RIYADH, 8 March — Saudi commercial banks made higher profits in 2002 due to strong oil prices and better commission and investment performance but they face uncertainty this year because of mounting tension in the region, according to a bank report.
The net earnings of the Kingdom’s 10 banks grew by around 5.9 percent to SR10.6 billion ($2.82 billion) in 2002 from SR10.1 billion ($2.69 billion) in 2001, said the report by the National Commercial Bank (NCB), the biggest bank in the Kingdom.
The growth in 2002 net profits was lower than the level achieved in 2001 because of a decline in the income of two major banks — the Saudi American Bank (Samba) and Al-Rajhi Banking and Investment Corporation, said the report.
The nine Saudi banks trading their shares on the stock market, excluding NCB, recorded growth in most other fields, including assets, deposits and loans, mainly due to an upswing in the domestic economy and strong oil prices last year.
“Last year’s growth came on the back of a 5.3 percent increase in net commission income, which rose to SR10.3 billion ($2.74 billion), largely due to a 47.4 percent drop in commission expenses, significantly outpacing the 19.4 percent decline in commission income,” said the report, which covered the performance of the nine listed banks.
“As a result, the combined ratio of commission income to commission expenses for listed banks, excluding Al-Rajhi, has risen to 327 percent last year from 213 percent in 2001, indicating that repricing of loans was moving at a much slower rate than the decline in interest rates...in addition, a 14.5 percent increase in income from banking services, which expanded to around SR1.8 billion ($480 million) from nearly SR1.6 billion ($426 million) in 2001, has also contributed to the improved profits.”
NCB economists said they could not provide forecasts on the banks’ performance this year but said growth could be stifled by tension in the region caused by US threats to attack Iraq.
According to Saeed Al-Shaikh, NCB’s chief economist, the rise in oil prices due to geopolitical tension in the region and other factors, coupled with increased production, might translate into higher government spending this year.
“However, with an uncertain geopolitical environment, the government will likely follow a more conservative fiscal policy in 2003...as a result, liquidity in the Saudi banking system is unlikely to increase proportionally with the rise in government revenues,” Al-Shaikh said.
“Furthermore, continued tension in the region will also impact consumer expenditure this year, thereby reducing demand on goods and services...consequently, the likelihood of defaults on the part of Saudi corporates is expected to rise, thereby increasing loan loss provisioning by Saudi banks,” he told Gulf News by telephone.
He said another fact was that the conflicting signs of an economic recovery in the United States would restrain interest rates from moving in either direction within the next months.
“As a result, new pricing of fresh loans will come under a downward pressure, while gains on banks’ investments portfolio also will not be as notable as in 2001 and 2002, thereby further impacting the profitability of the Saudi banks.”
The report put the combined net assets of the nine listed banks at around SR391 billion ($104.2 billion) at the end of 2002, an increase of nearly 7.3 percent over the previous year’s assets of around SR364 billion ($97 billion). With the NCB included, their total net assets peaked at nearly SR498 billion ($132.8 billion) at the end of last year.
“The expansion in the assets was mainly the result of a 10 percent growth in investments portfolio, which amounted to SR183 billion ($48.8 billion) by the end of 2002 compared to SR167 billion ($44.5 billion) the year before, increasing its share of total assets to 47 percent...in addition, loans and advances grew by an impressive 12.4 percent to SR140 billion ($37.3 billion) last year, making up almost 36 percent of total assets,” the report said.
On the liabilities side, customer deposits swelled by around 8.5 percent to SR283 billion ($75.4 billion) last year from SR261 billion ($69.6 billion) in 2001.
