BANK al-Jazira's recorded net income of SR 500,000 ($133,333) in 1995 was by far the smallest profit of any Saudi bank. Yet, getting back into the black is a major achievement for an institution that seemed to have no future earlier in the 1990s. The main problem then was an unenviable legacy of non-performing loans bequeathed from the 1980s when every Saudi bank was hit hard by the lack of security available to support credits in the kingdom.

What made Bank al-Jazira's difficulties so demanding was their scale and the uncertain commitment to the bank by its foreign shareholder, the National Bank of Pakistan.

Bank al-Jazira was founded in 1975 and was the only one of the joint venture banks initially allowing the non-Saudi shareholder 35 per cent of its equity. The convention was for the foreign shareholder to have a 40 per cent stake.

The programme of dealing with non-performing loans got under way in the autumn of 1992 when the bank raised its capital to SR 400 million ($107 million) from SR 100 million ($27 million) through a share offering to existing shareholders in which National Bank of Pakistan did not participate. At the end of 1994, Bank al-Jazira raised its paid-in capital to SR 600 million ($160 million) from SR 400 million ($107 million). This was done by selling 2 million shares priced at SR 125 ($33), 25 per cent above par. Following the offering, the shareholding of the National Bank of Pakistan, which again did not take up its share rights, was reduced to 5.83 per cent from 8.75 per cent.

However, the true scale of the bank's problems were only disclosed after this operation. The 1994 accounts, published in April last year, showed losses of more than SR 500 million ($133 million) in 1993-94.

The bank stunned analysts with a drastic upward revision of its 1993 losses which were originally reported as SR 79.3 million ($21 million). The 1994 profit and loss statement increased the loss to SR 479.3 million ($128 million), one of the largest in the history of Saudi Arabian banking.

The only good news from the accounts was that the figures, which were audited by Whinney Murray & Company (the local arm of Ernst & Young) and Al-Juraid & Company, were not qualified. The auditors' statement for 1993 said that there was a significant shortfall in the reserve for loan losses. The latest figures show that the past still weighs on Bank al-Jazira's balance sheet. No reserves are shown and an accumulated deficit of SR 92.6 million ($25 million) remained on the balance sheet at the end of 1995. However, the bank says all the bad news is now out in the open and that it has adequately provided for non-performing loans.

The figures also show that the bank has managed to make some progress in developing its business. Its balance sheet grew by 19 per cent in the year. Net loans and advances rose by 8.4 per cent in 1995 and customer deposits advanced by almost 4 per cent. A new banking technology system has been installed and the branch network rationalised. However, Bank al-Jazira continues to be a modest player in local finance markets. Loans accounted for just 27 per cent of total assets and customer deposits were only about one-third of liabilities at the end of the year.