Banking assets to grow at a CAGR of around 18% during 2010-2013 JEDDAH: The Saudi banking sector is highly capitalized, well regulated, and more profitable in the region, RNCOS said in its new research report titled “Saudi Arabia Banking Sector Analysis”. The report said despite heavy slowdown in the economy, the banking sector continued to post healthy growth rates during the past few years. It forecast that Saudi banking assets are forecasted to grow at a CAGR of around 18 percent during 2010-2013. The main reasons for the growth of this industry are the increased demand for consumer as well as corporate financing and positive developments in the oil market, the report said. Besides this trend, various other strong fundamentals will enable this segment to sustain its upward growth trend in the coming years, it added. The study further said Saudi Arabian banking sector posted solid growth throughout the past decade and remained among the most profitable banking sectors in the Middle East. The Saudi banking sector has witnessed a notable expansion in the modern banking technologies, including Internet banking and phone banking services, it added. Moreover, banks are also modernizing their payment card technology and shifting toward smart card technology to offer more secure and advanced featured card to consumers, the new research report noted. Meanwhile, Riyadh-based Jadwa Investments said in a separate study that Saudi Arabia's banks have allocated more than SR20 billion for loan loss provisions over the past two years. Provisions in the third quarter of this year surged by nearly 27 percent to SR3.1 billion compared with the previous quarter and about 30 percent over the same period of 2009. “Provisioning for bad loans has jumped in recent years as a result of high profile defaults at some private sector groups and the general slowdown in the economy. Total provisions by the 12 banks since the end of the third quarter of 2008 amount to around SR20.4 billion,” Jadwa said. “Shortly before the end of the third quarter of this year, SAMA announced that it wanted all banks to increase their provisions to cover 100 per cent of non-performing loans by the end of the year. SAMA has traditionally taken a fairly tough line on bank provisioning.” The study showed total net income of the listed banks fell by 18 percent in year-on-year terms in the third quarter, the fourth consecutive year-on-year decline. “The main reason for the decline in profits was an increase in the amount of money banks have set aside to cover bad loans.” Total provisions averaged over 150 percent of non-performing loans between 2004 and 2008, the study said, adding that high provisions at the onset of the financial crisis have helped banks' financial performance in the past two years. “It seems that SAMA's actions are motivated by the assumption that once banks have covered all existing bad loans they will be prepared to resume lending,” the study added. The study further said that total bank credit to the private sector was flat last year and had climbed by only four percent in the first eight months of this year, following average annual growth of 27 per cent between 2004 and 2008. “Although setting aside funds as provisions reduces the amount of money banks have available to lend, banks are liquid and their lack of lending stems from unwillingness rather than inability,” it said.
