JEDDAH, 18 March — Results for the nine listed Saudi banks showed continued growth and strong profitability last year mainly on the back of firm oil prices for most of 2001, as well as increased fiscal expenditure and strong monetary growth. The combined net profit of the nine listed banks rose by 6.7 percent to SR8.2 billion last year from SR7.6 billion in 2000. This was mainly due to a 7.1 percent increase in net commission income, which rose to SR9.7 billion in 2001, largely as a result of a 24 percent drop in commission expenses. Furthermore, a 7.3 percent increase in gains on investments, which rose to SR3.5 billion from SR3.2 billion in 2000, has also contributed to improved profits. Excluding Al-Rajhi Bank, which reported an 18.8 percent decline in profits last year, most banks reported double-digit profits with Medium-size Saudi banks showing significant improvement in net income. Furthermore, the combined ratio of commission income to commission expenses for listed Saudi banks (excluding Al-Rajhi Bank) has improved last year to 213 percent compared to 180 percent in 2000, with Arab National Bank topping the list at 236 percent. This indicates that the pricing of loans was moving at a slower pace than the decline in interest rates.

The combined assets of the nine listed commercial banks rose by 3.21 percent to SR363 billion last year compared to SR353 billion in 2000. In terms of structure, net investment rose by 6.5 percent to SR173 billion, amounting to 47.5 percent of total assets, while loans and advances increased 5.4 percent to SR125 billion, making up 34 percent of total assets. Meanwhile, due from banks fell 13.7 percent to SR35 billion last year as a result of lower interbank borrowing. On the liabilities side, customer deposits of the nine listed banks rose by almost 8 percent to SR263 billion last year, up from SR243 billion in 2000. This increase not only contributed to the decline in interbank borrowing, but also in raising the investment portfolio, as well as expanding the loans portfolio by about SR6.4 billion. Meanwhile, shareholders’ equity increased by 5 percent to SR40 billion last year from SR38 billion in 2000. In addition, the combined return on equity (ROE) for the nine listed Saudi banks rose to 20.62 percent last year from 20.26 percent in 2000, while the corresponding return on assets (ROA) also increased to 2.24 percent from 2.17 percent during the percent.

Including the National Commercial Bank (NCB), which is unlisted, total assets of the Saudi banking sector grew by 2.7 percent to SR463 billion last year, with net investment rising by 6.8 percent to SR214 billion, while loans and advances increasing by 4.4 percent to SR163 billion during the percent. This was mainly facilitated by a 6.8 percent rise in customer deposits to SR341 billion, and by a fast increase in shareholders’ equity, which grew by 9.9 percent to SR48.1 billion in 2001. However, Saudi banks are poised to face a tougher business environment in 2002, as interest rates are expected to remain much lower than their levels last year and with a decline in economic conditions in the Kingdom on the back of lower oil prices. This will be reflected in lower demand for banks’ credit as well as a slowdown in the growth of NIB’s, which is the major source of income for Saudi banks (making up over 46 percent of total bank deposits in 2001), forcing banks to search for new sources of income. On the other hand, consumer loans in the Kingdom have proved to be a lucrative business for Saudi banks, increasing from SR9 billion in 1998 to over SR36 billion by September 2001.

Saudi American Bank (SAMBA) continued to dominate the market as the largest listed bank in terms of profits and assets. SAMBA’s net profit grew by 12.3 percent to SR2.25 billion last year from SR2.0 billion the year before, accounting for over 27 percent of total net profits of the nine listed banks. The increase in SAMBA’s profits was largely due to a 3.4 percent rise in net commission income, which amounted to SR2.47 billion in 2001 to account for 77.8 percent of total operating income. SAMBA’s assets, on the other hand, fell by 3 percent to SR77.2 billion last year compared to SR79.6 billion in 2000. This was mainly due to a 13.9 percent decline in the bank’s net investment portfolio which fell to SR29.2 billion in 2001 from SR33.9 billion the year before. Meanwhile, SAMBA’s customer deposits rose by 6.3 percent to SR59.7 billion last year, which was mainly injected into the loans portfolio, rising by almost 7 percent to SR33.6 billion to account for 43.6 percent of total assets. Suggesting improved productivity, SAMBA’s return on equity rose to 26.8 percent last year from 23.3 percent in 2000, while the corresponding return on assets increased to 2.91 percent from 2.52 percent during the percent.

Despite Al-Rajhi Bank’s (ARABIC) 18.8 percent decline in net profits last year, it remained the second largest profit maker among the nine listed Saudi banks with net profits amounting to SR1.54 billion compared to SR1.89 billion in 2000. The decline in profits was due to a 5.25 percent drop in operating income coupled with an 8.9 percent rise in operating expenses, in addition to Al-Rajhi’s exposure to failed energy traded Enron. Moreover, fees from banking services and exchange income both fell by 27.8 percent and 38.7 percent, respectively, last year, while gains on investment (which make up 83.9 percent of total operating income) also dropped by 3.5 percent to SR2.9 billion from SR3.1 billion in 2000. In addition, loan loss provisioning increased by 7.5 percent to SR771 million last year from SR717 million in 2000. Meanwhile, Al-Rajhi’s total assets rose by 6.3 percent to SR51.7 billion last year, which was largely attributed to a 7.2 percent increase in net investment to SR42.6 billion. However, this was mainly generated by a 7.7 percent rise in customer deposits, increasing to SR39.5 billion last year from SR36.6 billion in 2000. As a result, Al-Rajhi’s return on equity fell to 22.95 percent last year compared to 29.3 percent in 2000, while the return on assets declined to 2.98 percent from 3.9 percent during the percent.

