SAIB’s financial capital is comprised of the monetary assets that include customer deposits, funds from investment activities, and shareholders’ funds. The Bank utilises these assets to conduct its operations and offer its products and services.
Financial performance
SAIB’s three-year strategy (2019 – 2022) was announced during 2019 with a focus of driving transformation to strengthen the Bank’s foundation, unlock potential opportunities, and capitalize on our strength.
The new strategy stresses on the positive impact of agility. It enables and promotes close collaboration between business and development, Increased efficiency/productivity, and reduced product launch cycles.
Another key dimension to SAIB’s new strategy is digitization through strengthening IT existing capabilities. This transformation aims to support business needs, build advanced data analytics, and enable a paperless back-office in addition to digital workflows across all the Bank’s functions.
Innovation is a key element of SAIB’s strategy. The Bank promotes the cultivation of an innovative culture across the Organization by establishing the Innovation Lab to govern and promote innovative ideas. The lab is one of the first in the market and will focus on gathering innovative ideas from across the Organization with a direction of monitoring customer needs/trends.
Strategic partnerships are a main focus to foster value proposition. Fintech partnerships is an integral enabler to innovation and digitization. These partnerships were formalized to improve customer journeys, the services provided to our customers, and to penetrate the market with easy and unique products.
SAIB’s strategy is designed to support the Financial Sector Development Program in Vision 2030, with a focus to improve banking services and customer experience. Our new strategy promotes cashless transactions, a savings culture and financial literacy, and supports the housing market by offering customized products.
Financial position
Total assets
Total assets were SAR 99.9 billion as of December 31, 2020 which were lower by SAR 0.9 billion or 0.89% compared to the December 31, 2019 amount of SAR 100.8 billion.
The five-year trend of SAIB’s share of the total assets among Saudi Banks is given below:
2020
2019
2018
2017
2016
SAIB’s Market share (%)
3.6
4.12
4.24
4.22
4.26
Details relating to movements in major items of assets are given below:
Cash and balances with SAMA
The Bank’s cash and balances with SAMA amounted to SAR 8.3 billion as of December 31, 2020 compared to SAR 10.2 billion as of December 31, 2019.
Investments
The Bank’s investment portfolio increased to SAR 30.5 billion as of December 31, 2020 compared to SAR 26.2 billion as of December 31, 2019, representing an increase of SAR 4.3 billion or 16.41%. Investments classified as investment grade represented 88.26% of the Bank’s investment portfolio as of December 31, 2020, compared to 86.25% as of December 31, 2019.
Loans and advances, net
Loans and advances, net as of December 31, 2020 totaled SAR 55.1 billion compared to SAR 57.1 billion as of December 31, 2019, representing a decrease of SAR 2.0 billion or 3.50%. Total performing loans decreased to SAR 55.7 billion as of December 31, 2020 compared to SAR 57.1 billion as of December 31, 2019, which was primarily due to lower consumer loans.
Over 90% of the loans and advances portfolio, net is in Stage 1 performing loans.
Non-performing loans decreased to SAR 1.2 billion as of December 31, 2020 compared to SAR 2.4 billion as of December 31, 2019. Consequently, non-performing loans as a percentage of total loans and advances improved to 2.04% as of December 31, 2020, from 3.99% as of December 31, 2019.
The allowance for credit losses totalled SAR 1.8 billion as of December 31, 2020 which was 3.09% of total loans, and 151.45% of non-performing loans. This is in comparison to SAR 2.4 billion cumulative allowance as of December 31, 2019 which was 4.04% of total loans, and 101.32% of non-performing loans.
Loans and advances as of December 31, 2020 include non-interest-based banking products including Murabaha agreements, Tawarruq, Istisna’a, and Ijarah totalling SAR 41.2 billion, compared to SAR 39.0 billion as of December 31, 2019.
The Bank in the ordinary course of lending activities holds collateral as security to mitigate credit risk on its loans and advances. The collateral includes primarily time, demand, and other cash deposits, financial guarantees, local and international equities, real estate, and other assets.
The estimated fair value of collateral held by the Bank as security for total loans and advances is approximately SAR 50.5 billion as of December 31, 2020, compared to SAR 47.3 billion as of December 31, 2019.
