Saudi Arabia has a strong banking structure and specialized financial institutions, thanks to the Saudi Arabian Monetary Agency (SAMA) that supervises both sectors. The cumulative assets of the Kingdom’s commercial banks have recorded growth. Banks have comfortable liquidity levels and their asset quality is also good. The Kingdom has plans to expand capacities of the cement industry, which is the largest in the GCC. These are among the highlights of the Kuwait-based Global Investment House’s (GIH) third report on the Economic & Strategic Outlook of the Kingdom. Arab News, which is serializing the report, published the first part on Monday and the second part yesterday. Following is the concluding part:

Banking

There are nine conventional commercial banks, one Islamic bank and four large specialized financial institutions in Saudi Arabia. The nine conventional commercial banks are National Commercial Bank (NCB), Saudi American Bank (SAMBA), Riyad Bank (RB), Saudi British Bank (SABB), Saudi Hollandi Bank (SHB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Bank Al Jazira (BJAZ) and The Saudi Investment Bank (SAIB). Al-Rajhi Banking & Investment Corporation (ARABIC) is an Islamic institution and operates entirely in accordance with Islamic banking principles. NCB is the only unlisted bank. The specialized financial institutions include the Saudi Industrial Development Fund (SIDF), the Public Investment Fund (PIF), the Real Estate Development Fund (REDF) and the Saudi Arabian Agricultural Bank (SAAB).

The financial sector is supervised by SAMA, which was incorporated in 1952 to act as the country’s central bank.

The Kingdom’s banking sector is moderately concentrated with the top four banks accounting for 62.3 percent of the total assets of the banking sector. The sector is dominated by NCB, which accounted for about 21.5 percent of the total assets of the banking sector in 2002. NCB is also the largest bank in terms of deposit base (23.1 percent of total deposits) and net loans and advances (23.3 percent). SAMBA is the second largest bank in the country in terms of asset size, followed by RB and ARABIC. BJAZ is the smallest bank in the country with its share of assets and deposits at around 1.1 percent.

The cumulative assets of the Kingdom’s commercial banks have recorded a growth of 5.6 percent CAGR during the five-year period 1998-2002. In 2002, cumulative assets of banks increased by about 7.6 percent over the previous year. Claims on the private sector stood at SR205.8 billion, an increase of 10 percent during 2002 over the previous year. In the first nine months of 2003, the total assets increased by 5.1 percent over 2002 and claims on the private sector were higher by 6.9 percent during the period.

On the liabilities side, total deposits have grown at a CAGR of 8.5 percent in the five-year period 1998-2002. In 2002, total deposits grew by a healthy 16.8 percent over the previous year. In the first nine months of the current year, total deposits have grown by 4.8 percent as compared to end 2002.

Saudi banks have comfortable liquidity levels and the asset quality of banks is also good. The provisioning levels are relatively high at around 110 percent, while the capital adequacy levels were also comfortable at over 18 percent as of 2002.

Profitability

The cumulative net profits of the banking sector in Saudi Arabia stood at SR10.7 billion during 2002, an increase of around 6 percent over 2001. The NCB, which is the largest bank in Saudi Arabia, accounted for about 22.7 percent of the total profits of the banking sector in 2002. The net profits of NCB stood at SR2.38 billion, an increase of 26.7 percent over the previous year. The net profits of SAMBA and ARABIC however declined during the year. The net profits of SAMBA declined by 17.5 percent to SR1.86 billion on account of lower net commission income and lower operating income coupled with higher operating expenses. ARABIC’s net profits declined by 8.4 percent to SR1.41 billion during 2002 on account of decline in gains on investments, lower other operating income and higher provisions. RB reported a 4.8 percent increase in net profits to SR1.42 billion. SAIB and the BSF reported strong growth in profits of 25.1 percent to SR0.38 billion and by 20.1 percent to SR1.01 billion respectively in large part due to increase in their net commission income. The SABB and the SHB reported a growth in profits of 17.1 percent and 12.5 percent respectively. ANB and BJAZ also reported increase in profits of 20.1 percent and 15.1 percent respectively during the year. In terms of profitability, NCB had the highest return on equity among all banks and also had one of the highest returns on assets in 2002. Despite the decline in profits during the year, SAMBA and ARABIC reported the highest return on assets of about 2.4 percent. The return on assets of RB and SABB stood at 2.1 percent during the year, while that of the BSF was at 2.3 percent.

In the first nine months of 2003, all banks except SAMBA reported higher net profits. The aggregate net profit of banks during the period was higher by 14.5 percent over the same period last year at SR9.33 billion. SAMBA’s profits for the period were lower by 26.8 percent at SR1.04 billion on account of increase in loan loss provisions. The net profits of NCB increased by 20.3 percent, while ARABIC reported an increase in profits of 47.6 percent. SABB, RB, BSF and ANB reported growth in profits of 24 percent, 13.7 percent, 17.7 percent and 30.2 percent respectively. BJAZ, reported the highest increase of 89.2 percent in net profits.

Cement

The Kingdom’s cement industry is the largest in the GCC region. There are eight cement companies in the country, which have an installed capacity of 22.7 million tons per annum, accounting for about 57 percent of the total installed capacity in the region. The country is also the largest consumer among GCC countries, accounting for about 60 percent of the total GCC consumption. The consumption of cement has increased significantly over the last two years and stood at 20.3 million tons in 2002, an increase of 14 percent over 17.8 million tons reported in the previous year. During the first 10 months of the current year, cement production rose to 20.5 million tons, an increase of five percent over the same period last year. Domestic demand was also strong during the period and increased by 9.8 percent y-o-y to around 19 million tons.

(Concluded)