Saudi Banks May Post Lower Profit on Tight Lending, Provisions

Saudi Arabian banks may report declines in second-quarter profit after they tightened lending rules and increased provisions for bad loans.
Net income at the 10 biggest Saudi banks probably dropped by an average of 19 percent, according to EFG-Hermes Holding SAE, the largest Egyptian investment bank by market value. Dubai-based Al Mal Capital PSC forecasts that profit at the five Banks it tracks declined an average of 11 percent.
Saudi banks have been hurt by falling oil prices, which slowed growth in the biggest Arab economy and forced some of the kingdom’s biggest family-owned companies to restructure debts. The International Monetary Fund forecast in May that the Saudi economy would shrink 0.9 percent this year amid the first global recession since World War II.
“The global credit crisis reduced demand from corporate borrowers and in some cases Saudi banks have taken a more cautious attitude toward lending,” Aybek Islamov, an analyst at HSBC Holdings Plc in Riyadh, said July 9 in a telephone interview. “Weak lending volumes, a decline in net interest margins and higher loan-loss provision expenses will slow down net income growth.”
Al-Rajhi Bank, Saudi Arabia’s biggest lender by market value, may say net income declined 2.4 percent to 1.70 billion riyals ($450 million), according to the average estimate from three analysts surveyed by Bloomberg. Samba Financial Group, the second-largest bank in the kingdom, may say profit dropped 9.1 percent, according to the average of four estimates.
Riyad Bank, the kingdom’s third-largest by market value, may report a 30 percent drop in net income, according to the average of three analyst estimates. Saudi British Bank, the fourth-largest, may post a 21 percent decline in net income, according to the average of three estimates.
Algosaibi, Saad Loans
The Algosaibi and Saad groups, two of Saudi Arabia’s biggest family-owned companies, have announced plans to restructure their debts in the past two months. Together they have borrowed at least $15.7 billion from more than 100 international and regional banks, according to documents prepared by some of the lenders.
Saudi banks have probably loaned the groups between $4 billion and $7 billion Algosaibi and Saad, HSBC said in a July 7 report.
“The true extent and scope of the problem has not yet been clarified by the individual banks,” Al Mal analyst Deepak Tolani wrote in the report. “The impact this quarter will be smaller and major repercussions probably will not be seen till the second half of the year.”
Other family-held businesses in Saudi Arabia are also struggling to repay loans. Al-Tuwairqi Group has hired HSBC to help it restructure as much as 7 billion riyals in debt after the Saudi steelmaker was hurt by falling metal prices. The company’s loans came from Samba, al-Rajhi Bank and Saudi Hollandi Bank, al-Watan newspaper reported last month.
Banks Pull Back
Banks provided at least $64 billion to Saudi borrowers in the past five years as record oil prices spurred economic growth in the kingdom, according to data compiled by Bloomberg. Crude oil dropped to $60.41 a barrel on July 9, from a record $147.27 in July 2008.
Saudi bank lending was down 1 percent in the first five months of the year, according to HSBC. The decline has forced some Saudi companies to seek government loans.
Al Abdullatif Industrial Investment Co., a Saudi carpet maker, said this month it will borrow 91 million riyals from the Saudi Industrial Development Fund to expand production.
“Saudi banks aren’t giving out as many loans,” Murad Ansari, an analyst in Riyadh with EFG-Hermes, said July 9 in a telephone interview. “Banks are channeling more liquidity to non-risky assets.”