Saudi banks were forecast to further improve through 2011 as domestic economic conditions begin to improve and the banks have built up enough provisions against non-performing loans, studies showed. In the first nine months, the consolidated net profits of 11-listed Saudi banks (excluding National Commercial Bank), expanded by about 17 percent to SR19.57 billion from SR16.73 billion in the first nine months of 2010, their balance sheets showed. But there was a decline of around five percent in their net earnings in the third quarter. All the banks made higher profits except SAMBA group, which recorded a drop of about 4.9 percent in profitability due to lower special commission. “The main reason for the profit growth is the higher commission income by many banks, better services fees and the reduction in provisions for bad debts,” Paul Gamble, research head at Jadwa Investment said. The Washington-based Institute for International Finance showed Saudi Arabia has the highest ratio of provisions to non-performing loans (NPLs) in the region, standing at 115 percent in August. The report put the ratio at 104 percent in Oman, 95 percent in Qatar, 76 per cent in the UAE, 70 percent in Kuwait and around 60 percent in Bahrain. “By the end of last year, provisions for bad debts in the GCC countries had reached a level that banks are comfortable with, so there was much less need to set aside new funds for this purpose this year,” Gamble added. In a study last month, Jadwa noted that between the end of 2008 and end of 2010, non-performing loans of listed banks jumped by nearly SR10.2 billion or around 132 percent after being relatively stable over the previous five years. It said massive provisions for credit losses have distorted the earnings of banks over the past three years following years of high earnings. “We think that banks have now cleaned their loan portfolios and that the share prices of banks are generally well positioned for a healthy recovery this year….owing to improved economic conditions we think that the amount of new non-performing loans should fall significantly. Furthermore, it appears that bulk of the provisioning for the debt built up over the previous few years is complete,” Gamble said. Elsewhere in the Gulf, the balance sheets of 15 UAE banks also showed their net earnings leaped by around 26 percent to AED16.5 billion from AED13.1 billion. In Qatar, banks' balance sheets showed a 21 percent year-on-year rise in their net earnings to nearly QR11.3 billion in the first nine months of 2011.
