Saudi Banks Most Profitable ? S&P

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A report by ratings agency Standard & Poor’s (S&P) revealed that banks in Saudi Arabia are among the most profitable and efficient in the gulf region.

High?oil prices?and vast spending plans under the aegis of the Saudi government have driven the banks? performance, along with low cost of funding, good pricing power high efficiency and a tax-free environment, according to the statement.

The Saudi Monetary Agency has led the banks to revise their strategies in ?favor of plain vanilla domestic banking activities, and to strengthen their risk management practices,? S&P said.

?They have allocated their robust operating revenues both to build up capital positions and to increase provisions for coverage of bad loans to conservative levels above 100 percent,? it said.

“Through a unique combination of supportive features, the Saudi banks we rate continue to demonstrate their ability to generate solid, sustainable core earnings, in turn fuelling high profits,” said S&P’s credit analyst Nicolas Hardy.

“Prospects for sound earnings and profits are bright,” he added. He said that the kingdom’s banks operated in a “potentially volatile but favourable environment.”

S&P said it did not foresee a general deterioration of asset quality in the near future.

“Because of the prolonged low interest rates, these banks have streamlined their existing sources of noninterest revenues. Consequently, the banks appear well-positioned to capture growth opportunities in the developing local retail and corporate segments and continue to post solid profits,” the report added.

Saudi Arabia, which has a sovereign credit rating of AA- with stable outlook at S&P, has been reaping the benefits of soaring oil prices. Brent crude traded at above $111 per barrel earlier this month, surging almost 56 per cent from the recorded closing price of $71.5 a barrel last year, according to stock market chart provider LiveCharts.

High profits in half-year results

Saudi Arabia?s banks returned to high profit growth and recorded an increase of more than 10 per cent in their net income in the first half of 2011 due to lower loan loss provisions and higher credit, according to their balance sheets.

From around SR11.68 billion in the first half of 2010, the net profits of 10 listed banks swelled to about SR12.9 billion in the first half of 2011, an increase of nearly 10.8 per cent, the financial reports showed.

Operating income of the 10 banks grew by around 2.18 per cent to SR22.6 billion from SR22.12 billion while commission earnings slipped by 0.09 per cent to SR15.52 billion from SR15.53 billion in the same period.

Saudi economist Abdul Hamid Al Amri said there have been tremendous positive changes in the banks? financial situations during the first half of the year.

This is reflected in their performance and resulted in an increase in net profit.

“The local banks were much cautious in their lending transactions during the first half of last year. They were also engaged in restructuring their loan portfolio and this was obvious.?

Sources: menafn, arabianbusiness, Bloomberg, emirates 24|7, saudigazette

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