Saudi Arabia’s banks earned nearly SR30.9 billion in 2011 to net their highest income since 2006 as a result of a pick up in domestic credit and lower loan loss provisions, according to official data.
The net earnings by the country’s 12 commercial banks were around 18 per cent higher than the 2010 income of about SR26.1 billion and marked a return to profit growth by the banking sector in the largest Arab economy.
Saudi Arabia’s netted their highest profits of SR34.6 billion in 2006 before the income slumped to SR30.2 billion in 2007. It continued to decline to reach SR29.9 billion in 2008 and SR26.8 billion in 2009.
Analysts said the 2011 earnings were the highest since 2006 and the second highest level in Gulf Kingdom’s banking history.
“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 the fastest pace since 2008,” said Paul Gamble, head of research at the Riyadh-based Jadwa Investments.
“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,” he told Emirates 24/7.
Saudi banks suffered from lower income after the 2008 global fiscal distress because of a sharp rise in loan loss provisions, which were also prompted by debt default by two Saudi family conglomerates in 2009.
During the two years that followed the default problem, Saudi banks chopped off a large part of their income to build up provisions against non-performing loans, with an estimated allocation of nearly SR20.4 billion.
Analysts said the large provisions and low domestic credit in the aftermath of the global crisis were the main reason for a 10.3 and 2.6 per cent decline in the banks’ net earnings in 2009 and 2010 respectively.
Saudi banks have the second largest asset base in the Arab region after UAE banks, with their combined assets standing at SR1.54 trillion at the end of 2011. Credit totalled around SR856 billion and deposits with the banks stood at nearly SR1.1 trillion by the end of the year.