Saudi banks report higher profits in H1

Saudi Arabia’s banks returned to high profit growth and recorded an increase of more than 10 per cent in their net income in the first half of 2011 due to lower loan loss provisions and higher credit, according to their balance sheets.

From around SR11.68 billion in the first half of 2010, the net profits of 10 listed banks swelled to about SR12.9 billion in the first half of 2011, an increase of nearly 10.8 per cent, the financial reports showed.

The reports did not include profits of Aljazira Bank, which has not yet published first half result and those by National Commercial Bank (NCB), Saudi Arabia’s largest bank which is not listed on the stock market.

Operating income of the 10 banks grew by around 2.18 per cent to SR22.6 billion from SR22.12 billion while commission earnings slipped by 0.09 per cent to SR15.52 billion from SR15.53 billion in the same period.

“Experts said the increase in the net profits of the banks was a result of a sharp decline in NPL provisions by some banks and the absence of any such allocations by other banks,” the Saudi Arabic language daily Aleqtisadiah said.

Like in other Gulf oil producers, banks in Saudi Arabia have been jolted by the 2008 global fiscal distress and regional debt default problems.

The crises prompted most banks to step up bad debt provisioning at the expense of their net earnings, reversing years of high profits during the oil boom before the 2008 turmoil. But many banks have started to recover as they cut provisions and gradually relax curbs on domestic credit.

After a difficult period in 2009, Saudi banks reported a return to profit growth in 2010, when their net earnings rose by around four per cent to SR26.7 billion as a result of lower provisions and hither banking fees.

“Overall, the Saudi banking system remains profitable with plenty of room to grow. As the global risk averseness continues to diminish, Saudi banks cautiously follow suit and deem eventually to expand their loans portfolios….with over SRone trillion deposits on balance sheets, and a range of lending opportunities in an expanding economy, banks are set for a profitable year in 2011,” NCB said in a study on the Gulf Kigndom’s banking sector, the second largest in the Arab world after the UAE banks.

“Furthermore, massive government spending supported by the recent royal decrees will provide the stimuli for this growth.”

The study showed last year’s provisions by Saudi banks were due to loans portfolios, albeit to a slightly lesser scale compared with 2009. Total provisions stood at SR9.9 billion in 2010, nearly SR1.3 billion less than 2009.

Investment provisions plunged by a massive 82 per cent as banks shifted their investments to higher grade securities, the report said.

As for NPLs, they contracted by 10 per cent to SR23.2 billion, amounting to three per cent of gross loans, a better position than the 3.4 per cent in 2009.

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