BANKING: First half promises strong year

19 September 1997

SAUDI ARABIA'S commercial banks look set for another year of rising profits, figures for the first half of 1997 suggest. All nine banks that had published results when MEED went to press reported higher net income and modest balance sheet growth in the first six months of the year. Aggregated earnings increased by 16 per cent to SR 2,680 million ($715 million) from SR 2,306 million ($615 million) in the corresponding period last year. In an upbeat commentary on the results, National Commercial Bank (NCB) chief economist Henry Azzam wrote: 'The feel-good factor is growing in the kingdom, and the banks' performance are a mirror of that.'

Greater liquidity in the economy in the first half of the year meant that most banks reported higher customer deposits but found profitable lending opportunities harder to come by. Only the largest bank, NCB, and specialist corporate lender Saudi Investment Bank reported significant growth in loans. Strong competition among banks has also resulted in declining margins, bankers say.

Most banks used their deposits, which were up by aggregated 8 per cent to SR 204,700 million ($54,587 million), to build up investments. Portfolios of investment securities held by the nine banks were worth some SR 15,900 million ($4,240 million), or one third of total assets, at mid-year.

'The higher yield on bonds in the first half of the year and the larger bond portfolios contributed to the surge in income from securities,' according to Azzam. Earnings from investments, which were 30 per cent higher on the period at SR 2,840 million ($757 million), provided the main reason for the profit increases.

Al-Rajhi Banking & Investment Corporation remained the most profitable bank with earnings of SR 663 million ($177 million). It is also the best- performing bank on the local stock market this year, with a rise of 40 per cent in the share price as of early September. Saudi American Bank, whose profits fell last year, lifted net income by 7 per cent in the first half. The bottom line was boosted by the sale in early 1997 of Istanbul- based subsidiary Samba Turk.

United Saudi Commercial Bank and Saudi Cairo Bank, which are merging, did not publish interim results. Neither did Riyad Bank, which is still seeking repayment of a substantial overdraft granted to Saudi Arabian Airlines.

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