The global economic crisis has stifled real growth in the profitability of Saudi Arabia's banks in 2008 and they are projected to record stable performance in 2009, a key Gulf investment bank said yesterday.
The economy of the world's oil superpower is also expected to slow down to around 2.2 per cent this year as a result of the sharp decline in crude prices, the Kuwait-based Global Investment House said in a study.
The study, sent to Emirates Business, presented three scenarios about the Gulf Kingdom's 2009 budget performance, including a sharp fall in the actual deficit and another high fiscal surplus as a result of possible recovery in oil prices.
The study noted that Saudi Arabia's banking sector had relatively limited exposure to the global crisis on the grounds no bail-out case was reported so far.
It said the "well-provisioned" balance sheet of the Saudi banking sector reported by the country's Central Bank (Sama) (with the NPL Coverage of above 100 per cent) signals the overall good health quality of the Kingdom's banking assets.
"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. These eventualities have been adequately handled by Sama's market measures from time to time. The robust financial structure in the Kingdom remains very attractive for financial market players worldwide," it said.
Its figures showed the net profits of Saudi Arabia's banks grew by around six per cent to SR30 billion (Dh29.3bn) in the first 11 months of 2008 but added some of them were expected to record write-downs during the last quarter.
"According to our estimates, the full-year overall banking sector results in 2008 will not experience any significant growth as the banking heavyweights' performance could be mixed for the full-year results," it said.
GIH said its estimates indicate that among the listed big banks Al Rajhi Bank and Saudi British Bank will lead the growth, while Riyad Bank and Samba financial group could witness decline.
"Dependant on the stability of global stock markets in 2009, Saudi Arabia holds significant potential to attract investments. The Kingdom's continued commitment towards the implementation of local projects to ensure sustainable and balanced economic development along with banks' restructuring plans and to lower dependence on revenues from equity markets, provide a window for stable if not higher banking sector performance during the year." In another study released last week, Saudi Arabia's largest bank, the National Commercial Bank, said the Kingdom's banking performance had been affected by the global financial crisis following a sharp fall in profits in the third quarter.
After surging by 29.1 and 8.3 per cent in the second and first quarters of 2008, the combined net profits of the Kingdom's listed banks plunged by nearly 22.2 per cent in the third quarter, NCB said.
The decline was partly due to growing loan loss provisions that reached SR1.2bn at the end of September, according to the National Commercial Bank (NCB), Saudi Arabia's largest bank.
"Since the beginning of the global financial crisis, in August 2007, it became apparent that no country, industry or individual will escape the unfolding negative repercussions, whether they emanate from the mere psychological fear or the weak macroeconomic fundamentals or both," NCB said in its weekly economic bulletin, sent to Emirates Business.
"As a result, the Kingdom was no exception in being relatively impacted despite the fact the economy continued to achieve healthy twin surpluses in the fiscal and current account balances… accordingly, it is appropriate to view the Saudi banking performance in this current context especially the first decline in profitability this year by 22.2 per cent Q/Q in 3Q 2008 came in after positive growth rates of 29.1 per cent and 8.3 per cent in 1Q 2008 and 2Q 2008, respectively."
Turning to economy, GIH estimated real growth in Saudi Arabia at around 4.2 per cent and said it would slow down to 2.2 per cent in 2009. It said the performance of the Kingdom's economy, the largest in the Middle East, has been exceptional over the past few years because of high oil prices, with nominal GDP rising to nearly SR1.7 trillion in 2008.
It said real GDP growth exceeded 3.1 per cent in the past two years and was expected to reach 4.2 per cent in 2008, when oil prices climbed to their highest ever average of more than $95 a barrel.
"The growth outlook for the Saudi Arabian economy looks robust, with public and oil sectors investment program exceeding $400bn (Dh1.4trn) over next five years. In the scenario of falling oil prices and slowdown of global economy, we expect Saudi economy to record real GDP growth of 2.2 per cent in 2009 and an oil price of around $51 could lead to balancing of the 2009 budget," the report said.