Five out of six Saudi banks yesterday announced lower fourth-quarter profits after booking higher provisions to cover local and foreign investments and growing lending activities.
Saudi banks have so far avoided the types of historic losses that have plagued the West, but they faced lending constraints in the second half due to the global credit crunch.
A sagging stock market and rapid fall in oil prices made banks more picky in lending as deposit growth slowed, bringing many lenders close to regulatory limits.
"The results seem reasonable given the slowdown in the market," said Ibrahim Al Alwan, deputy chief executive at Riyadh-based KSB Capital Group, who pointed to a series of central bank moves to defrost credit markets since the autumn.
"Now there is reasonable liquidity in the banking system and in the first quarter, they could have better margins," Al Alwan said.
Al Rajhi Bank, the kingdom's largest lender by market value, posted a worse than expected 9.6 per cent drop in fourth-quarter profit which it attributed to a rise in provisions.
It made 1.424 billion riyals (Dh1.39bn) in the three months to December 31, its lowest quarterly net profit since 2005, while analysts were betting on at least SAR1.52bn, according to a Reuters survey last month.
"The decline in the fourth quarter was due to an increase in financial provisions," Rajhi said in a statement. "The bank's investment portfolio has grown... and as a result the bank boosted its financial provisions," it said.
The Islamic lender uses the term investments to refer to lending activity.
The bank's fourth-quarter operating profit rose 12.5 per cent to SAR2.67bn, after it boosted loans by 37.3 per cent while deposits grew by only 30 per cent.
One Gulf-based analyst, who declined to be named, said Rajhi's stable base of retail clients provided cashflow needed to invest in its corporates and investment banking business to take advantage of a government spending boost in 2009.
"I'm pretty confident that there won't be any big write-downs. But because they are a retail bank you may see an increase in non-performing loans," he said.
The kingdom's third largest bank by market value SABB bank, in which HSBC is the largest single shareholder, said net profit fell 6.8 per cent to SAR657m in the fourth quarter, in line with analysts' forecasts. SABB said it had to make "additional provisions to confront the decline in capital markets". It did not elaborate further.
Riyad Bank, the fourth largest lender, said fourth-quarter net profit fell 33 per cent, below analysts' forecasts, although operating profit rose 13.2 per cent.
Riyad had to book provisions to "confront the decrease in the current value of investments in local and foreign market". Riyad Bank did not elaborate. Banque Saudi Fransi (BSF) said fourth-quarter net profit fell 11 per cent to SAR571.3m from SAR640.5m a year earlier. BSF, whose major shareholder is France's Groupe Credit Agricole-Calyon, said its full-year net profit, rose 3.5 per cent to nearly SAR2.81bn compared with a year earlier.
The full-year profit is near to SAR2.85bn, the average of the forecasts by the three research firms Global Investment House, EFG-Hermes Holding, and Credit Suisse Group.
BSF will make additional allocations to meet growing demand for credit facilities and to face the decline in the value of investments in local and global stock markets, Ibrahim Al Touq, the bank's chairman, said.
Full-year earnings per share climbed to SAR4.99 from SAR4.82 in 2007, the lender said.
Total assets stood at SAR125.9bn at the end of 2008, up 26 per cent from SAR99.8bn a year earlier, according to the statement.
Arab National Bank (ANB) said its fourth-quarter net profit fell 11 per cent to SAR434m from SAR485 million a year earlier.
ANB, an affiliate of Arab Bank – Jordan's largest lender – said its full-year net profit rose one per cent to nearly SAR2.49bn compared with a year earlier.
The growth in net profit and in assets over the past year reveals the good quality of ANB's assets and the strength of the Saudi economy despite the global financial crisis, the bank said in a statement on the Saudi bourse website.
The full-year profit is below an average forecast estimated at nearly SAR2.71bn by research companies Global Investment House, NBK Capital-UAE, and Credit Suisse Group.
Total assets stood at SAR121.3bn at the end of 2008, up 28 per cent from SAR94.5bn a year earlier, the statement said.
ANB said in the statement that it has made additional allocations to face a decline in the value of local and global investments.
Full-year earnings per share rose to SAR3.82 from SAR3.79 in 2007, according to the statement.
Saudi Hollandi Bank was the exception, announcing a fourth-quarter net profit of SAR309m after a net loss of SAR106m in the year-earlier period. Hollandi, in which a consortium led by Royal Bank of Scotland is a key shareholder, attributed the performance to lower costs and lesser provisions for bad debts.