The third largest bank in terms of profits was Riyad Bank, with its net profits increasing by 11.6 percent to SR1.35 billion last year from SR1.21 billion in 2000. This rise was partly due to a 26 percent decline in special commission expenses, as well as a 167 percent increase in gains on investment, which reached SR193 million last year compared to SR72 million in 2000. However, the bank’s net special commission income, which represents over 80 percent of total operating income, fell slightly by 1.79 percent to SR2.2 billion last year compared to SR2.3 billion in 2000. Accounting for the second largest listed bank in terms of assets, the bank’s assets rose by 3.2 percent to SR67 billion last year from SR65 billion in 2000. This was mostly due to a 4.4 percent rise in loans and advances that were mainly funded by a 4.5 percent increase in customer deposits. Meanwhile, shareholders’ equity rose by 3.9 percent to SR8.3 billion last year from SR8.0 billion in 2000. In addition Riyad Bank’s return on equity improved, rising to 16.24 percent in 2001 from 15.13 percent the year before. Moreover, the bank’s return on assets also rose to 2.01 percent last year from 1.86 percent in 2000.

The medium-size banks, Al Bank Al Saudi Al Fransi (BSF), Saudi Holandi Bank (SHB), Arab National Bank (ANB), and Saudi British Bank (SABB) all continued to enjoy remarkable profitability last year, with net profits rising by 29.4 percent, 23.0 percent, 20.0 percent, and 11.8 percent, respectively. The net profits of BSF increased to SR844 million last year, which was largely because of an impressive 25.3 percent growth in net special commission income and a 10 percent rise in fees from banking, despite a 52 percent increase in provisioning to SR146 million during the percent. Meanwhile, Saudi Hollandi bank’s profits rose to SR493 million last year, mainly due to a 12.5 percent increase in net commission income and an 8.4 percent decline in credit loss provisioning.

In terms of total balance sheet, Saudi British Bank’s assets fell by 3.3 percent to SR41.9 billion last year from SR43.3 billion in 2000, while those of the Arab National Bank and Al Bank Al Saudi Al Fransi rose by 7.3 percent to SR40.4 billion and 5.3 percent to SR40 billion, respectively. Meanwhile, total assets of the Saudi Hollandi Bank registered an impressive 17.1 percent gain to SR25.2 billion last year as loans and advances grew by 14.6 percent to SR11.5 billion. Consequently, Saudi Hollandi Bank recorded a 23.9 percent return on equity last year, while the corresponding return on assets amounted to 1.96 percent. Meanwhile, both Al Bank Al Saudi Al Fransi and Saudi British Bank registered a 20.98 percent return on equity, while the Arab National Bank’s was much lower at 14.4 percent. Finally, both the Saudi Investment Bank (SAIB) and Bank Aljazira reported 9.89 percent and 10.25 percent increase in profits last year, as net special commission income rose by 7.8 percent and 11.3 percent, respectively. However, SAIB’s assets rose by 12 percent to SR15.2 billion last year, while those of Bank Aljazira declined by 1.4 percent to SR5.1 billion. As a result, Bank Aljazira ‘s return on equity amounted to 8.3 percent, while return on assets was at 1.12 percent, both were much below the sector’s averages of 20.6 percent and 2.24 percent, respectively, in 2001.

In 2001, listed Saudi banks (except Al-Rajhi Bank) have started publishing their assets, liabilities and income figures on business segment basis for the years 2001 and 2000. This, however, helps to identify return on assets by banks’ different operations and to analyze the performance of the various business units both within each bank and across the sector. For listed Saudi banks (excluding Al-Rajhi Bank), total assets of the retail banking segment rose by 7.6 percent to SR58.2 billion in 2001, while those of treasury and corporate banking grew by 4.94 percent to SR250.2 billion. Meanwhile, net income for retail banking grew by 8.4 percent to SR2.7 billion, representing 41 percent of total net income, while that of treasury and corporate banking increased by 17.2 percent to SR3.4 billion, accounting for 51 percent of total net income. As a result, return on assets for retail banking stood at 4.6 percent last year, while that for treasury and corporate banking amounted to 1.3 percent. By excluding Saudi American Bank (SAMBA) from the list (in order to disaggregate treasury and corporate banking operations), the return on assets for retail banking, corporate banking, and treasury operations amounted to 5.8 percent, 2.1 percent and 0.6 percent, respectively, indicating that retail banking is the largest profit center for Saudi commercial banks.

Across banks, Riyad Bank’s retail operation was the most profitable in 2001, generating a 41 percent increase in net income to reach SR663 million and an 11.5 percent return on assets. Meanwhile, BSF’s retail business came in second place with a 10.7 percent return on assets, adding SR236 million to net income, while Bank AlJazira’s retail operation generated the least net income of SR10 million and the lowest return on assets of 0.72 percent last year. On the other hand, Saudi American Bank’s corporate and Treasury operation produced SR1.14 billion in net income in 2001, registering a 2.47 percent return on assets, the highest across Saudi banks, above the sector’s average of 1.35 percent, and indicating a more efficient corporate banking unit. However, the Arab National Bank’s corporate and treasury operations generated the least return on assets with an average of 0.65 percent in 2001.

(The author is chief economist at the National Commercial Bank in Jeddah)