The interesting case of NCB

12 May 2000
SPECIAL REPORT SAUDI BANKING

TO say the speculation is feverish might be an exaggeration, but Saudi Arabia's bankers and bank-watchers have more than a passing interest in the as yet unpublished results at National Commercial Bank (NCB) for last year. Not only have all the other banks produced full-year 1999 results, they've also published first-quarter 2000 figures. The deeper into the year the calendar ticks without any announcement, the greater the speculation will grow over developments at NCB's Jeddah headquarters.

There is little doubt that the delay has been caused by the extension of negotiations among shareholders over what dividend policy the bank should adopt. The balance of the debate was altered by the acquisition of 50 per cent of the bank's shares by government agencies last summer. It is understood that the purchase was not for the long-haul, but rather a necessary step in the government's plans to strengthen the bank before taking it public. It is the speed of preparations for such a move, and its eventual timing, that might now be in the balance.

At the heart of the matter lies the issue of non-performing loans (NPLs), and the levels of provisioning needed to bring order to the balance sheet. It is understood that profits before provisioning in 1999 were roughly in line with the SR 1,700 million ($453 million) reported in the previous year. But there are also thought to be about $1,000 million worth of uncovered NPLs on the bank's books.

It is possible that if no dividend were to be paid for last year, full earnings could be used for provisioning. If the process were to be repeated, the balance sheet could be cleaned in two-to-three years, a step necessary for the bank to be successfully offered on the local share market. Some analysts suggest that this might be the thinking of the government agencies holding half of the bank's equity. With oil revenues strong, the government has little need for an NCB dividend payout, but some of the other shareholders might not be willing to waive their claim to an income stream.

The waiting game is not a new one. It was not until late June last year that the 1998 figures were made public. If the results are published in mid-May, as currently expected, it will stand as some sort of improvement. Those interested will have to wait until then to see if the condition of the bank's loan portfolio has also been improved.

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