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Sat 24 Jan 2009 10:40 AM

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Saudi banks suffer end of year losses - ratings agency

Banks cite reductions in fair values for investment portfolios as a reason for losses.

The difficult global economic environment has started to impact negatively on banks in Saudi Arabia, making the outlook for all banks for 2009 'challenging',  according to Fitch Ratings on Saturday.

The preliminary 2008 results released by the 10 main commercial banks in the kingdom confirmed that the last quarter of 2008 was the worst quarter of the year for all.

Despite this the 10 banks remain among the highest rated by Fitch Ratings across the GCC region and generally have sound domestic franchises.

Their long-term issuer default ratings largely remain driven by the extremely high probability of support from the Saudi Arabian authorities (rated 'AA-') and are unlikely to change unless the sovereign rating changes, the agency said.

The expectation of tougher conditions for the banks and lower profitability in the coming months resulted in most banks' individual ratings being downgraded in December 2008.

Areas of concern include lower regional economic growth, weakened liquidity due to tightening in the interbank, wholesale and capital markets, higher funding costs and the impact on asset quality of recent rapid credit growth and asset bubbles, notably the property sector.

The report went on to say that the agency had yet to see the full audited financial statements of the Saudi banks and so would reserve judgement on any further downgrades until the statements have been reviewed over the next few months.

All the banks reported full-year profits for 2008, although National Commercial Bank, Bank Aljazira and Saudi Investment Bank stood out for reporting losses in Q408 of SAR2.5bn, SAR92m and SAR91m respectively.

The main reasons given for the losses were increased impairments and reductions in fair values in their investment portfolios.

While the relative importance will vary from bank to bank, the banks have suffered from the sharp downturn in the local and regional stockmarkets and the falling market values of their international investments in debt securities, equities and hedge funds.

These losses, in turn, affected their full-year figures which were significantly lower than their 2007 results (down 66 per cent, 72 percent and 38 percent respectively).

In comparison, Al Rajhi Bank, Arab National Bank, Banque Saudi Fransi, Riyad Bank, Samba and Saudi British Bank all saw reductions in Q408 net income compared to Q407, but at much lower levels and the impact on FY08 net income was much less pronounced.

Saudi Hollandi Bank bucked the trend with significantly improved results for Q408 and FY08, albeit following a poor performance in 2007 mainly relating to impairment in its corporate loan book. (Reuters)

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