Writer Matthew Martin said in a report published by Bloomberg News today, Wednesday, that the merger of the major banks in Saudi Arabia indicates problems at the heart of the Saudi economy.

The report added that when Saudi Arabia witnessed the last merger between two of its largest banks, the price of oil was recovering from a severe recession, and the Kingdom was in the midst of a deep recession, and its debt exceeded the size of the economy, and that was in 1999.

At that time, Samba Financial Group joined the United Saudi Bank to establish one of the largest banks in the country. After more than two decades, Samba is again at the center of the merger, as the $ 15.6 billion deal to combine the National Commercial Bank and Samba, which was announced last week, will create a banking giant in terms of loans with a market share of approximately 30% in the Kingdom. , And assets exceed $ 200 billion.

The writer said that the financial industry was supposed to be the cornerstone of “Vision 2030 ″, the master plan for Crown Prince Mohammed bin Salman to separate the economy from oil, as global investors will put money in the state’s privatized assets and buy government bonds to help finance new projects, Local banks will lend to entrepreneurs and families to help them set up businesses and buy homes.

Instead, banks joined their counterparts around the world in response to a host of unexpected challenges, while the Saudi central bank was forced to intervene to support the financial sector.

The collapse of oil prices - along with the impact of the Corona virus - has paralyzed Saudi revenues, and the closure of commercial activity remains in place, as the authorities struggle to control the epidemic.

Analyst Ashraf Madani: austerity measures will increase pressure on the banking system (Reuters)

Default

The governor of the Saudi Arabian Monetary Agency (the Saudi Central Bank), Ahmed Al-Khulaifi, said on Tuesday that Saudi banks would have been burdened with up to 10 billion riyals ($ 2.7 billion) of potential default if the central bank did not intervene.

"The banking sector will face enormous pressure to support sovereign and quasi-sovereign borrowing needs, as global bank lending is likely to remain constrained," said Rachna Opal, chief analyst for Gulf Affairs at London-based Castelerge Associates Research.

The government has responded to deteriorating expectations by increasing the consumer tax 3 times, increasing fees on a 53-page list of products, while reducing spending on infrastructure projects and allowances paid to public employees.

"The austerity measures will increase the pressure on the banking system. We see a downward pressure on the profitability and asset quality over the next 12 to 18 months," said Ashraf Madani, analyst at Moody's Investors Service.

Peter Kessler, the hedge fund manager at North Asset Management, expects that Saudi finance will come under increasing pressure and may force the country to drop its dollar peg.

"All they have done over the past five years is to issue a lot of external debt, and that makes them more vulnerable," Kessler said. "The economic outlook is getting worse slowly."