This year, however, things are already looking brighter. First-quarter results are up 2 per cent on the same period in 2007, and 2008 is forecast to be a stronger year for the sector.

But no one is predicting a return to the boom times of 2006, when banks were riding high on advisory and brokerage fees associated with a stock market boom. The collapse of the Saudi stock market (Tadawul) in the first quarter of 2008, and hence the plunging of banks’ profits, is unlikely to be repeated.

As a result, growth in 2008 and beyond will be much steadier, more diverse and, ultimately, more sustainable. New opportunities are being pursued, such as retail services for the kingdom’s expanding middle class, investment banking and real estate.

Project finance is another key growth avenue for banks as improving margins and $461bn worth of planned investment tempts the likes of National Commercial Bank to enter the sector.

But banks will also struggle with two major challenges in 2008: human resources and inflation, both of which will threaten profits. The most successful institutions will be those that can manage these threats prudently.

Index of all stories

• Results: Confidence begins to return (includes data)

• Interview: National Commercial Bank’s CEO, Abdulkareem Abu Al-Nar, on beating the credit crunch

• Alina Bank: Creating a regional giant

• Mortgages: Developing the housing market

• Insurance: Banks take risk on fledgling sector

• Comment: Alinma adds to Saudi banking sector’s woes