Saudi banks appear to be performing better in the second half of this year as they resume lending to the government and their credit to the private sector edges up, a local investment firm said on Thursday.
The combined net profits of the 12 commercial banks in the world’s oil superpower stood at around SR3.1 billion in July, their highest monthly level since the start of 2010, according to official data.
The profits were nearly double the earnings of around SR1.7 billion recorded in June and only about 0.4 per cent lower than the income in July last year.
“Greater lending may have helped profitability, as bank profits in July were only 0.4 per cent down in year-on-year terms compared to an average decline for the first half of the year of 13.8 per cent,” the Riyadh-based Jadwa Investment said.
“Bank lending to the private sector grew in line with the average for the year to date in July…. bank lending to the public sector also increased, causing excess bank reserves at SAMA to fall to a 19- month low and possibly contributing an improvement in profitability,” Jadwa said in a study sent to Emirates 24/7.
Its figures showed credit to private sector grew by around 0.6 percent in July. In year-on-year terms growth picked up to a one-year high of nearly 4.9 percent.
Figures by SAMA ( the Saudi Arabian Monetary Agency) showed the banks’ cumulative net profits stood at around SR16.6 billion in the first seven months.
During the first half, the net earnings of the 11 listed banks, excluding the Gulf Kingdom’s largest bank, National Commercial Bank, declined by nearly 9.4 per cent to SR11.72 billion from SR12.94 billion in the first half of last year.
Their balance sheets showed the earnings also dipped by about 9.4 per cent to SR5.93 billion in the second quarter of 2010 from around SR6.54 billion in the second quarter of 2009. But the consolidated quarterly income was slightly higher in the second quarter compared with the first quarter of 2010, when it stood at SR5.79 billion, according to their statements.
Like in other Gulf oil producers, Saudi banks have seen their profits eroded by heavy loan loss provisions following the 2008 global fiscal distress and a severe debt default crisis involving two Saudi business conglomerates.
According to another Saudi investment firm, an expected reversal of the upward trend in provisioning later this year will ally with better economic prospects to put Saudi banks back on track and allow them to return to profit growth.
“Heavy provisioning and stagnant loan books affected Saudi banks’ 2009 performance. However, it is expected that the Saudi Government’s focus on economic growth, expansionary budget policy and increased spending on the infrastructure sector will help the banking sector to grow,” NCB Capital said.
“In addition, the expected introduction of the mortgage law is likely to provide an impetus to personal lending. It is also expected that the provision levels will begin declining YoY from the second half of 2010, providing room for net income growth. Hence, we have a positive outlook for Saudi banks in 2010 and beyond.”
SAMA’s figures showed banks’ lending was slowly gaining momentum, with claims on the private sector edging up to SR7464.6 billion at the end of July from SR760.3 billion at the end of June and SR734 billion at the end of 2009.
Claims on the public sector, including the government and affiliated institutions, jumped by more than SR7 billion to SR205.6 billion at the end of July from SR198 billion at the end of June. The increase followed a steady decline in the previous three months and Jadwa did not mention reasons for the big rise.
The pick-up in domestic lending was at the expense of the banks’ overseas investments, which fell to SR108.8 billion at the end of July from SR111.1 billion at the end of June after a rapid rise in the previous months. At the height of the global crisis and debt default problem, Saudi banks invested a record SR48 billion in US securities and other markets abroad during 2009.
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