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Financial services sector debt rose from KD 6.85 billion in 2019 to KD 10.09 billion in Q1 2024, a rise of KD 2.688 billion. Over five years until 2023, the debt grew by 47.2%, or KD 3.24 billion.
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At the end of May, financial services shares closed with a market value of KD 4.197 billion, reflecting a 12.6% profit.
In recent years, listed financial services and investment companies have encountered a range of challenges, including varying levels of debt and loans from both local and foreign banks. These obligations have significantly disrupted the management of some companies.
According to statistics prepared by Al-Rai newspaper, the debts of the financial services companies sector decreased by 5.4 percent by the end of the first quarter of this year, equivalent to KD 550.7 million, bringing the total to KD 9.54 billion. This reflects the impact of financial restructuring plans and a focus on reducing expenses and paying off obligations.
The statistics showed the development in the size of financial services companies’ debts since 2019. It was observed that the debts increased from KD 6.85 billion at the end of that year to KD 10.09 billion by the end of the first quarter of 2024, marking an increase of KD 2.688 billion. Over the five years until 2023, the increase was approximately KD 3.24 billion, or 47.2 percent.
On the other hand, the debt decreased in the first three months of 2024 by 5.4 percent compared to last year’s annual financial statements.
In 2021, the debt amounted to approximately KD 7.72 billion. It then rose to about KD 9.219 billion by the end of 2021, jumping to KD 11.488 billion by the end of 2022. However, it decreased by 12.13 percent, equivalent to KD 1.39 billion, by the end of 2023.
Regarding the reasons for the high volume of debts on companies, including investment ones, financial sources explain that several factors contribute to this, including:
- Investment companies expand in ways that may be ill-considered, without accounting for surrounding risks, which increases the size and burden of debt.
- Market fluctuations are among the factors that sometimes lead to increased reliance on loans and debts, affecting companies’ ability to manage their debt.
- Reliance in financing policy on debt raises its size.
- High lending costs lead companies being burdened with additional debt.
- Limited diversification in investment and reliance on a specific business model that does not keep pace with developments in the landscape makes the company face the challenge of relying on debt.
On the other hand, there is a list of factors that lead to cut the amount of debt, especially since it declined since 2022, which recorded the highest debt amounting to KD 11.488 billion. Perhaps the most prominent reasons are:
- Improving the economic performance of financial services companies and reducing reliance on debt are crucial objectives.
- The success of many companies and financial entities in structuring their debts has been notable.
- Paying attention to intensifying balanced investments that guarantee sufficient returns to meet accumulated obligations is essential.
- Improving economic conditions undoubtedly helps reduce the cost of lending.
- Reducing the costs adopted by companies always has a positive impact on their financial conditions.
- Carrying out capitalization operations and offering new shares may be alternatives to borrowing.
According to the closing prices of shares of financial services companies at the end of last May, the market value of the sector’s components amounted to KD 4.197 billion, with market profits of 12.6 percent based on the closing price.
The current year’s interest on financial services sector shares is 5.05 percent, while shares are trading at a price-to-book value multiple of 0.85, with a market price-to-earnings ratio of 12.1 times.
