Saudi banking assets grew by 14% in 2012

Updated 27 August 2013
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Saudi banking assets grew by 14% in 2012

The domestic banking system in Saudi Arabia relative to many of the global peers, developed or developing, had maintained its inherent strengths that emanate from greater reliance on core banking activities, lower non-performing loans (NPLs) ratio, little recourse to wholesale funding and ample liquidity.
During the last two years, Saudi banks have returned to a higher growth trajectory after a lackluster performance in 2009 that saw total credit and in turn profitability shrink on an annual basis by 1.1 percent and 0.2 percent, respectively.
The inflection to double-digit net income growth that started in Q2, 2011 aided banks in crossing the SR35 billion threshold in 2012 for the first time since 2006, according to a report by the National Commercial Bank (NCB).
In comparison to other countries, the Saudi banking system had a comfortable loan to deposit ratio (L/D) of 77.3 percent by the end of Q1, 2013, a level that reflects excess capacity to lend and a lower systemic risk.
Meanwhile, the capital adequacy ratio (CAR), which rose to 17.4 percent, is another signal of an ample cushion to match the embedded risk in assets, especially after taking into consideration the lower capacity utilization compared to regional and international counterparts, with the UAE, Kuwait and Russia at 90.4 percent, 91.6 percent and 124.3 percent L/D ratios, respectively.
The improvement in asset quality since mid-2011 is another plus for the domestic banking system, illustrating the prudent management and supervisory practices that have been applied by banks and SAMA (Saudi Arabian Monetary Agency).
Indeed, the buoyant domestic business cycle had reduced credit and investment provisions, as NPLs fell drastically from a record SR25.8 billion in 2009 to SR19.9 billion by the end of 2012.
Given the robust economic growth Saudi Arabia is experiencing, banks have been able to expand their portfolios and improve their asset quality.
The government's expansionary fiscal policy is providing adequate opportunities for businesses, thus, creating a favorable landscape for banks.
During 2012, total banking sector assets grew by an annual 14.0 percent, the first double digit growth in assets post the financial crisis, and the momentum was carried over with a growth of 11.7 percent by the end of March 2013. The oligopolistic market structure remains to be dominated by NCB, Al-Rajhi, Samba Financial Group, and Riyad Bank, holding a combined 58.2 percent of total assets by the end of Q1, 2013.
NCB maintains its dominant position with regards to total assets at 20.4 percent, followed by Al-Rajhi that captures around 17.1 percent of the banking sector's assets.
The newest bank in the Saudi financial system, Alinma Bank, has been growing rapidly with its assets rising by 41.0 percent Y/Y, reaching SR56.2 billion by the end of Q1, 2013.





This helped Alinma Bank to surpass Bank AlJazira’s SR54.1 billion and judging by Alinma’s pace of growth, the bank will establish itself in the middle-sized bracket within the next couple of years.
Regarding banks' assets, the NCB report said, they are mainly composed of loans and investments, representing a combined share of 82.4 percent by the end of March 2013. Almost 10 years ago, the banking system's growth strategy was focused on investments as they were the largest item on the asset side of the balance sheets. However, with continuous remodeling towards conventional core banking over the past decade, loans and advances have been amassing the majority of total assets. Net loans and advances climbed over the SAR1 trillion mark in 2012 and extended its rise by 16.4 percent Y/Y in Q1, 2013 given the improved risk appetite that is expected to continue this year. Credit to the private sector sustained a healthy pace throughout last year and early 2013, yet it is likely to moderate as banks pause to assess asset quality. During Q1,2013, commercial loans grew annually by 13.9 percent, while consumer loans accelerated at a faster pace of 22.6 percent Y/Y. Al-Rajhi’s strong retail presence translates into a 17.2 percent market share of total net loans. In its pursuit of joining the top players, Alinma Bank expanded its loans portfolio by 42.8 percent to reach SR39.4 billion by the end of the first quarter 2013. The Saudi Investment Bank was the second top performer following their "clean up" of non-performing assets, recording a growth of 32.2 percent Y/Y, while Riyad Bank set the slowest pace at 6.4 percent Y/Y, during the same period.
On the liability side, industry-wide deposits posted a new record of SR1.36 trillion by the end of Q1, 2013.


