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28 February 2024

Saudi banks net second highest profits in 2012

By Nadim Kawach

Saudi Arabia’s banks netted SR33.5 (Dh33.2 billion) in 2012, their second highest profits since the 2006 record income and analysts attributed the surge to credit recovery, higher investment return and project upturn.

The profits last year was nearly 8.4 per cent above the 2011 net earnings of around SR30.9 billion but the profit growth in 2012 was much slower than in 2011, when it stood at around 18.3 per cent.

Figures by the Saudi Arabian Monetary Agency (SAMA), central bank, showed last year’s net earnings were the second highest since 2006, when they profits peaked at around SR34.6 billion due to credit boom and other factors.

The increase in profits followed negative growth ion 2008-2010 because of the 2008 global fiscal distress and the ensuing debt default crisis in the Gulf Kingdom, the world’s top oil supplier and largest Arab economy.

According to a Saudi analyst, the Kingdom’s banking sector went a “long way” since the end of the global financial crisis.

Domestic strong fundamentals of both private sector activity and domestic consumption are leading to a higher demand on credit, said Fahad Al Turki, senior economist at the Riyadh-based Jadwa Investments.

He said bank lending to the private sector has started to pick up since the end of 2011 and maintained a positive trend since then.

His figures showed total bank credit at the end of 2012 reached SR999 billion with net new credit issued in 2012 at SR140.8 billion.

“The latter is near the all-time record high of 157 billion registered in 2008. As a result, it is not surprising that banks profits reached such level last year, which is indeed the second highest profit in the banking sector history for which data is available (1997-2012),” he told Emirates 24.

Slackening domestic credit allied with a rise in provisions to trim Saudi banks’ net profits to around SR29.2 billion in 2008 from SR30.2 billion in 2007. Profits continued their fall to reach SR26.8 billion in 2009 and SR26.1 billion in 2010 before rebounding in the following two years.

Saudi banks have the second largest asset base in the Arab region after UAE banks, with their combined assets standing at SR1.74 trillion (Dh1.73 trillion) at the end of 2012 against about Dh1.79 trillion for UAE banks.

SAMA’s data showed their claims to the private sector surged by around 16.5 per cent year on year by the end of 2012.

Credit growth stood at about 10/7 per cent in 2011 and only 5.5 per cent in 2010. It recorded negative growth in 2009, according to the figures.

“2012 was good thanks to quite decent projects market, strong retail activity, which helped credit cards, and high returns from investments,” said James Reeve, deputy chief economist at the Saudi American Bank Group (SAMBA).

 In a recent study, Jadwa said Saudi banks are performing better because of an upturn in lending activity and the operation of two new banks. 

“There are two main reasons for the rise in the banks’ profits last year… first, provisions for bad debt were much lower than in the previous few years and second, lending grew at a fast pace since 2008,” it said. 

“Another fact is that in 2007 Al-Inma Bank did not exist and Bank al-Bilad was just getting started. Now both banks are making good profits, which adds to the total for the sector.”