Saudi Arabia's banks have eased a drive to amass investments abroad as they appear to be shifting their interest back to the domestic market after keeping a low profile for more than a year, according to official data. After soaring by nearly 75 percent through 2009, the combined investments abroad by the Gulf Kingdom's 12 commercial banks edged down by around SR1 billion in the first half of 2010, showed the figures by the Saudi Arabian Monetary Agency (SAMA), the country's central bank. From around SR112.3 billion at the end of 2009, the investments abroad slumped to SR108.3 billion at the end of last January and continued to fluctuate to reach SR111.1 billion at the end of June, the report showed. The relatively stability this year followed a sharp rise by the banks' overseas investments as they sought to counter slackening credit demand at home and the absence of government bonds, SAMA said in its June bulletin. SAMA's figures showed Saudi banks' foreign liabilities declined by over SR3billion to SR96.2 billion at the end of June from SR99.6 billion at the end of 2009. The decline boosted the banking sector's net foreign assets to a record high of SR116.4 billion at the end of June from SR111.2 billion at the end of 2009. Three Saudi lenders have booked provisions for loan losses during the second quarter, as the Saudi banking sector pushes on with a clean-up loan portfolios hit by defaults of local firms. Samba Financial Group, the Kingdom's second-biggest lender by market value, booked SR57.4 million ($15.31 million) for loan losses during the second quarter, down from SR97.9 million a year earlier, bourse data showed on Saturday. Samba's net profit fell 1.9 percent in second-quarter net profit due mainly to a decline in income from lending. The much-smaller Saudi Investment Bank meanwhile more than quadrupled these provisions compared to a year earlier to 300 million riyals. The lender reported an 88 percent fall in its net profit for the same period. Samba was one of only a few Saudi banks that at the end of 2009 booked provisions higher than their non-performing loans. Unlisted and state-owned National Commercial Bank (NCB), the Kingdom's biggest lender by assets, raised its provisions for loan loss by 44 percent during the second quarter to SR613 million. NCB's second-quarter profit rose 3.4 percent. Saudi lenders had a difficult year in 2009 when profitability was eroded by provisions for non-performing loans. These provisions doubled compared to previous year to almost 11 billion riyals as a number of Saudi and regional firms ran into financial problems. Provisions for loan losses rose to 1.5 percent of total bank credit in 2009, up from 0.67 percent in 2008. Non-performing loans surged to more than 3 percent of total bank credit in 2009, almost double their level in 2008. Several Saudi banks saw lower profits during the first half of the year as credit growth struggled to recover after a lending spree during 2004-2008 period that was buoyed by a surge in the Kingdom's oil revenues. Profits also slumped in the first half of 2010 by around 9.4 percent to SR11.72 billion from SR12.94 billion in the first half of 2009. “Heavy provisioning and stagnant loan books affected Saudi banks' 2009 performance. However, it is expected that the Saudi Government's focus on economic growth, expansionary budget policy and increased spending on the infrastructure sector will help the banking sector to grow,” said NCB Capital, an affiliate of National Commercial Bank (NCB). “In addition, the expected introduction of the mortgage law is likely to provide an impetus to personal lending. It is also expected that the provision levels will begin declining YoY from the second half of 2010, providing room for net income growth. Hence, we have a positive outlook for Saudi banks in 2010 and beyond.” The growth of Saudi bank credit, especially to the private sector, was flat throughout much of 2009 due to the global slump and after defaults by local family firms. SAMA'S figures showed the banks were gradually easing lending curbs after taking record loan loss provisions in 2009 and an increase in projects tendering by the government as part of its massive capital spending program for 2010. The report showed banks' domestic credit swelled by around 3.5 per cent in the first half of 2010 after recording zero growth through 2009. From about SR734.2 billion at the end of 2009, the banks' combined claims on the private sector increased to nearly SR760.3 billion at the end of June. High provisions allied with slackening domestic credit activity to depress the net income of Saudi banks by around 10.3 per cent to SR26.8 billion in 2009 from around SR29.928 billion in 2008. From SR64.8 billion at the end of 2008, the banks' investments abroad leaped to SR112.3 billion at the end of 2009. The overseas investments at the end of 2009 were the highest in more than 10 years and one of their highest levels in the Saudi banking history. The figures showed they were almost six times their level at the end of 2003. The surge in such investments boosted the banks' collective foreign assets to one of their highest levels of around SR210.9 billion. Despite the fall in overseas investments at the end of June, the total foreign assets grew by around SR2 billion to SR212.6 billion because of a rise in other assets. Saudi American Bank Group added the surge in foreign investments in 2009 was a result of a drive by Saudi banks to invest in high-return US securities and their tightening local credit policy.
