Country Report Saudi Arabia May 2011

Economic performance: Banks well-placed to prosper after weak first quarter

First-quarter results from banks operating in the kingdom have been at the low end of expectations. It had been widely expected that the sector would benefit from a fall in provisioning needs, but this did not apply across the board. Al Rajhi Bank, the kingdom's biggest Islamic lender and the second-largest listed firm in the Gulf, saw profits increase by a mere 1%, to US$453m, and the country's second-biggest lender by market value, Samba Financial Group, saw profits dip by 7.1% to US$299m. In contrast, however, an HSBC affiliate, SABB, posted a 20.9% increase in net profits to US$200m, while Riyad Bank reported an 8.5% rise in profits to US$198m and the Saudi Investment Bank (SIBC) announced that its profits had increased almost eightfold to US$55m.

More, however, will be expected from the kingdom's banks throughout the rest of the year. According to research carried out by Jadwa Investment, seven of Saudi Arabia's top banks have loan-loss coverage of over 100%. In total, Jadwa said that total provisions for credit losses covered 109% of bad loans at the end of last year, compared with 86% at end-2009, with the Saudi Arabian Monetary Agency (SAMA, the central bank) now indicating that it is satisfied with the overall level of provisioning. In addition, higher deposits in Saudi banks because of recent bonuses mean that even as lending to the private sector rose by 2.9% in the first quarter—its quickest rate since the financial crisis began—banks' loan/deposit ratios are still comfortable. Consequently, with plenty of cash at hand and little need to increase provisioning, Saudi banks are well positioned to expand lending.

Interim Saudi bank results
(SR m)
Net profitsAssets
1 Qtr1 Qtr1 Qtr1 Qtr
National Commercial Bank1,4421,517264,823298,882
Samba Financial Group1,2101,123186,000191,000
Al Rajhi Bank1,6841,700172,000203,000
Riyad Bank684741174,287180,720
Banque Saudi Fransi714717121,246126,547
Saudi British Bank621751120,500126,000
Arab National Bank634587110,100120,500
Saudi Hollandi Bank23023859,70051,000
Saudi Investment Bank2820849,49251,219
Bank Aljazira136227,79135,913
Alinma Bank-757018,83329,758
Bank AlBilad535618,97821,887
Source: Tadawul.

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Elsewhere, first-quarter results from other listed companies tended to reflect the high cost of oil and the impact of a two-month salary disbursement to most Saudi employees, authorised by King Abdullah. In the case of the Saudi Basic Industries Corporation (SABIC), the petrochemicals giant, the impact of increased production was augmented by high oil prices, allowing profits to rise by 42% year on year, to over US$2bn. Meanwhile, retailers, which saw a 23.1% quarterly increase in profits, seemed to benefit from a spending splurge in the wake of the salary increases and one-off bonus packages. Separate data produced in April by SAMA showed that the value of point-of-sale transactions rose by 23% in March, while the value of cash withdrawals from ATMs was similarly up by 19%.

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