The General Authority of Zakat and Tax (GAZT) has replaced its old methodology of calculating zakat with a 10 percent corporate income tax retrospectively, which is expected to be applied in the GCC down the line, Arqaam Capital claimed in a new report.
Last week, 12 Saudi banks reached a settlement with GAZT of SAR 16.7 billion to resolve the longstanding Zakat issue, leaving a hit to shareholders' capital of SAR 11.3 billion, or one percent of risk-weighted assets (RWAs), as banks already set aside partial provisions, the report added.
Calling the settlement as "broadly positive", the consultancy said it has increased the target prices (TPs) for the banks by 1.7 percent on average, as "the SAR 11.3 billion settlement was well below its initial worst-case estimates of SAR 21.5 billion."
Al Rajhi was the most hit followed by Bank AlJazira, Saudi Investment Bank, Albilad Bank and Banque Saudi Fransi.
"We remain strongly overweight on Saudi banks ahead of index inclusion, rising Saibor (still 50 basis points in FY 19 after December hike) and improving credit growth," the report noted.
According to Arqaam Capital, zakat settlement, which is 44 basis points of GDP, continues to support the modernization of Saudi Arabia's fiscal policy framework with a hit of just 60 bps to capital adequacy ratio.
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