Customer deposits
Customer deposits totalled SAR 60.1 billion as of December 31, 2020 compared to SAR 69.1 billion as of December 31, 2019, representing a decrease of SAR 9.0 billion or 13.02%. Demand and other deposits totaled SAR 34.6 billion as of December 31, 2020 compared to SAR 27.4 billion as of December 31, 2019, representing an increase of SAR 7.2 billion, or 26.28%. Demand and other deposits represent 57.45% of total deposits in 2020 compared to 39.66% of total deposits in 2019. Special commission bearing deposits decreased by SAR 16.1 billion during the year ended December 31, 2020, or 38.59%.
Term Loans
On June 19, 2016, the Bank entered into a five-year medium-term loan facility agreement for an amount of SAR 1.0 billion for general corporate purposes. The facility has been fully utilized and is repayable on June 19, 2021. On September 26, 2017, the Bank entered into another five-year medium- term loan facility agreement for an amount of SAR 1.0 billion for general corporate purposes. The facility was fully utilized on October 4, 2017 and was originally repayable on September 26, 2022 (later amended to be May 26, 2021).
The term loans bear commission at market based variable rates. The Bank has an option to effect early repayment of the term loans subject to the terms and conditions of the related facility agreements. The facility agreements above include covenants which require maintenance of certain financial ratios and other requirements, with which the Bank is in compliance. The Bank also has not had any defaults of principal or commission payments on the term loans.
Total equity
During the year ended December 31, 2020, the Bank’s total equity increased to SAR 15.3 billion compared to SAR 14.0 billion as of December 31, 2019.
The percentage of total equity to total assets as of December 31, 2020 was 15.35%, compared to 13.89% as of December 31, 2019. Consequently, the Bank’s shareholders’ equity leverage ratio was 7.49 on December 31, 2020 compared to 8.40 as of December 31, 2019.
Treasury Shares
On June 14, 2018, the Bank entered into a Share Purchase Agreement with J.P. Morgan International Finance Limited (JP Morgan), to purchase 56,245,350 shares of the Bank owned by JP Morgan for SAR 13.50 per share equal to SAR 759.3 million, exclusive of transaction costs and estimated Income Tax. The Bank subsequently received all required regulatory approvals and the agreement to purchase the shares was approved in an Extraordinary General Assembly meeting held on 16 Muharram 1440H, corresponding to September 26, 2018. On September 27, 2018, the Bank completed the purchase. The Treasury shares purchased include transaction costs and estimated income tax for a total cost of SAR 787.5 million.
On November 29, 2018, the Bank entered into a Share Purchase Agreement with Mizuho Bank Ltd. (Mizuho), to purchase another 18,749,860 shares of the Bank owned by Mizuho for SAR 13.50 per share equal to SAR 253.1 million, exclusive of transaction costs and estimated Income Tax. The Bank received all regulatory approvals for the purchase, and the agreement to purchase the shares was approved in an Extraordinary General Assembly Meeting held on 21 Rajab 1440H, corresponding to March 28, 2019. On May 28, 2019, the Bank completed the purchase. The Treasury shares purchased include transaction costs for a total cost of SAR 253.5 million.
The share capital of the Bank has not been reduced as a result of these transactions with the cost of the shares purchased totalling SAR 1,041.1 million presented as a reduction of shareholders’ equity.
The total number of shares outstanding as of December 31, 2020 was approximately 675 million shares after reflecting the Treasury shares held by the Bank.
Tier I Sukuk Program
The Bank completed the establishment of a Shariah Compliant Tier I Sukuk Program (the Program) in 2016. The Program was approved by the Bank’s regulatory authorities and shareholders. The Bank has issued the following Tier I Sukuk securities under the Program on the dates indicated as of December 31, 2020 and 2019:
2020 SAR ’000
2019
SAR ’000
November 16, 2016
500,000
500,000
June 6, 2017
285,000
285,000
March 21, 2018
1,000,000
1,000,000
April 15, 2019
215,000
215,000
Total
2,000,000
2,000,000
The Tier I Sukuk securities are perpetual with no fixed redemption dates and represent an undivided ownership interest in the Sukuk assets, constituting an unsecured conditional and subordinated obligation of the Bank classified under equity. However, the Bank has the exclusive right to redeem or call the Tier I Sukuk debt securities in a specific period of time, subject to the terms and conditions stipulated in the Program.
