Lower loan loss provisions boosted the net income of Saudi Arabia’s banks in the second quarter of 2010 compared to the previous quarter but the performance of some of them was below last year, a local investment firm has reported.
The combined net earnings of the kingdom’s 11 listed commercial banks were expected to have grown by around eight per cent in the second quarter over the previous quarter, the Riyadh-based Bakheet Investment and Financial Services Company said in a report.
“Saudi banks are expected to announce an eight per cent growth in net profits for the second quarter of this year compared to the first quarter as a result of a decline of about 18 per cent in provisions,” the report said.
The report said it expected their revenue from banking services record zero growth during this period because of the euro zone crisis.
“The crisis has increased the banks’ risk aversion and consequently discouraged them from giving more loans, which constitute a key source of their income… this is putting pressure on their profit margin from banking operations.”
A breakdown showed five Saudi banks would announce lower net profits in the second quarter compared to the previous quarter, while five were expected to have boosted net earnings. There were no forecasts for Alinma Bank.
Banks with lower income are Alriyad Bank, Aljazira Bank, Saudi Arabian British Bank (Saab), Arab National Bank (ANB), and the Saudi American Bank Group (Samba). Those with higher profits are Saudi Hollandi Bank (SHB), Banque Saudi Fransi (BSF), Albilad, Saudi Investment Bank (SIB) and AlRajhi.
As for the first six months of 2010 compared to the same period of 2009, five banks were expected to report higher income, including Alriyad, SHB, BSF, Samba, Alrajhi and Albilad, according to the report.
In a study last week, Samba expected banks in the world’s dominant oil power to perform better through 2010 but that they are unlikely to return to full recovery because of slow credit activity and provisioning.
“Notwithstanding the dislocations in global financial markets, the Saudi banking sector remained largely untroubled during 2009 as demonstrated by very modest declines in profitability,” said Samba, one of the largest Gulf banks.
“In fact, the sector’s net income position only worsened significantly in the first quarter of 2010, at a time when the other sectors saw their positions improve.”
The study said the steady performance of the kingdom’s banks in 2009 largely reflected what it described as a strong showing from overseas investments, which offset sharply lower yields from domestic assets.
“The dip in profits in the first quarter of 2010 reflects increased provisioning in the wake of debt problems among some major family conglomerates during 2009.”
Although they increased sharply in April, the banks’ net earnings in the first four months of 2010 were nearly 15 per cent below the profits in the same period of 2009. Balance sheets showed the banks’ combined net income totaled about SR9.633 billion in the first four months of this year compared with about SR11.3bn in the first four months of 2009.
“The sector’s performance in the current period has been more muted, with little deterioration during the height of the recession, but no sign yet of a rebound to growth. Judged on asset growth, the sector should perform better this year… banks are highly liquid and are looking to grow their loan books albeit cautiously, while private sector demand for loans is gathering pace,” Samba said.
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