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01 December 2023

Crisis depresses Saudi banks' 2008 profits by 12.8%

By Nadim Kawach

Saudi Arabian banks suffered one of their biggest declines in net profits of more than 12 per cent in 2008 mainly because of the global financial crisis, the Kingdom's largest bank said yesterday.

But the National Commercial Bank (NCB) described the decline as "meagre" compared with the loss of more than $1 trillion suffered by the international financial system as a result of the crisis.

In a study sent to Emirates Business, NCB put the combined net profits of Saudi Arabia's 12 commercial banks at SR26.3 billion (Dh26bn) in 2008, down by 12.8 per cent from the 2007 earnings of SR30.2bn.

But the study reported a surge in the banks' collective assets by around 21.7 per cent from SR1.04trn in 2007 to SR1.26trn in 2008. Loans and advances also jumped by nearly 33.2 per cent to around SR787.5bn.

"On aggregate, the figures were in line with our expectations that the global credit crisis will eventually affect the Saudi banks, albeit with a relatively moderate impact," said NCB, which has the largest assets in Saudi banks.

"Clearly, with the global financial system writing off or losing more than $1trn, this meagre reduction in profitability represents a favourable outcome.

In addition, to the above mentioned data, the figure pertaining to the net special commission income increased by a healthy 13 per cent, from around SR25.8bn in 2007 to nearly SR29.2bn in 2008, reflecting the importance of core banking activities in cushioning the headwinds from higher provisions on global investment portfolios."

In another report, a key Gulf investment bank said the global financial crisis had impacted Saudi banks despite what it termed as their limited exposure.

"The Saudi banking sector with its limited exposure in the global financial markets was somewhat able to escape the severe implications of the global financial distress.

"However, being an important part of the intertwined global markets, some of the dampening effects were directly or indirectly translated into the Kingdom's banking sector performance," said the report by the Kuwait-based Global Investment House (GIH).

But the report presented a good outlook for those banks given the Kingdom's strong macroeconomic fundamentals, a surge in investment, reforms in some sectors and the government pledge to support the country's banking sector.

"Saudi Arabia's strong macro-economic outlook, favourable demographics, increased infrastructure investments spurred by petrodollars, along with sectoral reforms will provide various economic sectors, especially banking, with enormous future business opportunities in the Kingdom," the report said.

NCB had earlier urged the Saudi Government to support local banks by injecting more funds to offset liquidity shortage and allow them to maintain their lending activity following a sharp growth in loans and slowdown in deposits.

It also suggested that the government should retire debt owed by its affiliated establishments to local banks and raise the ceiling on the loan-to-deposit ratio.

The study noted that the lending capacity of Saudi Arabia's banks is approaching its limit, as evident from a loan-to-deposit ratio that is near a record high as well as the dependency on a short-term deposit base.

"While private credit growth in general and corporate credit growth in particular registered 31.9 per cent in November and 58.4 per cent in the second quarter of 2008 respectively, deposits grew by 19.4 per cent in November," it said.

"Consequently, this propelled the loan-to-deposit ratio to a near-record high of 90.3 per cent at the end of November, which is only comparable to that of 2005, a time when consumer loans was leading the surge in lending."

Official figures showed credits extended by Saudi banks totalled SR654.5bn at the end of November, including nearly SR479.7bn as short term loans.

Deposits peaked at around SR853.9bn, including nearly SR345bn as time deposits and savings and around SR343bn as demand deposits.

Deposits by businesses and individuals stood at around SR321bn and those by government entities at nearly SR113bn.

Although Saudi banks have limited exposure in the global markets, they have not been able to escape the crisis, whose impact has been felt all over the world.