Capital Adequacy
Capital management objectives of the Bank are to comply with the capital requirements set by SAMA to safeguard the Bank’s ability to continue as a going concern, and to maintain a strong capital base.
Capital adequacy and the use of regulatory capital are regularly monitored by the Bank’s Management. SAMA requires the Bank to hold a minimum level of regulatory capital and maintain a ratio of total Regulatory Capital to Risk Weighted Assets (RWA) at or above the requirement of 10.5%, which includes additional buffers as required by the Basel Committee on Banking Supervision.
The Bank monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its Consolidated Statement of Financial Position assets, commitments, and notional amounts of derivatives, at a weighted amount to reflect their relative risk.
As of December 31, 2020, the Bank’s Tier I plus Tier II capital adequacy ratio stood at 21.21% compared to 18.26% as of December 31, 2019.
Summary results of operations
A summary of the Bank’s results of operations for the year ended December 31, 2020 compared to 2019 is given below.
Operating Income
Total operating income reached SAR 2,846 million in 2020, compared to SAR 2,818 million in 2019, a marginal increase of SAR 28 million, or 0.99%. A summary of the operating income for 2020 compared to 2019 is given below:
Net special commission income, which includes special commission income from placements, investments, and loans, less special commission expense on deposits and other borrowings, increased to SAR 2,322 million in 2020 compared to SAR 2,278 million in 2019, an increase of SAR 44 million or 1.93%.
Fees from banking services reached SAR 303 million in 2020, compared to SAR 299 million in 2019, an increase of SAR 4 million, or 1.34%. The increase was due to higher fees from the brokerage business and corporate and retail finance.
Exchange income increased to SAR 177 million in 2020, compared to SAR 156 million in 2019, an increase of SAR 21 million, or 13.46%. The increase was due to increased volumes in customer FX transactions reflecting the Bank’s efficient cross-sell coordination between Treasury, and its Retail and Corporate clients.
The Bank received a dividend income of SAR 0.014 million in 2020, compared to nil in 2019.
Other investment related gains earned from income recognized through profit and loss and sales of debt securities totalled SAR 108 million in 2020 compared to SAR 47 million in 2019.
Unrealized fair value through profit and loss statement was a net loss of SAR 82 million in 2020 compared to a gain of SAR 7 million in 2019.
All other operating income totalled SAR 18 million in 2020, compared to SAR 31 million in 2019.
Geographical distribution of operating Income
The Bank’s total operating income is entirely generated from its operations in the Kingdom of Saudi Arabia and a region-wise contribution is given below in SAR million.
Central
region
Western
region
Eastern
region
Total
2020
2,365
281
200
2,846
2019
2,235
394
189
2,818
Operating expenses before provisions for credit and other losses
Operating expenses before provisions for credit and other losses totalled SAR 1,214 million in 2020 compared to SAR 1,234 million in 2019, a decrease of SAR 20 million or 1.63%, details of which are given below:
Salaries and employee-related expenses for the year amounted SAR 672 million compared to SAR 626 million in 2019. The headcount as of December 31, 2020 was 1,429 compared to 1,437 as of December 31, 2019.
Rent and premises related expenses in 2020 decreased to SAR 128 million compared to SAR 144 million in 2019.
Depreciation and amortization in 2020 totalled SAR 145 million compared to 144 million in 2019.
Other general and administrative expenses totalled SAR 269 million in 2020 from SAR 320 million in 2019, a decrease of SAR 51 million or 16.03%.
The level of operating expenses in 2020 resulted in a net efficiency ratio of 43.04% compared to 41.60% in 2019.
Provisions for credit and other losses
The provisions for credit and other losses incurred in 2020 compared to 2019 is summarized as follows:
2020
SAR ’000
2019
SAR ’000
Provisions for credit losses:
Due from banks and other financial institutions
1,114
(615)
Investments
1,726
(45,821)
Loans and advances
453,527
1,270,770
Financial guarantee contracts
(6,843)
52,077
Other assets
(111)
(180)
Provisions for credit losses
449,413
1,276,231
Provisions for real estate losses
–
66,406
Provisions for credit and other losses
449,413
1,342,637
The provisions for credit losses include SAR 246.3 million provided due to the expected impact of the COVID-19 pandemic and the details are given below:
The Bank revised certain inputs and assumptions used for the determination of the Expected Credit Loss (ECL) allowance. The revisions mainly revolved around:
adjusting macroeconomic factors used by the Bank in its ECL model including observed default rates;
revising the scenario probabilities; and
refining staging criteria in light of the SAMA support measures and to effectively identify exposures where lifetime ECL losses may have been triggered despite repayment holidays.
