Banks in Saudi Arabia are facing an unusual confluence of events. The global financial crisis has left many international banks bruised and unwilling to lend long-term at low rates. In contrast, Saudi banks are highly liquid and are eager to start booking assets again after a period of lacklustre credit growth. This is making the lending environment in Saudi Arabia intensely competitive between a small number of local banks, and means that while banks will be able to book new assets, margins will be tight.

Like many local banks, Arab National Bank is looking to its retail business to help boost income. This threatens to make the retail segment even more competitive, but given the difficulty in transferring bank accounts in the region, significant shifts in market share are unlikely. Having a well-developed retail franchise has already paid off for the bank during the financial crisis when corporate banking activity slowed.

Looking ahead, Arab National Bank is set to benefit from the maturing of its retail branch network following an investment drive launched a few years ago, and the development of new operations in home finance, insurance and leasing construction equipment.

The corporate business will undoubtedly have a better year in 2011 than it has recently had, as state spending continues to drive investment and project development. The sheer scale of the projects planned in the kingdom means there will be plenty of opportunity to lend to new schemes and with most having a strong government sponsor, the associated risks are be reduced.

Provisioning should now have peaked, meaning that Arab National Bank can get back to concentrating on growth, rather than dealing with legacy issues from the financial crisis.

However, like all banks in Saudi Arabia, growth will not be spectacular during 2011, and even in 2012 profits will struggle to match the pace of increase seen in the boom years.