Jan 29 2009 |
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Saudi Banks' FY08 Earnings Hammered by 4Q08 Results
Global Investment House - Kuwait - Saudi Arabia Banking Sector- Saudi banking sector despite some dampening effects in 4Q08 (due to being a part of the intertwined global markets) remains an attractive destination for financial institutions worldwide. The year 2008 that has seen some major global banks' subdued performance or even closures, was still different for the Saudi banking sector where the listed Saudi banks recorded profitability (YTD) growth of 1.6% till 9M08. However the picture changed in 4Q08 as some of the bank's either actually realizing losses or being prudent increased provisions /financial allocations for recording any decline in investments portfolios. Thus, leading to FY08 profitability decline of 1.1% (from the consolidated net profit of SR24.1bn in FY07 to SR23.9bn in FY08). In contrast, the listed Saudi banking assets continued to grow posting an annual increase of 25.7%, closing FY08 at more than SR1.0trillion.
4Q08 Subdued Financial Performance
Al Rajhi Bank with 4Q08 net profit of SR1.4bn and FY08 profitability of SR6.5bn led the banking sector performance. Overall, the market heavy weights posted mixed (FY08) results with Al Rajhi Bank and Saudi British Bank recording an increase of 1.2% & 12.0%, respectively; while SAMBA Financial Group and Riyad Bank posted decline of 7.5% & 12.4%, respectively. With the exception of Saudi Hollandi Bank and Bank Al Bilad financial results for 4Q08, all the Saudi banks recorded quarterly decline in net profits. Most of the banks learning from the experience of lower fee based income in 2007 (due to then dampened stock market activity) embarked on plans to decrease dependence on revenue from equity market activity. However, before they could considerably diversify their revenue sources, the 2008 downturn in global markets is believed to have a significant impact on investment portfolios.
Top Performers
Underperformers
Sector Outlook
Although 4Q08 banking results reflected some dampening effects mainly due to setting aside of higher financial allocations in consideration to market conditions, the overall good asset quality of the Saudi banking sector is maintained with well provisioned banks' balance sheets and not reporting of even a single bail out during 2008 global crisis. Saudi Arabia with optimistic macro-economic outlook, favourable demographics, ability to support infrastructure investments through its sovereign muscle, sectoral reforms, and last but not the least depending on the stability of global stock markets in 2009, holds significant potential to attract investments. This provides the Kingdom's banks with enormous future business opportunities. The supportive domestic economic measures & positive developments in global financial arena, coupled with banks' restructuring plans and efforts to lower dependence on revenues from equity markets provide a window for modest banking sector performance in 2009.
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© Press Release 2009
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