The adjustments to macroeconomic factors and scenario weightages resulted in an additional ECL provision of SAR 47.8 million for the year ended December 31, 2020. The Bank’s ECL model continues to be sensitive to the above assumptions and is continually reassessed as part of its business-as-usual model refinement exercise. As with any forecasts, the projections and likelihoods of occurrence are underpinned by significant judgement and uncertainty and therefore, the actual outcomes may be different to those projected.
As the situation continues to be fluid, Management considers certain effects cannot be fully incorporated into the ECL calculations at this point in time. Accordingly, Management’s ECL assessment includes a sector-based assessment and staging analysis depending on the impacted portfolios and macroeconomic analysis. The Bank has therefore recognized post-model overlays of SAR 177.7 million and SAR 20.8 million for the year ended December 31, 2020 for its corporate and retail loan and advances portfolio respectively. The Group will continue to reassess the need for additional overlays as more reliable data becomes available and accordingly determine if any adjustment to the ECL allowance is required in subsequent reporting periods.
Share in earnings of associates
The Bank’s share in earnings of associates decreased to SAR 46 million in 2020, compared to SAR 88 million in 2019, a decrease of SAR 42 million.
Provisions for Zakat and income tax
The provisions for Zakat and Income Tax for 2020 of SAR 249 million was higher than the SAR 90 million provided for in 2019 primarily due to the higher net income in 2020 compared to 2019. A summary of the provisions for Zakat and Income in 2020 compared to 2019 is given below:
2020
SAR ’000
2019
SAR ’000
Provisions for Zakat
For current period
246,201
76,809
For subsidiaries, prior periods
2,745
3,300
Provisions for income tax
For current period
–
1,800
For prior periods
–
8,131
Provisions for Zakat and income tax
248,946
90,040
Net income
The Bank reported a net income of SAR 980 million for the year ended December 31, 2020, an increase of SAR 741 million, or 310%, compared to the 2019 net income of SAR 239 million.
The return on average assets was 0.98% in 2020 compared to 0.24% in 2019, and the return on average shareholders’ equity was 7.73% in 2020 compared to 2.03% in 2019.
Profit distribution
In accordance with Saudi Arabian Banking Control Law and the Articles of Association of the Bank, a minimum of 25% of the annual net income is required to be transferred to a statutory reserve until this reserve equals the paid-up capital of the Bank. Accordingly, SAR 245 million has been transferred from the net income for 2020. The statutory reserve is not currently available for distribution.
The Board of Directors proposed a cash dividend for the year 2020 of SAR 270 million equal to SAR 0.40 per share, net of Zakat. The proposed cash dividend will be presented for approval in an extraordinary general assembly meeting expected to convene in 2021.
Net income by operating segment
The income of the Bank’s reportable operating segments for the years ended December 31, 2020 and 2019 is summarized as follows:
2020 SAR ’000
2019
SAR ’000
Retail Banking
313,227
(622,959)
Corporate Banking
462,389
601,148
Treasury and Investments
651,011
559,557
Asset Management and Brokerage
80,571
33,832
Others*
(278,691)
(242,077)
Income before provisions for Zakat and income tax
1,228,507
329,501
Provisions for Zakat and income tax
(248,946)
(90,040)
Net income
979,561
239,461
*Others includes the net results related to Information Technology, Operations, Risk, and other support units.
