Saudi banks appear to be performing better in the second half of this year as they resume lending to the government and their credit to the private sector edges up, a local investment firm said recently.
The combined net profits of the 12 commercial banks in the world’s oil superpower stood at around SR 3.1bn in July, their highest monthly level since the start of 2010, according to official data. The profits were nearly double the earnings of around SR 1.7bn recorded in June and only about 0.4 per cent lower than the income in July last year.
“Greater lending may have helped profitability, as bank profits in July were only 0.4 per cent down in year-on-year terms compared to an average decline for the first half of the year of 13.8 per cent,” said Riyadh-based Jadwa Investment.
As was the case with other Gulf oil producers, Saudi banks saw their profits eroded by heavy loan loss provisions following the 2008 global fiscal downturn and a severe debt default crisis involving two business conglomerates.
According to another Saudi investment firm, an expected reversal of the upward trend in provisioning later this year will ally with better economic prospects to put Saudi banks back on track and allow them to return to profit growth.
“Heavy provisioning and stagnant loan books affected Saudi banks’ 2009 performance,” said NCB Capital. “However, it is expected that the Saudi government’s focus on economic growth, expansionary budget policy and increased spending on the infrastructure sector will help the banking sector to grow.”
“In addition, the expected introduction of the mortgage law is likely to provide an impetus to personal lending.”