RIYADH: Several Saudi Arabian banks including the Kingdom’s largest, Al-Rajhi Bank, booked higher loan provisions in the second quarter amid concerns over the solvency levels of two heavily indebted Saudi conglomerates.
The increases were widely expected after regional lenders outside the Kingdom detailed their exposure to Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB).
But analysts questioned whether the new sums booked by the Saudi banks, which did not reveal their exposure to the conglomerates, were high enough to fully cushion them against anticipated losses.
“Compared to other banks in the Gulf, ours are not as well provisioned,” said Ibrahim Al-Alwan, an analyst at KSB Capital.
Al-Rajhi Bank, Saudi Arabia’s largest lender by market value, booked its highest level of provisions for loan losses this year at SR421.6 million ($112.4 million), according to official data published on Tuesday.
The Islamic lender booked SR276.7 million of provisions in the year-earlier period and SR288.4 million in the first quarter of 2009, according to the data from the Saudi stock exchange website. Rajhi’s net profit rose 1.7 percent in the second quarter.
But neither Al-Rajhi nor its domestic rivals cited exposure to Saad or AHAB in the context of the higher provisions, prompting some unease among market professionals. “There seems to be a tacit agreement between the (Saudi) central bank and commercial banks to keep this exposure issue in the dark,” said a senior executive at a private investment bank.
“The reasons are unclear but ... banks in neighboring countries show greater sense of accountability towards shareholders.”
Al-Rajhi’s much smaller peer Saudi Investment Bank (SAIB) raised second-quarter provisions for loan losses to 11 times the level of a year earlier.
SAIB, which received two ratings downgrades last month, made SR55 million in the second quarter against SR5 million in both first quarter of 2009 and the second of 2008. Its net profit fell 32.8 percent in the second quarter.
Arab National Bank raised provisions almost threefold to SR73.9 million — the highest quarterly figure for several years. The affiliate of Arab Bank posted a 0.8 percent drop in second-quarter earnings.
Riyad Bank bucked the trend by cutting loan loss provisions to SR45.5 million from SR467.7 million a year ago. It saw second-quarter earnings rise 1.8 percent.
Last week, bourse data showed Banque Saudi Fransi, raised provisions 12-fold while they more than doubled at larger rival Samba Financial Group.
Standard & Poor’s said it found banks in Saudi Arabia and the United Arab Emirates accounted for almost two-thirds of the total net exposure to the conglomerates of the 30 commercial banks it rates in the Gulf.
Meanwhile, Saudi short-term money market rates are likely to remain at 20-year lows because banks are awash with liquidity and reluctant to lend after two family conglomerates unveiled huge debt restructurings, analysts said.
Overnight rates have even touched negative territory several times in recent days, reflecting banks’ reluctance to receive more deposits after the central bank halved the rate it pays banks for deposits in June.
“Rates for short-term deposits are down as the banking system has ample liquidity,” said Monica Malik, regional economist at EFG-Hermes in Dubai.
Saudi overnight rates were quoted at 1.00/1.50 percent on Tuesday, but have traded at as low as -0.30 percent.
Saudi one-week rates were quoted at as low as -0.25 percent on Monday and were at 0.05/0.25 percent by 0758 GMT. One-month rates were quoted at 0.09/0.29 percent and three-month at 0.16/0.31 percent.