Five-year financial highlights
A summary of the Bank’s operations, financial position, and key ratios are as follows:
SAR in millions
2020
2019
2018
2017
2016
Operations
Total income (1)
2,892
2,906
2,824
2,792
2,557
Total expense (2)
1,214
1,234
1,133
1,059
1,051
Operating profit before provisions
1,678
1,672
1,691
1,733
1,506
Provisions for credit and other losses
449
1,343
247
322
453
Provisions for Zakat and income tax (3)
249
90
868
–
–
Net income
980
239
576
1,411
1,053
Financial position
Total assets
99,885
100,815
96,070
93,796
93,047
Loans and advances, net
55,074
57,112
59,413
59,588
60,249
Investments
30,514
26,175
24,638
21,714
21,448
Investments in associates
846
994
1,012
1,020
1,000
Term loans
2,006
2,012
2,030
2,015
2,032
Subordinated debt
–
–
2,006
2,003
2,002
Customer deposits
60,144
69,058
63,690
66,943
65,640
Shareholders’ equity
13,331
12,007
11,621
13,494
12,834
Tier I Sukuk
2,000
2,000
1,785
785
500
Total equity
15,331
14,007
13,406
14,279
13,334
Key ratios
Return on average shareholders’ equity (%)
7.73
2.03
4.73
10.72
8.54
Return on average assets (%)
0.98
0.24
0.61
1.51
1.13
Capital adequacy (%)
21.21
18.26
19.31
20.38
18.93
Equity to total assets (%)
15.35
13.89
13.95
15.22
14.33
(1) Total income includes total operating income plus share in earnings of associates.
(2) Total expense includes total operating expenses before impairment charges.
(3) The years prior to 2018 have not been adjusted for provisions for Zakat and Income Tax.
GRI 103-1, 103-2, 103-3, 419-1
Regulatory payments
The Bank in the ordinary course of its business, makes regulatory payments including Zakat, Income Tax, Withholding Tax, Value Added Tax, and other regulatory payments.
A summary of the payments made during 2020 is given below, which also includes regulatory fines incurred during the year.
Zakat settlement
In December 2018, the Bank agreed with the GAZT to a settlement of Zakat assessments for the years 2006 to 2017 for SAR 775.5 million. The discounted Zakat liability of SAR 711.8 million was fully provided for through a charge to the Consolidated Statement of Income with the corresponding liability included in other liabilities as of December 31, 2018. The Bank has paid SAR 155 million, SAR 124 million, and SAR 124 million on January 1, 2019, December 1, 2019, and December 1, 2020 respectively, as per the settlement agreement. The undiscounted Zakat settlement liability remaining to be paid and the net discounted Zakat liability is as follows:
SAR ’000
December 1, 2021
124,072
December 1, 2022
124,072
December 1, 2023
124,072
Undiscounted Zakat settlement liability
372,216
Less: Discount
(25,579)
Net discounted Zakat liability
346,637
The Zakat settlement also included provisions for the Bank to calculate the Zakat liability for the year ended December 31, 2018 using the same methodology as was agreed in the settlement for the prior years. The 2018 Zakat was calculated based on this method and was also charged to the Consolidated Statement of Income in 2018 and was settled by April 30, 2019.
The Zakat settlement also did not include the year 2005. However, the Bank provided for an additional Zakat liability for 2005 amounting to SAR 38.6 million which was charged to the Consolidated Statement of Income in 2018 and was settled in 2019.
On March 14, 2019, the GAZT published rules (the “Rules”) for the computation of Zakat for companies engaged in financing activities and licensed by SAMA. The Rules are issued pursuant to the Zakat Implementing Regulations and are applicable for the periods beginning January 1, 2019. In addition to providing a new basis for calculation of the Zakat base, the Rules have also introduced a minimum floor and maximum cap at 4 times and 8 times respectively of net income. The Zakat liability for the Saudi shareholders will continue to be calculated at 2.5% of the Zakat base but it should not fall below the minimum floor nor should exceed the maximum cap as prescribed by the Rules.
The Bank has provided for Zakat for the year ended December 31, 2020 and 2019 on the basis of the Bank’s understanding of these rules.
Withholding tax
The Bank paid SAR 53.7 million to the GAZT as withholding tax for the year ended December 31, 2020.
Value Added Tax (VAT)
The Bank paid SAR 48.2 million to the GAZT as VAT for the year ended December 31, 2020.
Other regulatory payments
The Bank paid SAR 50.4 million to the General Organization for Social Insurance for its employees, including the employee share of SAR 22.6 million during the year ended December 31, 2020. The Bank also paid SAR 1.5 million for visa and other related governmental fees during the year ended December 31, 2020.
