AN increase in liquidity and a return to growth in the domestic economy were good news for Saudi Arabia's banks in 1996. As the results rolled in during the first few weeks of the new year, the overall impression was positive - for the second year in succession all the banks were in the black. Eight of them reported higher net income. As this report went to press, one result was outstanding.

Al-Rajhi Banking & Investment Corporation (Arabic) has retained its pole position as the kingdom's most profitable financial institution. It is the only Saudi bank governed according to the sharia and offering exclusively Islamic services. Its nearest competitor, Saudi American Bank (Samba), announced lower earnings than in 1995. Profits were also lower at Saudi Cairo Bank and Al-Bank Al-Saudi Al-Fransi.

Only Riyad Bank, the second largest bank in terms of assets and the third most profitable in 1995, has yet to release results. The bank put out no interim figures for the third quarter of last year and is understood to be awaiting the outcome of negotiations to recover loans to the national airline before it finalises its accounts for 1996.

The impact of greater domestic liquidity in the year was apparent from the increase in deposits with banks. Lower demand for loans resulted in a build-up of investments, principally government bonds. Many banks took the opportunity to reduce their exposure to non-performing loans with higher provisioning. As a consequence, balance sheets look stronger.

Bankers are bullish about their prospects this year, forecasting modest balance sheet growth and higher profits. They are expecting less trouble from non-performing loans as a result of the general rise in liquidity.

The main features of the bank's results for 1996 are:

Al-Rajhi Banking & Investment Corporation (Arabic). Earnings rose 8 per cent to a record SR 1,208 million ($322 million), consolidating the considerable increase of the year before. Total income rose 10 per cent to SR 2,288 million ($610 million). The balance sheet expanded modestly to SR 32,282 million ($8,609 million).

Saudi American Bank (Samba). Net income fell by 14 per cent to SR 921 million ($246 million). The bottom line was affected by a rise of more than 150 per cent in provisions for non-performing loans. The bank attributed increased credit costs to 'the introduction of new consumer products whose life cycles generically have higher credit losses in their earlier stages, but which still remain highly profitable'. The bank's investment portfolio was significantly larger than a year earlier. Total assets were slightly higher.

National Commercial Bank (NCB). The kingdom's largest bank in terms of assets lifted earnings by more than 30 per cent to SR 915 million ($244 million). Net interest income rose strongly. Total footings were up slightly at SR 80,053 million ($21,347 million). Loans were steady at about SR 39,000 million ($10,400 million) after aggressive expansion in 1995. Non-interest bearing accounts represented most of the modest increase in customer deposits, NCB says. The results appear to confirm NCB's continuing revitalisation after a long period of uncertainty which was ended in a massive recapitalisation in 1993. In developments last year, Khalid Bin Mahfouz, who stepped down from the management in 1992, took over the chairmanship from his brother Mohammed in July and assumed ownership of the bank, together with his wife Naila Abdulaziz Kaaki. A new team of senior management was put in place in October.

Saudi British Bank. Net profits rose by 15 per cent to SR 465 million ($124 million), or SR 37 ($9.90) a share. The bank reported customer deposits up 15 per cent; loans and advances were marginally lower. The investment portfolio was increased. Total assets were 18 per cent higher at the end of the year. The bank boosted capital in a one-for-four bonus issue to shareholders in early 1996.

Arab National Bank (ANB). Net income increased by 11 per cent to SR 461 million ($123 million). Total assets were slightly higher on the year. Shareholders are expected to approve plans to raise capital by 25 per cent to SR 1,500 million ($400 million) at a meeting on 25 March. Bonus shares will be distributed on a one-for-four basis.

