of return on capital out of the six largest Arab banks for the fourth consecutive year. Its ROC stood at 21.01 percent for the year, well ahead of the 15.16 percent recorded by First Abu Dhabi Bank in the second position.

Al Rajhi’s 39.2 percent increase in pre-tax profits was only bettered by Capital Bank of Jordan (which registered an 86.1 percent rise) among Arab lenders with a ROC of 15 percent and above.

Mergers and acquisitions

The report predicted mergers and acquisitions to slow down. It said the “merger that produced SNB looks set to represent the culmination of the latest wave of high-profile deals that have created a new class of mega-lender across the Arab world. 

“Aside from the creation of SNB, the standout deal of 2021 was the $45 billion merger of Qatar’s Masraf Al Rayan and smaller domestic rival Al Khalij Commercial Bank, completed in December.”

As a result of the merger, Masraf Al Rayan’s Tier 1 capital position increased by 56.6 percent to $5.7 billion, the largest increase of any major lender in the annual rankings, and saw it overtake Commercial Bank of Qatar to become the country’s third-largest lender by assets behind Qatar National Bank and Qatar Islamic Bank.

Masraf Al Rayan gained 13 places in this year’s rankings, more than any other major lender, rising to the 18th spot.