Regulatory penalties and fines
During 2020, the Bank paid SAR 1,920,000 to SAMA as a result of five regulatory fines and penalties.
Below is a breakdown of the regulatory fines borne by the Bank during 2020:
Fines amount in SAR
Description of the fine
No. of fines
205,000
Violating SAMA’s instructions
3
1,680,000
Violating SAMA’s Instructions for Consumer Protection
1
35,000
Violating SAMA’s instructions of Self-Supervisory Guidelines
1
Cash flows
Cash and cash equivalents decreased by SAR 2,346 million during the year from SAR 5,110 million as at December 31, 2019 to SAR 7,267 million as at December 31, 2020.
Net cash flows
2020 SAR ’000
2019
SAR ’000
Provided from operating activities
1,557
8,239
Used in investing activities
(3,786)
(968)
Used in financing activities
(118)
(2,161)
Net increase (decrease) in cash and cash equivalents
(2,346)
5,110
Unit performance
Retail banking
SAIB’s Retail Banking offers conventional and Shariah-compliant retail services for individuals, including current accounts, savings, and time deposit accounts. Shariah-compliant products are offered through the Bank’s Shariah-compliant branches.
As of 31 December 2020, the Bank operated 52 branches across the Kingdom. Customers are also able to access their accounts and funds through a network of 368 ATMs, four Interactive Teller Machines (ITMs), and 12 Cash Deposit Machines throughout Saudi Arabia.
Under Retail Banking, the Bank has three key business segments:
Customer programs and services
The Bank offers its customers the Silver, Gold, and Platinum programs which are designed to meet their banking needs through products and services that suit their different lifestyles. The Gold and Platinum programs provide customers with a premium banking relationship and exclusive bespoke services.
Private banking services
Private Banking offers customers a unique combination of exclusive services and elite benefits and advantages tailored to them. They are serviced by a highly skilled and experienced team of relationship managers who provide valuable advice.
Alasalah Islamic banking services
As the importance of Islamic banking increases, the Bank’s strategic direction continues to focus on the Alasalah program, which includes many Shariah-compliant banking services and products approved by the Bank’s Shariah Board. These services are offered via 49 branches in most major cities in the Kingdom.
Performance in 2020
Customer deposits totalled SAR 60.1 billion as of December 31, 2020 compared to SAR 69.1 billion as of December 31, 2019, a decrease of SAR 9.0 billion or 13.02%. Demand and other deposits during the year totalled SAR 34.6 billion
compared to SAR 27.4 billion in the previous year, an increase of SAR 7.2 billion or 26.28%%. Demand and other deposits represented 57.45% of total deposits by end 2020 compared to 39.66% of total deposits in 2019. Special commission bearing deposits decreased by 38.59% to SAR 16.1 billion during the year.
The net consumer loans and advances portfolio stood at SAR 11.09 billion as at December 31, 2020. Customers’ total Demand Deposits (DDA) reached SAR 32.5 billion during the year.
The merchant acquisition business expanded its reach to over 9,895 Point of Sale (POS) terminals, a growth of 5%. SAIB’s POS terminals market share was 1.44% in 2020, compared to 2.18% in 2019. Flexx Pay, the Bank’s payment gateway service, expanded to 27 merchants in 2020.
4.1 million transactions worth SAR 609 million were processed during the year, up from 0.82 million transactions worth SAR 187 million in 2019.
Transaction type
Number of transactions
2020
2019
2018
ATM transactions
24,553,171
39,701,368
42,157,043
Branch transactions
7,541,942
9,221,275
7,743,812
Online transactions
25,840,157
26,178,906
19,126,325
Point of sale transactions*
113,483,943
75,095,420
47,209,476
TOTAL
170,042,690
150,196,969
116,236,656
IVR transactions
260,559
316,956
363,151
TOTAL including IVR
170,303,249
150,513,925
116,599,807
*includes exception item processing.
During 2020, the Bank focused on enhancing its digital capabilities and automation and launched new digital sales channels to widen its reach and footprint. The Bank also looked towards the Financial Technology (Fintech) space to find ways to disrupt its own business model and envision new and sustainable opportunities for growth.
