Banks that more grounded in communities, serving the real economy and leveraging a customer-centric approach are best-positioned to succeed, according to a top financial expert.
Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia, made this observation during the launch of their latest ‘Banking perspectives: Saudi Arabia 2022’ publication, titled “Purpose-led banking.”
The report emphasizes the evolving landscape in the Kingdom’s financial services sector and with a consolidated analysis of the latest available financial performance of the 10 Tadawul-listed banks.
The third edition of this annual flagship publication focuses on the theme of purpose-led banking, encompassing the developing environmental, social and governance (ESG) considerations and customer-centric perspectives that are underpinning boardroom discussions.
The publication covers current themes in the banking industry that the firm’s financial services team has observed segmented into four streams; People-centered banking, Governance and compliance, Transformational technologies, and Enabling excellence – providing perspectives to address current challenges and opportunities.
“Driven in part by the disruptive technologies from outside and within the financial services sector, we see a major sea change to how banks operate in value-based banking,” said Shahab.
Encourage money-saving habits
One of the primary objectives of the Kingdom’s Financial Sector Development Program (FSDP) is to promote and enable financial planning by driving the expansion of savings products, strengthening the savings ecosystem, as well as enhancing financial literacy.
Commercial banks have created new savings products as a response to some of the ambitious targets set by the FSDP which were to increase the total amount held in savings products and increase the variety of savings products.
“Partnerships with communities and local businesses to create sustainable savings programs and development projects, is the future of social banking in Saudi Arabia,” Shahab stated.
Banks will be required to look beyond loans and think of ways to support beneficiaries and the community. For example, banks need to understand their beneficiaries, their needs and business opportunities, partner with them through sustainable funding models. Such purpose-led businesses will be increasingly in demand as organizations gravitate towards sustainable growth.
The publication has further analysed that Saudi Arabia’s banking sector’s results for the first quarter of 2022 (Q1), reflected a sturdy industry performance, highlighting a year-on-year (YoY) increase in net profit by 22.83 percent. Total assets of the banking industry have also increased by 3.75 percent as compared to December 31, 2021.
At the close of 2021, the banking industry showed a resurgence after severe impact of the COVID-19 the pandemic was passed, with an increase in profit of 40.15 percent. Expected credit loss (ECL) charge declined by 11.47 percent year-on-year in Q1 2022.
Meanwhile, total customer deposits reported modest growth of 3.90 percent since December 31, 2021, indicating clearly that the liquidity has not been a challenge to date.
SAMA driving change
“SAMA has been a proponent of change and development in the financial sector, in line with the objectives of FSDP, by taking new players in the financial sector under its wing and embracing a positive attitude towards new technology to usher banking into the future,” commented Khalil Al Sedais, Office Managing Partner – Riyadh at KPMG in Saudi Arabia.
Banks are responding to this shift and to the requirements of the government to achieve greater economic development, while considering the threats and opportunities permeating an evolving technological and risk environment.
With the imminent launch of the SAMA Open Banking framework, with now three open banking FinTechs permitted into its Sandbox, yet another step in the evolution of the banking industry is being set. This will increase demand for cloud solutions as key enabler for both open and digital banking.
“The outlook for the banking sector looks promising, owing to product innovation and conscious efforts on deploying digital solutions for improving efficiencies. Moreover, the entry of the new digital banks that are gearing up for innovative and customer-centric products will bring more liquidity in the banking system and enhance economic activity,” Shahab concluded.