Saudi Arabia’s banks netted about SR25.4 billion (Dh25.1bn) in profits in the first 10 months of 2009 and analysts believe the annual income could be equivalent to the earnings achieved in 2008.
The combined net profits of the kingdom’s 12 banks stood at SR2.18 billion (Dh2.15 billion) in October while their income for the third quarter was estimated at nearly SR7.05bn, according to the Saudi Arabian Monetary Agency (Sama)Saudi Arabian Monetary Agency (Sama)Saudi Arabian Monetary Agency
Experts described the performance of the banks as generally good considering the corporate debt default problem that has hit two Saudi family conglomerates, an economic slowdown and lower credit growth by the banks.
“I think the general performance of the kingdom’s banks this year has been better than expected,” said Mohammed Yunus, senior economist at the National Commercial Bank, Saudi Arabia’s largest bank by assets.
“Considering the difficult economic conditions in the Kingdom this year, the default problems and other factors, I think their performance was very good,” he said.
“There was slower growth on an individual basis but there was no loss.”
Yunus said Saudi banks managed to keep earnings at reasonable levels because of better net interest income, higher earnings from commission and fees, and probably better return from overseas investment.
He expected the combined profits to be “more or less” equivalent to those in 2008.
In 2008, the total net profits of Saudi banks stood at about SR29.92bn, down from a record SR30.26bn in 2007. Discouraged by receding investors’ confidence and growing lending risks, many Saudi banks began this year channelling their investments back into global markets, mainly high-yield US securities, according to Saudi bankers.
The increase in investments abroad was at the expense of domestic credits, which have sharply slowed down this year because of the Saad and Algosaibi default crisis, waning domestic demand and tougher lending policy.
Sama’s figures showed Saudi banks’ claims on the private sector recorded negative growth in the first half of 2009, dipping from about SR734.5bn at the end of 2008 to SR728.8bn at the end of June. They surged to SR742bn at the end of July and rose slightly to SR747bn at the end of October.
In contrast, the banks’ foreign assets jumped from SR153.9bn at the end of 2008 to about SR178.8bn at the end of June and SR191.5bn at the end of October.
In a recent study, the Saudi American Bank Group (Samba) attributed the faltering domestic lending by Saudi banks this year to the default crisis, slackening local demand, their adoption of a stricter and more selective lending policy, and their preference to invest in higher yielding US securities.
“Many banks have opted to channel surpluses towards higher-yielding foreign securities. The continued weakness in lending growth comes despite fresh measures by the authorities to stimulate lending, including reducing treasury bill yields and, most recently, lowering rates on commercial bank deposits held with the Saudi Arabian Monetary Authority,” it said.
“But rather than channelling additional liquidity towards the private sector, many banks have instead chosen to buy higher-yielding foreign assets.”
“We now expect Saudi banks to record negative earnings per share growth this year, largely because of greater provisioning for bad loans,” the Riyadh-based Jadwa Investments Company said in a study.