The Flexx Touch service was expanded to allow for the application of personal finance, mortgages, and credit cards through a digital and frictionless application process. A step up-step down mortgage finance service was introduced, offering customers customised repayment solutions to simplify and help reduce the burden of the Equated Monthly Instalments (EMI) that they may have accumulated. A 2-1 loan was also introduced that offers customers a type of financing that lowers the interest rate on a loan for the first five years before settling on a permanent rate.
Credit card services were enhanced considering the new normal. Customers can now issue, activate, and stop credit cards through the Flexx Touch online service, as well as activate, stop, and view their credit card pin codes.
A campaign was also launched around our Travel Cards to promote free card issuance and zero currency exchange rate fees.
The Bank also introduced the highest Visa product type, “Infinite Privilege”, offering a wide range of luxurious and high lifestyle features and benefits to SAIB affluent customers that suits their wants and needs.
Opening individual accounts online was re-engineered to be made easier for customers through the removal of extraneous steps, while ensuring that the whole process was fast, easy, and secure. Account activation can be done via interactive voice response (IVR) and customer information can be submitted online to fulfil Know Your Customer (KYC) requirements and update expired information. An online service was also offered for companies to open accounts.
Corporate banking
SAIB’s Corporate Banking Group offers financial products and services that meet the requirements of businesses of all sizes, from micro, small, and medium enterprises (MSMEs) to large corporate entities. The Group operates from three regional headquarters based in Riyadh, Jeddah, and Al-Khobar along with separate business segments that cover syndications, project, and structured financing to provide tailor-made financial solutions and customised structures to an array of economic sectors.
The Corporate Banking Group offers a range of products that spans both conventional and Shariah-compliant products and services related to working capital, contract, project, real estate, and capital expenditure financing, while supporting businesses with trade finance, cash management, and treasury services requirements. The Group continually strives to expand the range and quality of the Bank’s products and service offerings to meet customers’ evolving needs and expectations. Additionally, the Group provides ancillary business products and solutions to its customers.
The Group has undertaken certain strategic initiatives to align the business model with the Saudi Government’s Vision 2030 goals as it looks to continuing business growth and maximizing opportunities in the post-pandemic era.
Performance in 2020
Net income for the years ended December 31, 2020 and 2019 is summarised as follows:
2020
SAR ’000
2019
SAR ’000
Corporate banking
462,389
601,148
Income (loss) before provisions for Zakat and income tax
Micro, Small, and Medium Enterprises (MSMEs) performance
2020 (SAR ’000)
Micro
Small
Medium
Total
Loans to MSMEs-on Balance Sheet (B/S)
55,695
716,976
4,842,193
5,614,864
Loans to MSMEs-off Balance Sheet (Notional amount)
56,343
232,954
1,065,203
1,354,500
On B/S MSMEs Loans as a percent of total on B/S loans (%)
0.10
1.26
8.52
9.88
Off B/S MSMEs position as a percent of total off B/S position (%)
0.47
1.94
8.87
11.28
Number of loans (on and off B/S)
33
207
723
963
Number of customers for loans (with Credit Facility Limits)
18
82
222
322
Number of loans guaranteed by Kafalah program (on and off B/S)
5
58
78
141
Amount of loans guaranteed by Kafalah program (on and off B/S)
12,342
82,814
227,868
323,024
Note: The growth in MSME portfolio’s financial figures was mainly recorded after the completion of the corporate customers’ classification project that was completed in 2020.
Treasury and investments
The Treasury and Investment Group (TIG) is responsible for the Bank’s Asset-Liability Management, including interest rate risk, market risk, and funding and liquidity management. The Group also handles foreign exchange trading, structured products, and manages the Bank’s investment portfolio and derivative products, as well as the Bank’s Business Partner Companies, Financial Institutions, Public Institutions, and the Asset Liability Management Unit.
Performance in 2020
TIG contributed significantly to the Bank’s financial performance in 2020. As at December 31, 2020, the Group achieved a net adjusted income of SAR 651 million, a growth of 16.3%.
During the year, SAIB became the first bank in the Kingdom of Saudi Arabia to execute an Environmental, Social, and Governance (ESG) Linked Repo transaction with HSBC.
As the importance of ESG in the Kingdom grows, this landmark transaction highlights the key role that the financial services sector plays in transitioning the economy towards a sustainable future and address the challenges of climate change.
