An expected reversal of the upward trend in provisioning later this year coupled with better domestic economic prospects will put the Saudi banks back on track and allow them to return to profit growth, NCB Capital said on Thursday. It also forecast that “the ongoing economic recovery is likely to accelerate the demand for corporate loans. Furthermore, the expected introduction of a mortgage law is likely to provide impetus to personal lending. We expect banks to increase lending as default fears decrease and the economy recovers.” Heavy loan loss provisions kept pressure on Saudi banks after years of strong performance and depressed their net profits by more than nine percent in the second quarter of 2010, their balance sheets showed Thursday. Balance sheets released by the Kingdom's 11 listed banks (excluding NCB, which is not listed on the bourse), showed their combined net earnings dipped by around 9.4 percent to SR5.93 billion in the second quarter of 2010 from around SR6.54 billion in the second quarter of 2009. The decline also depressed their half yearly profits by about 9.4 percent to SR11.72 billion from SR12.94 billion, the data showed. Operating income fell around 0.6 percent in the first half of 2010 compared with the first half of last year. Income from special commissions also edged down slightly by around 0.9 percent, indicating that high provisions were the main factor for the lower profits. “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,” it said. Saudi banks allocated nearly SR1.55 billion for non-performing loans (NPL) in the first quarter of this year against more than SR8.4 billion in 2009. “It is not clear how much NPL allocations were made by the banks in the second quarter of 2010 but they are not expected to exceed those in the first quarter.” “Lower interest rates and a supportive monetary policy kept liquidity at healthy levels in Saudi Arabia in 2009, but banks remained cautious in lending due to default fears and focused on maintaining reasonable capital and liquidity positions,” NCB Capital said. It added “consequently, NPL levels leaped by 159 per cent in 2009, forcing banks to increase provisions. This negatively impacted listed banks' net income.” NCB Capital forecast that “the ongoing economic recovery is likely to accelerate the demand for corporate loans. Furthermore, the expected introduction of a mortgage law is likely to provide impetus to personal lending. We expect banks to increase lending as default fears decrease and the economy recovers.” Meanwhile, Fitch Ratings has affirmed Arab National Bank's Long-term foreign currency Issuer Default Rating (IDR) at ‘A' with Stable Outlook. The bank's Short-term foreign currency IDR was set at ‘F1'.
