Saudi banks to face liquidity pressure if Zakat claims rise: SICO

Bahrain-based SICO Investment Bank expects Saudi banks to face additional Zakat of SAR 5.7 billion for the period under review, on top of the SAR 11.8 billion recommended previously by the Saudi General Authority of Zakat and Tax (GAZT), it said in a report on Thursday.

On payment of the additional Zakat, banks in the Kingdom may have to replenish their balance sheet’s liquidity, which would be negative for their earnings, the firm added.

The additional claims could prove to be a challenge particularly for Riyad Bank and Alinma, which face a higher risk with an estimated Zakat impact of 10.7 percent and 9.2 percent of equity.

“Bank Al Jazira and Bank Albilad may also witness a c.9 percent impact on their equity,” SICO said, adding that it estimates the combined potential impact to be c.5 percent of Saudi banks’ equity. 

Saudi banks are currently in discussion with the GAZT on the treatment of long-term financing and investments for Zakat calculation.

According to industry sources, the decision is now pending with the Higher Appeal Committee, and the lenders are awaiting the final verdict, the report said.

All banks have said they expect the decision will be in their favor, SICO noted, adding that as per the Saudi Arabian Monetary Authority’s (SAMA) latest directive, if banks have to book excess Zakat liability it would not impact their income statement and would flow through the equity.

The only bank poised to benefit from the situation is the National Commercial Bank, which had provided Zakat in compliance with GAZT regulation and did not report any conflict.

“Hence if the decision comes in favor of the banks, NCB will witness reversal, while if it goes against the banks, they would still not have to pay any excess zakat, unlike other banks,” the report said.

* Source: SICO Research, Company Data