Pace of Saudi Arabia’s private sector sell-off accelerates

Updated 7 min 40 sec ago
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Pace of Saudi Arabia’s private sector sell-off accelerates

Frank Kane Dubai: Saudi Arabia’s ports, hospitals, desalination plants, schools, and even its sports clubs, are among the candidates for early transfer to the private sector in a program that the government hopes will generate up to SR40 billion ($10.6 billion) in revenue over the next two years.
The National Center for Privatization (NCP), the body responsible for implementing the big state sell-off program, released details of its privatization plan after the Council of Economic and Development Affairs, chaired by Crown Prince Mohammed bin Salman, approved the proposals to increase private sector involvement in the economy — a vital part of the Vision 2030 strategy to reduce oil dependency.
The aim is to increase the private sector contribution to gross domestic product from 40 percent to 65 percent by 2030.
The NCP said that the privatization program would save the government around SR35 billion, add SR14 billion to gross domestic product, and generate up to 12,000 new private sector jobs in the Kingdom by 2020 — the initial phase of the sell-off.
“The scale is very realistic given that privatization is a complex and time-consuming process from a host of perspectives, including regulatory, governance and legal,” said John Sfakianakis, director of economic research at the Saudi Arabia-based Gulf Research Center.
“The estimated amount is equally pragmatic at this stage. These numbers change both due to valuations and appetite as well as economic conditioning with time.”
Other parts of the national economy are also earmarked for some form of privatization under the Delivery Plan 2020. Transport, the renewable energy industry and flour mills are all scheduled in an NCP report that lays out the structure and conditions of the state sell-off program.
“The most important characteristic is the commitment to push ahead with privatization as well as do it in a phased way over the next few years that involves a number of different sectors. There is an evolutionary phase to any privatization process that involves multiple phases over time,” said Sfakianakis.
The King Faisal Specialist Hospital and Research Center, the Riyadh facility regarded as the jewel in the crown of Saudi medical facilities, is named as a subject for incorporation as a prelude to becoming a non-profit organization “to become financially independent and a role model in the health sector and help in achieving its leadership position through focusing on innovation.”
Other hospitals will be privatized by the handing over of medical facilities to private operators and the creation of new medical cities, as well as primary care facilities, the provision of rehabilitation services, radiology and laboratory
upgrades.
In a statement, Turki Al-Hokail, chief executive of the NCP, identified other sectors that would be the focus of the privatization plan, including agriculture, housing, energy and Hajj and Umrah services.
“The privatization program aims to enhance competitiveness, elevate the quality of service and economic development, and improve the business environment through privatizing government services,” he said.
The privatization program has been an element of the Vision 2030 strategy since it was launched two years ago, but the latest document sets out a firmer timetable for the sell-off. It identifies “game changers” — businesses that will “receive special attention from the leadership to ensure their successful completion.”
The first three “game changers” are Saudi Arabian ports, the Saline Water Conversion Company at Das Al-Khair and what the NCP calls “opportunity explorers” — structures aimed at facilitating partnership opportunities between the public and private sectors.
The NCP makes clear it is keeping its options open in choosing what kind of privatization is appropriate for a sector: “Full or partial asset sale, initial public offering, management buy-out, concessions or outsourcing” are all under consideration.
Some 100-plus privatization initiatives have been identified across 10 ministries, of which some (including sports clubs, grain silos and desalination) are expected to be completed by 2020.
Jason Tuvey, Middle East economist at Capital Economics, said that the estimate of selloffs were lower than what was possible given the “vast number” of companies that the Saudi state wholly owns or has a controlling stake in.
“Excluding the Aramco IPO, we’ve previously estimated that the government could raise around $25-50 billion from privatizations,” he told Arab News.
The document also makes clear that foreign participation will be allowed in some parts of the program.
The NCP program does not include any assets owned by the Public Investment Fund, the body which is intended to become the world’s largest sovereign wealth fund with assets of $2 trillion by 2030 and which will retain the right to sell the assets it owns in partnership with the government.
The NCP program also does not include residential real estate assets which are unlocked for private sector usage by contractors and real estate developers, and which are covered by the national housing program.
Ministers have said that the overall privatization program could raise as much as $200 billion in sell-of proceeds in the years running up to 2030, but there is no certainty as to how that figure will be reached. In Riyadh last week government officials gave a more conservative estimate of between $50 and $60 billion.
The plan also makes it clear that there is still work to do on the legislative and regulatory framework within which privatization will be pursued. The first of the three “strategic pillars” of the Delivery Plan is the creation of such structures “to enable privatization processes and governance by setting clear and specific procedures that increase the level of preparation and execution of privatization.” Key initiatives remain to be fulfilled in this respect, the document says.
Al-Hokail added: “The privatization program is in the interests of Saudi citizens, will bring many benefits, and improve the investment climate. The program’s strong governance foundation will be a strong pull factor for global investors and large corporations because it sets the guidelines that will make the program attractive.”


HIGHLIGHTS
- The National Center for Privatization hopes the 2020 privatization program will contribute SR13-14 billion to Saudi Arabia’s GDP.
- Total government proceeds from asset asset sales will total between SR 35 billion.
- Net savings (capex and open) from privatization and PPP projects are forecast to be SR25-33 billion.
- Between 10-12,000 new private sector jobs will be created.
- The privatization program aims to enhance competitiveness, and improve the Kingdom’s business environment through privatizing government services.