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Saudi banks reach $4.5 billion settlement over Islamic taxes

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Major banks in Saudi Arabia reached settlements worth a combined SAR 16.7 billion ($4.5 billion) with the Kingdom’s tax authority over a religious levy the lenders had been kicking against.

Sunday 23, December 2018

(Bloomberg)--The deals come as the world’s largest crude exporter predicts a budget shortfall of SAR 131 billion, or 4.2 per cent of gross domestic product, for 2019. The deficit was worsened as the nation boosted spending and benefits for government employees worth billions of dollars. The tax authority had extended the 2.5 per cent religious levy, known as the Zakat, by including items that were previously exempt, while eliminating some deductions.

Al Rajhi Bank was hit with the highest payment, agreeing to pay SAR 5.41 billion, the lender said in a statement posted on the Saudi Stock Exchange. Alinma Bank didn’t pay any settlement and said in a separate announcement that there will be a credit balance with the authority.

The back taxes are being paid amid changes to the country’s banking landscape, which saw Saudi British Bank and Alawwal Bank strike a deal to combine in May in a $5 billion stock deal. That was followed a month later with JPMorgan Chase & Co. agreeing to sell its 7.5 per cent stake in Saudi Investment Bank back to the Riyadh-based lender.

The merger of HSBC Holdings Plc affiliate Saudi British Bank with Alawwal, which was backed by Royal Bank of Scotland Group Plc, has been seen as a precursor to more deals in the country’s financial-services industry, where about 25 local and international lenders compete in a market of about 33 million people. The merger is due to be completed in the first half of 2019.

The Tadawul Banks Index has climbed 27 per cent this year, even in the face of 37 per cent drop in oil prices since October as the economy struggles to recover from 2017’s contraction.

Saudi Arabia released its 2019 numbers this week, with revenue estimated at SAR 975 billion versus SAR 895 billion in 2018. Taxes are projected to contribute SAR 183 billion to the budget in 2019, up from 166 SAR billion in 2018.

TAGS : Al Rajhi Bank, Alinma Bank , Saudi British Bank, Alawwal Bank, JPMorgan Chase & Co., Saudi Investment Bank, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Tadawul Banks Index

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