TIG continues to emphasize on its current initiatives. Enhancing and fine tuning those initiatives is an ongoing process. Some of those initiatives included:
Cost reduction through an all e-document based desk significantly reducing the use of paper.
The automation of many internal system procedures decreasing the likelihood of any operational risk.
The automation of daily weekly and monthly reports reducing operational time and increasing team efficiency.
The creation of an E-Library that gathers all courses attended for the purpose of knowledge transfer to all treasury members.
The establishment of a Bank-wide LIBOR Transition Program.
The Bank’s investment portfolio totalled SAR 30.5 billion as at December 31, 2020, compared to SAR 26.2 billion as at December 31, 2019, an increase of SAR 4.3 billion or 16.6%.
Investments classified by major rating agencies as investment grades represented 88.26% of the Bank’s investment portfolio as at December 31, 2020, compared to 86.25% as at December 31, 2019.
Net income for the years ended December 31, 2020 and 2019 are summarised as follows:
2020 SAR ’000
2019
SAR ’000
Treasury and investments
651,011
559,557
Income (loss) before provisions for Zakat and income tax
Impact of COVID-19
Expected credit loss
The COVID-19 pandemic disrupted global markets in 2020. The Government of KSA managed to successfully control the outbreak in the country due to effective precautionary measures put in place. The Bank was and continues to be cognisant of the micro and macroeconomic challenges posed by the pandemic and reviewed specific economic sectors, regions, counterparties, and collateral protection, and took the appropriate customer credit rating actions and initiated the restructuring of loans where appropriate. The Bank also revised certain inputs and assumptions used for the determination of the Expected Credit Loss (ECL) allowance, which included:
Adjusting macroeconomic factors used by the Bank in its ECL model, including observed default rates.
Revising the scenario probabilities.
Refining staging criteria in the light of the SAMA support measures and to effectively identify exposures where lifetime ECL losses may have been triggered despite repayment holidays.
The adjustments to macroeconomic factors and scenario weightages resulted in an additional ECL provision of SAR 47.8 million for the year ended December 31, 2020. The Banks’ ECL model continues to be sensitive to the aforementioned assumptions and is continually reassessed as part of its business-as-usual model refinement exercise.
As with any forecasts, the projections and likelihoods of occurrence are underpinned by significant judgement and uncertainty and therefore, the actual outcomes may be different to those projected.
As the situation continues to be fluid, Management considers certain effects cannot be fully incorporated into the ECL calculations at this point in time. Accordingly, Management’s ECL assessment includes a sector-based assessment and staging analysis depending on the impacted portfolios and macroeconomic analysis. The Bank has therefore recognized post-model overlays of SAR 177.7 million and SAR 20.8 million for the year ended December 31, 2020 for its corporate and retail loan and advances portfolio respectively. The Group will continue to reassess the need for additional overlays as more reliable data becomes available and accordingly determine if any adjustment to the ECL allowance is required in subsequent reporting periods.
SAMA support programs and initiatives
To support the MSME sector during the COVID-19 pandemic, SAMA launched the Private Sector Financing Support Program (PSFSP) in March 2020 via Circular No. 381000064902 dated 16 Jumada II 1438H (corresponding to March 15, 2017). The PSFSP encompasses the following programs:
Deferred payments program
Funding for lending program
Facility guarantee program
Point of sale and e-commerce service fee support program
Under the deferred payments program, the Bank was required to defer payments for six months on lending facilities to MSMEs and financing companies regulated by SAMA as a short-term liquidity support to address any potential cash flow issues for borrowers. The Bank applied the relief to instalments falling due between 14 March 2020 to 31 March 2021 for a period of 12 months (having extended the program twice from the original period of six months) without increasing the facility tenure. The accounting impact of these changes was assessed and treated as per the requirements of IFRS 9 as a modification in the terms of the arrangement. In the absence of other factors, the Group believes that participation in the deferment program on its own is not considered a significant increase in credit risk.
Healthcare sector support
SAIB voluntarily postponed loan payments for three months for all public and private healthcare workers who have credit facilities with the Group, in recognition of their significant efforts to safeguard the health of the Kingdom’s citizens and residents due to the pandemic.
