Banks in Saudi Arabia face lower profitability levels in the last quarter of 2009 and in 2010 as a result of slower lending growth and deterioration in asset quality, according to a report on the sector by the country’s biggest bank, National Commercial Bank (NCB).

NCB said that for the first nine months of the year total assets at Saudi banks grew by 3.8 per cent, which it said was the lowest rate on record. “The all time low emanates from the sudden stall in corporate-driven private credit growth during the past nine months,” says Said al-Shaikh, chief economist at NCB.

He added that “undisclosed exposures to a few family groups in distress” was also weighing on asset quality. In total provisions deducted a total of 14.2 per cent off the sectors total earnings in the third quarter. Some banks, for example Al Rajhi and SABB, reported an increase in provisions of over 40 per cent in the third quarter. Analysts have linked this to the defaults of two Saudi conglomerates, Saad Group and Ahmad Hamad al-Gosaibi & Brothers, which are estimated to be in default on around $20bn of debt.

Despite the slower growth outlook for the sector, al-Shaikh says that the Saudi banking sector remains sound relative to the rest of the region.