JEDDAH: Commercial banks in Saudi Arabia are projected to perform well through the year because of higher lending, lower provisions and stronger oil prices. They earned nearly SR4.9 billion in the first two months of 2011, SR2.5 billion of which were obtained in January. "Saudi banks will perform well through 2011 and their income could exceed that in 2010 as credit is expected to pick up and economic conditions have largely improved," the Riyadh-based Jadwa Investments said. National Commercial Bank, meanwhile, forecast that lending is expected to continue recovery as Saudi economy expands with planned infrastructure and economic projects worth SR2.5 trillion. The bank study said lending by Saudi banks bounced back during 2010 after a 1.1 percent drop in 2009 following a 3.8 percent growth in the Saudi real GDP last year against 0.16 percent in 2009. The growth helped restore banking confidence. Moreover, a sharp rise in T-bills showed that banks have the ability to redirect their lending to extending or providing credit for existing and new clients, but added that they are still reluctant to reach the same level of credit growth. "As government expenditure on infrastructure projects increases, demand for credit will be driven upwards. The government announced SR580 billion in spending for 2011 (of which capital expenditure is expected to be around 44 percent), although actual expenditure is projected to ruse to SR677 billion in 2011," it said. "Demand for bank credit is expected to increase 8.8 percent in 2011, with an estimated SR2.5 trillion worth of projects being on hold or in the planning phase as of February." Jadwa further said In 2010, the net income of Saudi banks stood at around SR26.1 billion, slightly lower than the 2009 earnings of nearly SR26.8 billion. The profits totaled around SR29.9 billion in 2008 and peaked at SR30.2 billion in 2007. Balance sheets showed the Kingdom's banks have allocated more than SR20 billion for loan loss provisions over the past two years. Provisions in the third quarter of last 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, Jadwa's data showed. The banks' performance would improve as economic growth further improves, seen at more than five percent in 2011. Another factor is a projected pick up in lending following a slowdown of nearly two years because of the 2008 global fiscal crisis and regional debt default problems. In 2010, domestic credit rebounded by around 5.2 percent but growth remained far below the boom period of 2007 and 2008, when growth topped 30 percent.