United Saudi Commercial Bank (USCB). The bank controlled by Prince Alwaleed Bin Talal Bin Abdulaziz increased net profits by 11 per cent to SR 340 million ($91 million). Customer deposits were 20 per cent higher. Most of the increase was in non-interest bearing deposits. Loans and advances rose 22 per cent, in marked contrast to the trend at other banks. The loan portfolio accounted for 44 per cent of total assets at the end of the year. Paid-in capital was doubled to SR 1,000 million ($267 million) in a one-for-one bonus issue in early 1996. Plans to merge USCB with Saudi Cairo Bank, in which a group of investors led by Prince Alwaleed has acquired a 33.4 per cent stake, are well under way and should be completed during the summer, banking sources say. Analysts say the merger makes some sense as the services offered by the two banks would complement rather than compete directly with each other. USCB's main source of income is its corporate business and private banking; Saudi Cairo concentrates on the retail market.

Al-Bank Al-Saudi Al-Fransi (BSF). Net profits slipped 15 per cent to SR 301 million ($80 million). Provisions for non-performing loans rose sharply. This is understood to relate to a single large exposure outside the Middle East, which has now been fully covered. Investments in securities were increased by 16 per cent and accounted for 36 per cent of total assets as of 31 December. Lending was cut by 13 per cent and ended the year accounting for fewer assets than investment securities. Paid-in capital was doubled to SR 1,800 million ($480 million) in mid-1996 in a one-for-one bonus issue.

Saudi Cairo Bank. Net profits were SR 178 million ($47 million), down 16 per cent on the previous year. Loans and investments fell; customer deposits were 24 per cent lower due largely to the withdrawal of all deposits by the Public Investment Fund (PIF). Deposits are about 75 per cent of total assets. The balance sheet shrank by 13 per cent due to the loss of PIF deposits, which were placed with the bank to bolster its accounts after it reported operating and net losses in 1987 and 1988. The removal of the PIF funds marks the end of the process of cleaning out the balance sheet. Saudi Cairo returned to profit in 1992 and should complete a merger with USCB later this year (see USCB, above). Egypt's Banque du Caire has said that it will maintain its 20 per cent stake in the bank.

Saudi Hollandi Bank. Net income rose 15 per cent to SR 161 million ($43 million). Net operating income improved by 12 per cent. The balance sheet expanded by 4 per cent to SR 16,774 million ($4,473 million). Deposits were 15 per cent higher on the year. Loans and advances were marginally lower. A 45 per cent increase in the general reserve resulted in a 10 per cent rise in shareholders' equity to SR 1,201 million ($320 million). The general reserve was cut by 45 per cent the year before.

Saudi Investment Bank (Saib). Earnings rose to a record SR 125 million ($33 million), 47 per cent up on the previous year. The bank will pay a cash dividend for the first time. A net pay-out of SR 9.28 ($2.48) a share has been proposed. The bank said that the results showed 'improving performance trends across all major lines of business and a continued disciplined management of expenses'. Net operating income rose by 49 per cent. A 300 per cent capital increase in mid-1996 reduced the stakes of founding foreign shareholders Chase Manhattan International Finance of the US, Industrial Bank of Japan and J Henry Schroder Wagg & Company of the UK to 7.5 per cent, 2.5 per cent and 2.5 per cent respectively. Saudi shareholders now own more than 60 per cent of the bank.

Bank al-Jazira. The smallest of the commercial banks posted net profit of SR 14 million ($4 million). The results confirm the bank's recovery from two years of heavy losses in 1993 and 1994, followed by a modest profit in 1995. Net operating income amounted to SR 13 million ($3 million) after an operating loss in 1995. Customer deposits rose by 13 per cent. Loans and advances fell by 34 per cent and represented 19 per cent of total assets at the end of the year. Total assets were 6 per cent lower on the year. An accumulated deficit of SR 79 million ($21 million) remained on the balance sheet at the end of 1996.

Riyad Bank. The bank did not publish results for the third quarter of 1996 and has yet to report for the full year. The bank is believed to be taking the lead among a number of local banks in trying to recover payments on loans made to Saudi Arabian Airlines. Riyad Bank's exposure is thought to be SR 3,000 million ($800 million). Banking sources say the airline has paid SR 116 million ($31 million) in interest but still owes SR 237 million ($63 million) in interest alone. The bank is also seeking repayment of the principal or a rescheduling arrangement. A new general manager was appointed in the autumn.