Saudi fintech investment jumps as regulators set 2021 landscape: Year in Review – Arab News

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RIYADH: Saudi Arabia saw a significant jump in venture capital investments in the financial technology sector, hitting 16 deals in the first eight months of 2021 totaling $157.2 million.
This compares with 2020, when seven venture capital deals were signed worth $7.8 million as pandemic restrictions curtailed activity, according to the annual Saudi Fintech annual report.
This year has also seen backing spread across a range of early-stage projects, with 46 percent at series A and B stages, 38 percent at the seed stage, and 15 percent at pre-seed levels.
Pre-seed funding is the earliest stage of investment, often from founders, family and close supporters. This is followed by more formal seed and series stages, where equity in the business is traded.
This spread of investment demonstrates that backing is available to support fintech companies at key stages of their development.
This year has seen backing spread across a range of early- stage projects, with 46 percent at series A and B stages, 38 percent at the seed stage, and 15 percent at pre-seed levels.
Pre-seed funding is the earliest stage of investment, often from founders, family and close supporters.
This is followed by more formal seed and series stages, where equity in the business is traded.
This spread of investment demonstrates that backing is available to support fintech companies at key stages of their development.
There has been an increase in the level of early seed-stage and pre seed stage investment, in particular.
There has been an increase in the level of early seed-stage and pre-seed stage investment, in particular.
So far in 2021, investors have signed deals worth $12.9 million at seed and pre-seed stage investment, a 108 percent jump from $6.2 million invested in 2020.
The payments sector remains the most attractive fintech area in the Kingdom, so far accounting for around 93% of total venture capital investments this year.
Highlights include series A investments in mobile payments platform Hala $6.5 million and buy-now-pay-later business Tamara $110 million. While restaurant point-of-sale provider Foodics attracted $20 million of series B funding.
Despite growing levels of fintech investment in the Kingdom, the median deal size in Saudi Arabia is $2.7 million compared to a global median deal size of $7.3 million.
The launch of Open Banking in Saudi Arabia in 2022, which allows firms to share consumer current account data once permission has been given, is also expected to speed up the pace of fintech development.
Experts expect this move will provide existing fintech investors with more opportunities, and will attract funds to the sector.
The number of financial technology companies in Saudi Arabia continues to grow, as the number of companies increased this year to 82, a 37 percent rise on the previous year.
 
Commitment to Vision 2030
The move by the Kingdom’s central bank, SAMA, to Open Banking is set to support the further development of the sector, in line with Saudi Vision 2030 and the Financial Sector Development Program, launched in 2017.
The plan includes developing the digital economy, and allowing financial intermediaries to support private sector growth by opening up the financial services industry to new players. It also encourages the building of an advanced capital market in the Kingdom.

Analysts expect big US banks to show an uptick in fourth quarter core revenues thanks to new lending and firming Treasury yields even while headline earnings will be mixed on differences in how each institution accounted for pandemic loan losses.

On Friday, JPMorgan Chase & Co. and Citigroup Inc. are expected to post roughly 20 percent and 30 percent declines, respectively, in profits compared with the year-earlier quarter, while Bank of America Corp’s profits will be up 20 percent when it reports on Jan. 19, according to analyst estimates compiled by Refinitiv as of Friday.

Wells Fargo & Co, which also reports on Friday, is expected to show a 67 percent jump in profits.

That mixed performance will be largely due to the different pace at which banks started reversing accounting charges for pandemic-related loan losses which have not materialized.
Other complicating factors are restructuring costs and asset sales at Citigroup and Wells Fargo.

Goldman Sachs Group Inc. and Morgan Stanley, meanwhile, are expected to report fourth-quarter profit declines of about 7 percent and 2 percent, respectively, as revenue from fixed-income trading income dipped from exceptional levels.

Broadly speaking, however, the picture is likely to be positive and analysts anticipate that bank executives will sound an optimistic note on the outlook for core earnings.

Operating profits are expected to rise as the continued economic recovery boosted loan growth and as yields from banks’ Treasury securities edged up, or at least held steady, during the quarter.

“If investors look under the hood, there is much good to be seen,” Odeon Capital Group analyst Dick Bove wrote in note on Thursday.

Overall, core profits for big banks will be up about 6 percent on average after stripping out loan loss provisions, taxes and unusual items, Goldman Sachs analyst Richard Ramsden estimated.

With the economic outlook uncertain due to inflation and the omicron COVID-19 variant, however, some investors are cautious on buying more bank stocks.

Doubts are growing about the Fed’s ability to maintain the economic recovery on which lending growth relies after the central bank last week released minutes from its latest policy meeting that showed officials might raise interest rates sooner than expected to slow inflation.

Jason Ware, chief investment officer for Albion Financial Group, said he is evaluating whether to buy more bank stocks but is hesitant, partly due to caution about whether higher yields are sustainable.

