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Mon 19 Jan 2009 11:33 PM

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Saudi banks post lower Q4 profits

Higher provisions have led to three of Saudi Arabia's largest banks posting lower Q4 profits.

Three of Saudi Arabia's largest banks reported ower fourth-quarter profits after booking higher provisions to cover local and foreign investments and growing lending activities.

However, they have so far avoided posting the types of historic losses that have plagued the West.

Like other banks in the Gulf Arab region, Saudi banks have faced lending constraints in the second half due to the global credit crunch.

A sagging stock market and rapid fall in oil prices made banks more picky in lending as deposit growth slowed, bringing many lenders close to regulatory limits.

"The results seem reasonable given the slowdown in the market," said Ibrahim al-Alwan, deputy chief executive at Riyadh-based KSB Capital Group, who pointed to a series of central bank moves to defrost credit markets since the autumn.

The Saudi central bank has slashed its benchmark repurchase rate five times since October by a total of 350 basis points to 2 percent. It has also lowered bank reserve requirements to 7 percent from 13 percent while pouring $3 billion into long-term deposits, to shore up liquidity.

"Now there is reasonable liquidity in the banking system and in the first quarter, they could have better margins," as-Alwan said.

Al-Rajhi Bank, the kingdom's largest lender by market value, posted a worse than expected 9.6 percent drop in fourth-quarter profit which it attributed to a rise in provisions.

It made 1.424 billion riyals ($380 million) in the three months to Dec. 31, its lowest quarterly net profit since 2005, while analysts were betting on at least 1.52 billion riyals, according to a Reuters survey last month.

"The decline in the fourth quarter was due to an increase in financial provisions," Rajhi said in a statement. "The bank's investment portfolio has grown ... and as a result the bank boosted its financial provisions," it said.

The Islamic lender uses the term investments to refer to lending activity.

The bank's fourth-quarter operating profit rose 12.5 percent to 2.67 billion riyals, after it boosted loans by 37.3 percent while deposits grew by only 30 percent.

One Gulf-based analyst, who declined to be named, said Rajhi's stable base of retail clients provided cashflow needed to invest in its corporates and investment banking business to take advantage of a government spending boost in 2009.

"I'm pretty confident that there won't be any big write downs. But because they are a retail bank you may see an increase in non-performing loans," he said.

The kingdom's third largest bank by market value SABB bank, in which HSBC is the largest single shareholder, said net profit fell 6.8 percent to 657 million riyals in the fourth quarter, in line with analysts' forecasts.

SABB said it had to make "additional provisions to confront the decline in capital markets". It did not elaborate.

Riyad Bank, the fourth largest lender, said fourth-quarter net profit fell 33 percent, below analysts' forecasts, although operating profit rose 13.2 percent.

Riyad had to book provisions to "confront the decrease in the current value of investments in local and foreign market". Riyad bank did not elaborate.

Saudi Hollandi Bank was the exception, announcing a fourth-quarter net profit of 309 million after a net loss of 106 million riyals in the year-earlier period.

Hollandi, in which a consortium led by Royal Bank of Scotland is a key shareholder, attributed the performance to lower costs and lesser provisions for bad debts. (Reuters)

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