The Saudi Central Bank’s 50 billion Saudi riyals ($13bn) support package for the kingdom’s lenders is expected to ease their near-term liquidity needs and help boost lending, according to a new report from S&P Global Ratings.
Banks need private and public sector deposits to continue growing and expand their lending book, the report said.
Overall, the kingdom’s “banking system continues to be in a net external asset position, underpinning our view of the strength of the system's funding profile”, it added.
Lenders in Saudi Arabia have continued to perform well this year as oil prices have risen and the kingdom recovers from the coronavirus pandemic.
Saudi National Bank, the kingdom's largest lender by assets, reported a 32 per cent jump in its first-quarter profit as a result of higher operating income. Other banks also reported higher profits.
The Arab world's largest economy grew 9.9 per cent in the first quarter of 2022 to record the highest rate of growth in the last 10 years amid increased activity in the oil sector, the latest government data shows.
Banks in the kingdom expanded by about 15 per cent in 2020-2021 due to mortgages, consumer loans and lending to small and medium enterprises, and the trend is expected to continue in 2022-23 with lending “expanding by 10 to 12 per cent”, S&P said.
“This time, we anticipate that the expansion would be fuelled by corporate lending, as Vision 2030 projects take off, and mortgages, although to a lesser extent, as the market progressively becomes saturated,” S&P said.
“We assume that a large portion of this growth will be financed by an increase in customer deposits.”
The kingdom is diversifying its economy and is boosting spending on infrastructure and real estate projects. including the development of the $500 billion futuristic city Neom and a number of other tourism megaprojects.
Banks in Saudi Arabia are also expected to benefit from interest rate rises this year, as they record an increase in profit and register a potential shift from demand deposits to savings accounts, S&P said in April.
For every increase in the benchmark interest rate of 100 basis points, lenders in the kingdom are expected to record a rise in net profit of 13 per cent and return on equity of 1.5 percentage points, it said.
Earlier this month, the central banks of the UAE, Saudi Arabia, Bahrain, Kuwait and Qatar increased their benchmark borrowing rates in line with the US Federal Reserve's decision to raise its key interest rate to control spiralling inflation.
Most central banks in the GCC follow policy rate moves by the Fed because of the peg of their currencies to the US dollar.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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UAE currency: the story behind the money in your pockets
The biog
Name: Fareed Lafta
Age: 40
From: Baghdad, Iraq
Mission: Promote world peace
Favourite poet: Al Mutanabbi
Role models: His parents
Chatham House Rule
A mark of Chatham House’s influence 100 years on since its founding, was Moscow’s formal declaration last month that it was an “undesirable
organisation”.
The depth of knowledge and academics that it drew on
following the Ukraine invasion had broadcast Mr Putin’s chicanery.
The institute is more used to accommodating world leaders,
with Nelson Mandela, Margaret Thatcher among those helping it provide
authoritative commentary on world events.
Chatham House was formally founded as the Royal Institute of
International Affairs following the peace conferences of World War One. Its
founder, Lionel Curtis, wanted a more scientific examination of international affairs
with a transparent exchange of information and ideas.
That arena of debate and analysis was enhanced by the “Chatham
House Rule” states that the contents of any meeting can be discussed outside Chatham
House but no mention can be made identifying individuals who commented.
This has enabled some candid exchanges on difficult subjects
allowing a greater degree of free speech from high-ranking figures.
These meetings are highly valued, so much so that
ambassadors reported them in secret diplomatic cables that – when they were
revealed in the Wikileaks reporting – were thus found to have broken the rule. However,
most speeches are held on the record.
Its research and debate has offered fresh ideas to
policymakers enabling them to more coherently address troubling issues from climate
change to health and food security.
A little about CVRL
Founded in 1985 by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, the Central Veterinary Research Laboratory (CVRL) is a government diagnostic centre that provides testing and research facilities to the UAE and neighbouring countries.
One of its main goals is to provide permanent treatment solutions for veterinary related diseases.
The taxidermy centre was established 12 years ago and is headed by Dr Ulrich Wernery.
