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03 March 2024

High provisions hit Saudi banks

By Nadim Kawach
A sharp rise in bad debt provisions allied with slackening lending activity to smother the performance of Saudi Arabia’s banks in 2009 although their net earnings were only slightly lower, a key Saudi bank said yesterday.

The drop in the combined net income of the kingdom’s 12 commercial banks largely depressed growth in the 2009 profits of more than 130 companies listed on the stock market, National Commercial Bank (NCB) said.

Taken collectively, the combined net earnings of 132 listed firms that have released 2009 results swelled by around 25.6 per cent to nearly SR57.7 billion (Dh57bn) from about SR45.9bn in 2008, NCB said in its weekly economic bulletin sent to Emirates Business.

It said the 2009 earnings were nearly 47 per cent lower than the record income of SR86.54bn attained in 2007. 

“Excluding the profitability of the 11 listed Saudi banks, the combined net-profits rose strongly by 63.9 per cent to SR35.5bn in 2009, even though the main contributor Sabic’s net-earnings dropped by nearly 59 per cent,” it said.

The figures showed the collective net profits of the 11 Saudi listed banks, excluding NCB itself, shrank by around 8.6 per cent to SR22.22bn in 2009 largely on credit related provisions.

“However, with NCB’s strong positive outcome, the kingdom’s banking sector’s earnings plunge moderated to just 0.3 per cent down to SR26.3bn.”

According to the study, the 60.3 per cent plunge in petrochemical earnings was largely due to prices in the international markets that affected Sabic profits.

The companies which were largely influenced by domestic economic activities were the biggest gainers, with the agricultural sector showing a 62 per cent earning growth last year, followed by industrial investment (23.5 per cent), hotel and  tourism (211 per cent) and the retail sector (six per cent).

In another study, a Kuwaiti investment bank said Saudi banks, which control the second largest bank assets in the Arab world after the UAE, had remained largely stable during crises due to their strong fundamentals at a time when a large number of international financial institutions needed support.

“Low leverage, conservative provisioning policies, low loan to deposit ratio, limited exposure to toxic assets and well capitalized balance sheets placed Saudi banks in a relatively comfortable position,” Global Investment House said.