Saudi banks started 2012 on strong footing as they earned nearly SR6.7 billion (Dh6.6 billion) in the first two months of 2012 on the back of firm economic and lending recovery, according to official data.
The Gulf Kingdom’s 12 commercial banks earned around SR3.46 billion in January and SR3.28 billion in February. If that monthly average is maintained, their net income could exceed the five-year high profits achieved in 2011.
The figures by the Saudi Arabian Monetary Agency (SAMA), central bank, showed the high earnings were a result of a surge in domestic credit as banks are slowing down their bad debt provision build up and taking advantage of an upswing in the economy and in public sector projects.
The surge in credit followed a sharp slowdown in previous years in the wake of the 2008 global fiscal distress and debt default by two Saudi family businesses.
Slackening domestic credit allied with a surge in provisions to trim Saudi banks’ net profits to around SR26.8 billion in 2009 from SR29.9 billion in 2008. Profits again slipped to SR26.1 billion in 2010 before bouncing up to SR30.9 billion in 2011, their highest level since 2006 and the second highest in banks’ history.
SAMA’s figures showed banks’ claims on the private sector slipped slight down to SR734.2 billion at the end of 2009 from SR734.5 billion at the end of 2008 before edging up to SR775.7 billion at the end of 2010.
They surged by 10.7 per cent to SR858.3 billion at the end of 2011 and continued to grow to reach SR884 billion at the end of February 2012.
Their foreign assets also swelled from SR193.1 billion at the end of 2010 to SR208.7 billion at the end of 2011 and SR219.5 billion at the end of February.
The banks’ profits in 2011 were 18 per cent above the 2010 income and marked a return to profit growth by the banking sector in the largest Arab economy.
Saudi Arabia’s netted their highest profits of SR34.6 billion in 2006 before the income slumped to SR30.2 billion in 2007.
“There are two main reasons for the rise in the banks’ profits last year… first, provisions for bad debt were much lower than in the previous few years and second, lending grew at the fastest pace since 2008,” said Paul Gamble, head of research at the Riyadh-based Jadwa Investments.
“Another fact is that in 2007 Al-Inma Bank did not exist and Bank al-Bilad was just getting started…… now both banks are making good profits, which adds to the total for the sector,” he added.
During the two years that followed the default problem, Saudi banks chopped off a large part of their income to build up provisions against non-performing loans, with an estimated allocation of nearly SR20.4 billion.
Saudi banks have the second largest asset base in the Arab region after UAE banks, with their combined assets standing at SR1.60 trillion (Dh1.58 trillion) at the end of February against about Dh1.66 trillion for UAE banks.