Saudi banks ease foreign investment drive

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After soaring by nearly 75 per cent through 2009, the combined investments abroad by the Gulf Kingdom's 12 commercial banks edged down by around SR one billion in the first half of 2010, showed the figures by the Saudi Arabian Monetary AgencySaudi Arabian Monetary Agency (SamaSama), the country's central bank.

From around SR112.3 billion at the end of 2009, the investments abroad slumped to SR108.3 billion at the end of last January and continued to fluctuate to reach SR111.1 billion at the end of June, the report showed.

The relatively stability this year followed a sharp rise by the banks' overseas investments as they sought to counter slackening credit demand at home and the absence of government bonds, SamaSama said in its June bulletin.

The overseas investments at the end of 2009 were the highest in more than 10 years and one of their highest levels in the Saudi banking history. The figures showed they were almost six times their level at the end of 2003.

According to the Saudi American Bank Group (Samba), the surge in foreign investments during 2009 was a result of a drive by Saudi banks to invest in high-return US securities and their tightening local credit policy. It noted that such a trend has been strengthened by weakening investors' confidence in the world's oil superpower and the default problem of the Saudi Saad and Algosaibi groups.

But SamaSama's figures showed the banks were gradually easing lending curbs after taking record loan loss provisions in 2009 and an increase in projects tendering by the government as part of its massive capital spending programme for 2010.

The report showed banks' domestic credit swelled by around 3.5 per cent in the first half of 2010 after recording zero growth through 2009.

High provisions allied with slackening domestic credit activity to depress the net income of Saudi banks by around 10.3 per cent to SR26.8 billion in 2009 from around SR29.928 billion in 2008, their balance sheets showed.

Profits also slumped in the first half of 2010 by around 9.4 per cent to SR11.72 billion from SR12.94 billion in the first half of 2009.

But an expected reversal of the upward trend in provisioning later this year will combine with better domestic economic prospects to put the banks back on track and allow them to return to profit growth.

"Heavy provisioning and stagnant loan books affected Saudi banks' 2009 performance. However, it is expected that the Saudi Government's focus on economic growth, expansionary budget policy and increased spending on the infrastructure sector will help the banking sector to grow," said NCB Capital, an affiliate of National Commercial Bank (NCB), Saudi Arabia's largest bank.

"In addition, the expected introduction of the mortgage law is likely to provide an impetus to personal lending. It is also expected that the provision levels will begin declining YoY from the second half of 2010, providing room for net income growth. Hence, we have a positive outlook for Saudi banks in 2010 and beyond."

SamaSama's figures showed Saudi banks' foreign liabilities declined by over SR3billion to SR96.2 billion at the end of June from SR99.6 billion at the end of 2009.

The decline boosted the banking sector's net foreign assets to a record high of SR116.4 billion at the end of June from SR111.2 billion at the end of 2009.

By Nadim Kawach

© Emirates Business 24/7 2010