Saudi banks head for high profits in 2012

Domestic credit rebounds as banks cut provisions and economy picks up

Saudi Arabia’s banks netted more than SR21 billion in the first seven months of 2012 as lending continued to gain momentum and allow them to net one of their highest incomes in many years, according to official data.

The figures by the Saudi Arabian Monetary Agency (SAMA), central bank, indicated the Gulf Kingdom’s banks could be heading for one of their best financial years following negative profit growth during 2009-2010.

At that pace of earnings in the first seven months, analysts expect full year net profits of the Gulf Kingdom’s 12 commercial banks to largely exceed SR30 billion and the level could be one of the highest incomes in the Saudi banking history.

SAMA’s monthly report showed the banks’ net earnings stood at SR21.34 billion during January-July, an average of more than Srthree billion a month.

It showed banks earned SR3.46 billion in January, SR3.1 billion in February and SR2.6 billion in March, a quarterly income of nearly SR9.3 billion. The income in the second quarter stood at SR8.8 billion while it stood at SR3.23 billion in July.

Experts said the high earnings were a result of a surge in domestic credit as banks are slowing down their bad debt provision build up and taking advantage of an upswing in the economy and in public sector projects.

The surge in credit followed a sharp slowdown in previous years in the wake of the 2008 global fiscal distress and debt default by two Saudi family businesses.

Slackening domestic credit allied with a rise in provisions to trim Saudi banks’ net profits to around SR26.8 billion in 2009 from SR29.9 billion in 2008. Profits again slipped to SR26.1 billion in 2010 before bouncing up to SR30.9 billion in 2011, their highest level since 2006 and the second highest in banks’ history.

SAMA’s figures showed banks’ claims on the private sector swelled by about 10 per cent in the first seven months of 2012 and 10.7 per cent through 2011. Credit grew by nearly 5.5 per cent in 2010 and was dormant in the previous year.

Recovering credit allied with higher commission and investment return to boost Saudi banks’ net profits by nearly 18 per cent to around SR30.9 billion in 2011 from nearly SR26.1 billion in 2010.

The surge marked a return to profit growth by the banking sector in the largest Arab economy after a decline in the previous four years.

Saudi Arabia’s banks netted their highest profits of SR34.6 billion in 2006 before the income slumped to SR30.2 billion in 2007.

During the two years that followed the domestic default crisis, Saudi banks chopped off a large part of their income to build up provisions against non-performing loans, with an estimated allocation of nearly SR20.4 billion.

Saudi banks have the second largest asset base in the Arab region after UAE banks, with their combined assets standing at SR1.62 trillion (Dh1.60 trillion) at the end of July against about Dh1.72 trillion for UAE banks in June.

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