He’s mindful, too, he added, of history suggesting that “bank stocks do better going into rate hikes than they do during rate hikes.”
RIYADH: The bid to merge two of Saudi Arabia’s insurance companies has been thwarted by shareholders unhappy with the proposal. 
Shareholders of Amana Cooperative Insurance Co. had approved the proposal to merge with Saudi Enaya Cooperative Insurance Co., but those of the latter turned down the offer.
This came after they both held meetings on Jan. 9 to conduct a circular to vote on their previously announced merger, according to bourse statements by both parties.
In response to the announcements, shares of Amana and Enaya fell 5 and 1.5 percent, respectively, in early trading today.
As per the deal, post-merger ownership would be a 55-percent stake for Enaya and the remaining 45 percent shall be owned by Amana, as announced in a bourse filing last year.
Additionally, upon completion of the deal, Saudi Enaya’s assets and liabilities shall be transferred to Amana.
Separately, Amana announced the approval of its shareholders to increase capital to SR289 million ($77 million) via a rights issue.
The insurance sector in the Kingdom has seen marked growth over the last few years and in 2020 it produced its best ever financial results. 
In a KPMG report published last year net profit in the sector was up by almost 50 percent compared to the same period in 2019. 
RIYADH: Bitcoin, the leading cryptocurrency internationally, traded higher on Monday, rising by 0.95 percent to $41,900 at 1:28 p.m. Riyadh time.
Ether, the second most traded cryptocurrency, was priced at $3,157, up by 2.10 percent, according to data from Coindesk.
Other News:
Global investment bank JPMorgan has published a report on the future outlook for crypto markets, including Ethereum’s upgrades, decentralized finance and non-fungible tokens.
The bank sees the crypto markets as increasingly relevant to financial services, its analyst described.
“The applications from crypto have only just begun. Web3.0, greater use of NFTs tokenization are in the line-of-sight for 2022,” Ken Worthington, financial analyst at JP Morgan, said.
JPMorgan sees tokenization and fractionalization as holding particularly large promise as transactions speeds in crypto become more competitive with trad-fi networks.
Defi underperformed in 2021, but still has strong potential in 2022 and beyond, according to the report.
“The use cases for crypto markets will continue to grow and new projects and tokens with more and different use cases will surface,” Worthington added.
The JPMorgan analysts also noted that with these projects attached to tokens and Coinbase being a leading exchange to buy and sell tokens. “We see Coinbase as a leading direct beneficiary of crypto market growth.”
India
The Indian Industry Association, Indiatech, has written to the country’s finance minister, Nirmala Sitharaman, regarding taxes on cryptocurrencies.
The association represents major cryptocurrency exchanges in India, including Coinswitch Kuber, Wazirx and Coindcx.
The association asked the finance minister for clarity regarding crypto taxation in Union Budget 2022-23. It also urged the government to amend existing tax laws to include crypto assets, Bitcoin.com reported.
Some crypto exchanges have been accused of evading the Goods and Services Tax.
“The budget should ideally offer coherent rules on direct taxation and the GST Council should detail the applicability of taxation, otherwise there will be confusion,” Rameesh Kailasam, CEO of Indiatech said.
India’s Directorate General of Goods and Services Tax Intelligence is also scrutinizing several crypto companies for tax evasion.
The Directorate General of Goods and Services Tax Intelligence recently raided major crypto exchanges and discovered massive GST evasion.
The crackdown reportedly uncovered nearly $9.4 million in tax evasion.
Crypto exchanges blamed confusion over tax laws as the reason for failing to pay taxes properly.
Four hikes in the US interest rate, as well as the sale of the Federal Reserve’s assets, are expected this year, Goldman Sachs Group said.
The balance sheet runoff process – which is the reduction of an entity’s assets – could take place in July, or even earlier, Bloomberg reported, citing the investment bank.
This is compared to Goldman’s previous forecast that the process would start in December.
The firm said this shift in projections was driven by a momentum-gaining labor market and potential hawkish policies which were revealed in the minutes from the Dec. 14-15 Federal Open Market Committee meeting.
As inflation will probably remain above target, the New York-based firm predicts rate hikes in March, June, September and December. They also reversed their earlier projection, which stated that the start to the runoff won’t require a quarterly rate hike.
In its last meeting, the Federal Reserve indicated that it is pushing for a quicker tightening and normalization of monetary policy. This is to combat strong inflationary pressures and an economy approaching full employment.
Wages increased and the country’s unemployment rate declined to under 4 percent last month, signaling a tight labor market.
 
RIYADH: Saudi Arabia’s United Electronics Co., known as eXtra, posted its highest-ever estimated annual profit for the fiscal year 2021.
Net profit jumped by 42 percent from a year earlier, reaching SR397 million ($106 million) despite a slight drop in revenues, it said in a bourse statement.
This was attributed to consumer finance and services sector growth which led to an increase of 14.1 percent in gross profit.
eXtra registered a gross profit of SR1.19 billion in 2021, compared to SR1.04 billion last year.
The company also noted that the net profit of subsidiary United Co. for Financial Services grew by 500 percent, recording SR129 million in 2021.
Khobar-based eXtra was established in 2003 and is part of the Kingdom’s electronics and appliance stores industry.
 

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