Saudi banks’ income down 9.6% in 9 months

Lower lending allied with soaring loan loss provisions to depress the net profits of Saudi Arabia’s banks by around 9.6 per cent in the first nine months of 2010 despite earlier forecasts about better performer through the year.

Balance sheets showed the consolidated net income of the 12 commercial banks in the world’s dominant oil power dipped to around SR20.2 billion in the first nine months of this year from SR22.35 billion in the first nine months of 2009.

All but three banks saw their earnings decline as a result of slackening domestic credit and an ongoing drive by the banks to build up provisions following the 2008 global fiscal turmoil and regional debt default problems.

The only banks that recorded higher income were Banque Saudi Fransi, Al-Bilad Bank and National Commercial Bank (NCB), the largest bank in Saudi Arabia.

Balance sheets, published in the Arabic language daily Alriyadh on Friday, showed Al-Rajhi Bank Group, one of the largest banks in the Middle East, netted the highest profits of around SR5.10 billion in the first nine months of 2010 but they were lower than the SR5.29 billion netted in the same period of last year.

The Saudi American Bank Group (SAMBA), another giant bank, saw its net earnings shrink to around SR3.53 billion from SR3.72 billion while those of the Saudi Hollandi Bank slumped to around SR2.09 billion from SR2.14 billion.

The profits of Riyadh Bank receded to about SR2.061 billion from SR2.11 billion while those of the Saudi Investment Bank tumbled to SR56 million from SR293.4 million. The income of the Saudi British Bank also plunged to around SR1.4 8 billion from nearly SR2.006 billion in the same period.

The report showed the profits of NCB, the only bank which is not listed on the Saudi bourse, grew to around SR3.47 billion from SR3.28 billion. There was also an increase to SR565.8 million from SR525.3 million in BSF’s profits and to around SR87.8 million from SR51.1 million in the income of Albilad Bank.

“The decline in the profits of most Saudi banks is attributed to the return of banks to allocation of more provisions,” Alriyadh daily said.

The decline followed forecasts by SMABA two months ago that Saudi banks, which control the second largest asset base in the Arab world after the UAE, would perform better through 2010 despite weak domestic credit.

“Notwithstanding the dislocations in global financial markets, the Saudi banking sector remained largely untroubled during 2009 as demonstrated by very modest declines in profitability,” SAMBA said.

“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.” According to the study, the steady performance of the 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.”

The banks’ exposure to the financially troubled Saudi Saad and Algosaibi family businesses have forced them to chop off a large part of their income to build up provisions against non-performing loans, with an estimated allocation of more than SR10 billion through 2009 alone.

Analysts said the large provisions and low domestic credit were the main reason for a 10.3 per cent decline in the banks’ net earnings to SR26.83 billion in 2009 from around SR29.928 billion in 2008.

“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.

“A stronger stock market performance would also help to boost advisory income. Nevertheless, with abundant liquidity and growing competition, loan spreads are being squeezed again, and this is likely to weigh on profitability this year.”

In a study last month, a Saudi investment company expected a 10 per cent rise in the banks’ profits this year because of better return on foreign investments, a pick up in credit in the second half and a slowdown in provisioning.

“Banks’ earnings will be dependent on provision levels, but net income growth of 10 per cent or more in the sector is still possible…..the retail sector is showing strong organic net income growth, with its net income growing by around 27 per cent in the first quarter of this year,” said NCB Capital, an affiliate of NCB.
 

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