Saudi banks’ net income exceeds SR 35 bn in 2012

Updated 11 March 2013
0

Saudi banks’ net income exceeds SR 35 bn in 2012

The Saudi banking system anchored its stability with precautionary measures and effective capacity utilization over the past two years. High liquidity, adequate capitalization and prudent risk management and supervision represent the backbone of Saudi's banking overhaul. Following a successful rebound in 2011, the 12 locally incorporated banks' net income during 2012 recorded a staggering SR 35.1 billion, an annual growth rate of 11 percent, according to a report by the National Commercial Bank (NCB).
Net special commission income accelerated by 5.3 percent last year as the low interest rate environment was offset by expanding the loans portfolio. Banks granted new credit facilitates to the public and private sector over the course of 2012 worth SR 143.4 billion, an increase of 16.7 percent. Additionally, banking fees continue to grow at double-digits as activity in the stock market supported higher brokerage income levels. With a large deposit base, however, capacity utilization has not reached the optimum level despite the pickup in lending. Most importantly, the report said non-performing loans (NPL) have declined to 2.0 percent of gross loans, down from 2.2 percent in 2011. Accordingly, the NPL coverage ratio for the domestic banking system edged higher to 138.2 percent, outperforming many global counterparts.
The NCB report said equity market rebounded off 2011's contraction and recorded a gain of 6 percent during 2012 on the back of strong fundamentals and healthy investor appetite.
However, Tadawul continued to be heavily influenced by global economic developments, which easily swayed stock prices either way. The market's peak was recorded in early April as the index increased by 23.6 percent, but the performance was short-lived as Tadawul wiped almost 90 percent of its gains within three months.
Global turmoil as well as the Arab Spring weighed negatively on the local market, but with a gradual return to a semblance of normalcy in the US, euro zone, and China, Tadawul is expected to run at full throttle this year. Market activity recorded a growth of 73.8 percent as average daily traded values rose to SR 7.7 billion compared to SR 4.4 billion during 2011 and the depth of the market has expanded by seven initial public offerings (IPO) in 2012 worth SR 5.3 billion, up from SR 1.7 billion.
The bank said, in line with market activity, investor appetite for IPOs significantly increased as oversubscription rose from an average of 2.19 in 2011 to 5.62 times during 2012. Additionally, corporate earnings have been supported by growing business activities as the market's cumulative net income rose to SR 97.7 billion, approaching the SR 100 billion mark. Ostensibly, stock valuations remain attractive given the relatively low price-to-earnings (PE) ratio of 12.75 by the end of 2012, offering lucrative opportunities for investors.
On the other hand, given the large share of retail investors, representing over 90 percent of traders, speculative trading continues to outweigh long-term investment horizons, which will surely remain a drag on Tadawul's potential.
The NCB report also said Saudi Sukuk issuances in terms of value and number have managed to shake off the aftermath of the financial crisis by setting a record year. Malaysia yet again topped the charts by issuing 62.2 percent of global sukuk, which amounted to $90.7 billion, doubling 2011's value. Saudi Arabia experienced a record setting year that included its first sovereign sukuk issuance. The Saudi market recorded 15 issuances worth $ 10.5 billion, surpassing 2011's level by four folds.
The General Authority for Civil Aviation (GACA) issued the first sovereign 10-year Murabaha worth $ 4 billion to be mainly utilized for redeveloping King Abdulaziz Airport in Jeddah. GACA's sukuk will be important in many facets especially that it will provide a pricing benchmark for longer-tenor sukuk, energize an alternative venue for financing infrastructure projects, and enable the government to benefit from currently low yields.
Furthermore, Banque Saudi Fransi and Saudi Electricity Company both issued sukuk worth $ 1.25 billion each. On the foreign-currency front, the Islamic Development Bank issued a 5-year USD denominated Wakala Bel-Istithmar Sukuk in two tranches worth a total of $ 1.3 billion. The majority of issuances were denominated in Saudi riyal with yields ranging from 6-month SAIBOR to SEC's 4.2 percent flat rate.
The bank said: “We expect 2013 to be another record setting year as Islamic instruments become a viable avenue for project financing in the Saudi market.”


OPEC oil ministers gather to discuss production increase

Updated 30 min 19 sec ago
0

OPEC oil ministers gather to discuss production increase

  • Analysts expect the group to discuss an increase in production of about 1 million barrels a day
  • The officials were arriving in Vienna ahead of the official meeting Friday

VIENNA: The oil ministers of the OPEC cartel were gathering Tuesday to discuss this week whether to increase production of crude and help limit a rise in global energy prices.
The officials were arriving in Vienna ahead of the official meeting Friday, when they will also confer with Russia, a non-OPEC country that since late 2016 has cooperated with the cartel to limit production.
Analysts expect the group to discuss an increase in production of about 1 million barrels a day, ending the output cut agreed on in 2016.
The cut has since then pushed up the price of crude oil by about 50 percent. The US benchmark in May hit its highest level in three and half years, at $72.35 a barrel.
Upon arriving, the energy minister of the United Arab Emirates, Suhail Al Mazrouei, said: “It’s going to be hopefully a good meeting. We look forward to having this gathering with OPEC and non-OPEC.”
The 14 countries in the Organization of the Petroleum Exporting Countries make more money with higher prices, but are mindful of the fact that more expensive crude can encourage a shift to renewable resources and hurt demand.
“Consumers as well as businesses will be hoping that this week’s OPEC meeting succeeds in keeping a lid on prices, and in so doing calling a halt to a period which has seen a steady rise in fuel costs,” said Michael Hewson, chief market analyst at CMC Markets UK
The rise in the cost of oil has been a key factor in driving up consumer price inflation in major economies like the US and Europe in recent months.
Already US President Donald Trump has called on OPEC to cut production, tweeting in April and again this month that “OPEC is at it again” by allowing oil prices to rise.
Within OPEC, an increase in output will not affect all countries equally. While Saudi Arabia, the cartel’s biggest producer, is seen to be open to a rise in production, other countries cannot afford to do so. Those include Iran and Venezuela, whose industries are stymied either by international sanctions or domestic turmoil. Iran is a fierce regional rival to Saudi Arabia, meaning the OPEC deal could also influence the geopolitics in the Middle East.