S&P Global Ratings anticipated that traditional retail banks will need to digitize their business models in order to maintain and expand their franchises. It noted that digital solutions would allow banks to attract more clients, find new revenue channels, and become more efficient. It considered that the banks' new technologies would enable under-banked individuals and small- and medium-sized enterprises (SMEs) to have better access to banking services, especially in emerging markets. It said that traditional banks have already started to prepare for technological disruptions, as figures by KPMG show that 73% of the global fintech investments in the 2012-17 period were spent to upgrade banking services that are extended to retail and SME clients.  

In parallel, S&P expected mobile banking, cloud computing, artificial intelligence and blockchain to alter retail banking sectors in coming years. First, it noted that mobile banking would enable banks to retain existing clients, while facilitating greater financial inclusion. Second, it said that cloud computing provides banks with the flexibility to adjust their information technology infrastructure. Third, it considered that artificial intelligence would help banks improve their understanding of client behavior and, in turn, expand revenues. Fourth, it said that ledger technologies and blockchain would allow banks to make business transactions more efficient and secure. 

Further, the agency considered that client preference for emerging technologies will be the main catalyst for technological change, as banks would use such technologies to prevent customers from switching to more sophisticated service providers. But it pointed out that the banks' ability to respond to technological change will depend on their digital readiness. It also considered that market regulation and legal frameworks remain key in promoting competition and innovation. It said that authorities would need to protect banking systems from the negative effects of technological disruption that could reduce the quality of banking services and result in weaker and more vulnerable banking systems.
Source: S&P Global Ratings

S&P Global Ratings considered that the wave of bank mergers and acquisitions (M&A) in the Gulf Cooperation Council (GCC) region in the past 24 months is an indicator of the desire of banks with the same major shareholders to further strengthen franchises, enhance efficiency and boost pricing power. It pointed out that six out of the eight mergers that took place in the region since 2014 benefited from the presence of the same shareholders on both sides of the transaction, or among the acquiring and targeted banks. As such, it considered that these deals were closer to shareholders reorganizing their assets rather than to genuine mergers. But the agency indicated that the wave of banking sector consolidation in the region is almost over, given the reduced common ownership among the region's remaining major banks, which renders future deals more difficult. It considered that further banking sector consolidation could help improve the banks' performance and financial stability. Further, S&P anticipated that a new wave of acquisitions could emerge in case economic developments prompt shareholders to resort to M&A, and could involve deals across different GCC countries. But it considered that a new consolidation trend could take longer to materialize, as managers could find it difficult to convince boards of directors and shareholders of such moves, given that shareholders could have their assets diluted in case of M&A deals.  
Source: S&P Global Ratings

The cumulative net income of 166 companies listed on the Saudi Stock Exchange, or Tadawul, totaled SAR23.6bn, or $6.3bn, in the first quarter of 2019, constituting a decrease of 9.7% from SAR26.1bn, or $7bn in the first quarter of 2018. Listed banks generated net profits of $3.8bn and accounted for 59.8% of total net earnings in the covered period. Basic materials companies followed with $1.4bn (22.2%), then telecommunications firms with $785.7m (12.5%), retailers with $138m (2.2%), energy firms with $124m (2%), the food & beverage industry with $99.2m (1.6%), healthcare firms with $56.3m and real estate management & development companies with $54m (0.9% each), insurers with $53m and diversified financial services providers with $48.1m (0.8% each), and transportation companies $36.4m (0.6%). Further, the net earnings of media firms increased by 6.85 times year-on-year in the first quarter of 2019, followed by insurers (+46%), telecommunications firms (+22%), the food & beverages industry (+21.4%), banks (+12.7%), diversified financial services providers (+12.2%), retailers (+9%), and energy firms (+5%). In contrast, the profits of capital goods companies fell by 69% year-on-year in the first quarter of 2019, followed by real estate management & development firms (-44.9%), basic materials companies (-43.3%), consumer services firms (-41%), healthcare providers (-31.4%), commercial & professional services providers (-20.6%), food & staples retailers (-18.2%), and transportation firms (-6%). Further, the net losses of utilities firms widened by 19.4% year-on-year in the covered period.  
Source: KAMCO