Two of Saudi Arabia’s largest banks - Samba and Riyad Bank - are expected to report falls in annual profits for 2008, after posting third-quarter results revealing significant declines in income levels, analysts tell MEED.

Samba made a profit of SR1.2bn ($319m) in the third quarter of the year, less than the SR1.22bn achieved in the previous quarter and the SR1.3bn made in the third quarter of 2007.

Similarly, Riyad Bank recorded a profit of SR513m in the third quarter of 2008, less than the SR906m it made in the previous quarter and the SR716m reported in the third quarter of 2007.

“It will be difficult for Samba and Riyad to beat last year’s profit figures now that the first nine months of the year have gone so badly,” says the head of capital markets at one Riyadh-based bank.

Profit figures for the first nine months of 2008 show the two institutions will have to significantly outperform their recent fourth-quarter performances to stand a chance of reporting a growth in profits for the year.

The final quarter of the year is often the weakest period for banks in the kingdom.

However, Samba will need to make a profit of SR1.2bn in the final quarter of the year, if it is to book an increase in profit, while Riyad Bank will need to make a profit of SR901m.

On current performance, Samba could be the only major Saudi bank to report a second consecutive year of declining profits.

“Samba has still not recovered the decrease in trading values from when the stock market was at its peak in 2006,” says Hisham Tuffaha, head of research at Riyadh-based Bakheet Investment Group.

“But with profits down only 2 per cent, it is not that big a fall in the context of the size of the bank.”

Samba and Riyad Bank were unavailable for comment.

Riyad Bank has previously blamed the fall in its quarterly profits - a 28 per cent drop in the three months to the end of September - on the indirect effects of turmoil in the financial markets.

Analysts say that until the bank releases a full income statement for the third quarter, it is difficult to ascertain the extent of its exposure to global markets.

“Until Riyad releases full financial statements, it is unclear exactly how the trading portfolio has been hit by the financial turmoil, or how that will impact on profits in subsequent periods,” says the head of capital markets at another bank in the kingdom.

The falling profits at the two large institutions are in contrast to one of the kingdom’s smaller banks, Saudi Hollandi, which is 40 per cent owned by Royal Bank of Scotland.

It has made more profit in the first nine months of 2008 than it did in the whole of 2007, helped by strong loans growth.

The Saudi banking sector went into reverse in 2007, as the full effects of the stock market crash of 2006 fed through the financial system.

However, most banks have now returned to growth, taking advantage of the country’s booming corporate sector.