Saudi banks struggle to grow profits

22 January 2017

Profitability was affected for most lenders as operating costs rose on provisions for credit losses

Banks in Saudi Arabia continued to post mixed results with Banque Saudi Fransi and Alawwal Bank being hit hard by a rise in the credit losses and provisions for bad loans.

Alawwal, formerly Saudi Hollandi Bank, had a fourth-quarter net loss of SR249.34m ($66.46m), down from a profit of SR451m reported for the same period in 2015. Its full-year income also slumped 47.35 per cent to SR1.06bn, according to the lender’s statement to Saudi Stock Exchange, where its shares are traded.

“Losses were due to higher total operating expenses, which increased by 181.54 per cent, mainly due to increase in impairment charge for credit losses and general and administrative expenses,” Alawwal said in the statement.

Net income for the last three months of 2016 plunged 60.6 per cent to SR374m for Banque Saudi Fransi, which also reported a full year bottomline contraction of more than 13 per cent. Fransi cited 101.8 per cent jump in operating expenses, primarily, on the back of higher impairment charges for credit losses, as the reason for the fall in profits.

Samba Financial Group, reported an 11.6 per cent decline in income for the last three months of 2016 to SR1.09bn. Samba’s 12-month profit fell 4 per cent as operating expenses jumped.

Saudi British Bank also recorded a 35.4 per cent decline in net income to SR607m and 10.1 per cent slide in 12-month period of 2016. Operating costs climbed more than 70 per cent as credit losses and impairment of other financial assets spiked.  Riyadh-listed Arab National Bank was another lender, which reported weaker results as fourth-quarter net profit slipped 4.9 per cent and 2016 full-year net income declined by 3.73 per cent.

Bucking trend 

Al-Rajhi Bank, bucked the trend, posting an increase in both quarterly and full-year net profits. The bottom line grew by 14 per cent for 12-month period ended 31 December, the best yearly growth performance by a Saudi bank so far, helped by an 11.2 per cent increase in total operating income.

“This increase was mainly driven by higher net financing and investment income, fees income from banking services and other operating income,” the lender said in a bourse filing.

National Commercial Bank (NCB), also reported the a 7.5 per cent growth in its bottom line for the fourth-quarter of last year, while its full-year net income rose by a 2.5 per cent. Riyadh Bank, Bank Aljazira and Bank Albilad reported their financial results last week, with two reporting a decline in income and the third posted a modest single digit growth.

Banks in the past have benefited from high oil prices and robust public spending, with some even posting double-digit growth. The full year and quarterly bottom lines were weaker than analysts’ projection for some of the lenders. Financial institutions in the kingdom are heavily exposed to troubled construction sector, which has dented profitability for banks, which also had to brave a cash-crunch during 2016. 

The Saudi Arabian Monetary Authority (Sama) injected billions of riyals into the banking system and deployed other monetary policy tools to ease the strain on the banks after the drop in oil prices from the mid-2014 peak of $115 a barrel, squeezed government revenues, forcing it to borrow from the domestic debt market and draw down on its deposits in the banking system. 

Sama however, sees no need for further steps to boost banking liquidity as it believes the cash crisis for the lenders in the kingdom is over, according to its Governor Ahmed Alkholifey.

The government has also repaid more than SR270bn owed to contractors after halting payments because of the slump in crude, Finance Minister Mohammed Al-Jadaan said in December. Alkholifey, without naming any company, said any defaults in the construction industry won’t be “systematic.” and the ”exposure of the whole banking sector to the construction sector is less than 8 per cent of total loans”.

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