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Middle EastApril 28 2022

SABB targets SME growth as economy recovers

SABB’s CEO talks to John Everington about the impact of higher interest rates, the bank’s digital ambitions and how it plans to increase its foothold in Saudi Arabia’s retail market.
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SABB targets SME growth as economy recovers

SABB is Saudi Arabia’s fourth largest lender by assets. The bank, a subsidiary of HSBC, returned to profit in 2021 after a SR7.4bn ($1.97bn) impairment of goodwill charge in its 2020 results.

Tony Cripps joined SABB in May 2021 as the bank’s CEO, having previously served as HSBC group general manager and as CEO of HSBC Singapore. He spoke to The Banker about the impact of higher interest rates, the bank’s digital ambitions and how it plans to increase its foothold in Saudi Arabia’s retail market.

Q: How does the rise in oil prices since late February affect the outlook for Saudi Arabia’s economy and banking sector?

A: Even when oil prices were around the $75 per barrel mark [in December] we held a very positive outlook for the economy in 2022 as the impact of Covid-19 subsides. As a group we haven’t upgraded our outlook, as markets and geopolitics remain volatile. Clearly the subsequent rise in prices gives the government the option of increasing spending on infrastructure or elsewhere.

From a credit point of view we think that the impact of higher prices will be fairly benign, given the strong economic growth we’ve already been seeing so far this year.

Q: The Saudi Central Bank raised interest rates in line with the Federal Reserve in March, with further rate rises forecast for May and June. How will such rate rises affect Saudi lenders?

A: Higher interest rates will affect banks in different ways. Lenders that have high fixed-rate loan books will experience more margin compression, more so than banks such as ourselves that hold more floating rate loans concentrated in the corporate market. SABB has a conservative balance sheet that is not excessively leveraged, with more deposits than loans. We saw margins narrowing during the zero rate policy adopted by central banks globally during Covid-19. As rates rise that should reverse and have a positive impact on our net interest margins.

As well as maintaining our very strong position in institutional corporate banking, our plan is to invest more in our retail franchise

Q: What is the outlook for asset quality in 2022/3?

A: We saw an increase in non-performing loans [NPLs] in the fourth quarter of last year, but this was a very name-specific phenomenon and didn’t represent a wider market trend. For the year ahead NPLs are set to be fairly benign, in line with an increasingly robust economy. There’s set to be a lower level of debt required for the giga-projects underway as government revenues rise, and as those projects accelerate the impact will feed through into a stronger economy.

Q: SABB’s strength has traditionally been in the corporate market. How is your strategy likely to evolve in the coming years?

A: We announced our five-year plan in May last year. As well as maintaining our very strong position in institutional corporate banking, our plan is to invest more in our retail franchise. This is something that has already begun and has already borne fruit in our results for 2021.

We’re also focusing more on the small and medium-sized [SME] segment, which is a relatively new area for us. The government wants to significantly increase the SME sector’s contribution to the economy as part of Vision 2030. So we’re very focused on delivering in this sector as part of our five-year plan.

Q: How has SABB’s digital strategy evolved since the beginning of the pandemic?

A: It’s no surprise that everyone’s digital penetration increased significantly during the pandemic, ours included. On the retail side, our digital penetration has risen to around 85%. On the transaction side, our HSBCnet platform processes 50% of e-commerce transactions in the economy, so we play a major role in connecting a growing number of digital players to the market.

Our approach is to have an open architecture that businesses and fintechs can connect to, as well as the new generation of digital banks that are set to launch. These new players may offer some of the things we already provide, such as deposits and unsecured lending, but may not be able to provide the full range of services that a fully licensed bank can provide with the necessary compliance infrastructure in place. So many of the new digital players will be looking for embedded financial solutions, and that’s where we have this open architecture that can provide some back-end solutions through to the digital players.

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Read more about:  Middle East , Saudi Arabia
John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
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