Strong Saudi economy spurs biggest banks profit to rise

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Three of Saudi Arabia’s biggest banks posted increases in net profit for the second quarter on Wednesday, benefiting from huge government investment and oil revenue surpluses which fuelled higher lending.

High government spending on housing and infrastructure projects in recent years has helped boost Saudi economic growth, which was 6.8 percent last year, which in turn raised demand for corporate lending.

Al Rajhi Bank, Saudi Arabia’s largest listed bank, recorded a year-on-year net profit gain of 1.4 percent to 2.12 billion riyals ($565 million) for the three months to June 30; Samba Financial Group, the kingdom’s second-largest, posted a 1.5 percent rise to 1.18bn riyals.

Saudi British Bank (SABB), the fourth-largest lender, reported a 9.8 percent advance to 1bn riyals.

The results for the first two banks were in line with the average forecast of analysts polled by Reuters, but SABB exceeded expectations.

Bank lending to the private sector rose 16.5 percent in May, the fastest rate of growth since February 2009, after a 16 percent increase in the previous month, according to central bank data.

However, low interest rate margins and, to a lesser extent, payment problems at some of their construction company client shave dampened banks’ earnings.

Last week the kingdom’s third-largest listed lender Riyad Bank posted a second quarter net profit rise of 5.9 percent to 968m riyals.

Earlier this week, Saudi Hollandi Bank said its income for the period rose 12.8 percent to 375m riyals, while Banque Saudi Fransi’s rose 0.8 percent to 763m riyals.

John Sfakianakis, chief investment strategist at Masic, one of Saudi Arabia’s oldest and best known investment companies, said he was optimistic for future quarters as margins increased and interest rates globally start to rise in 2014 as expected after years of monetary stimulus from central banks.

All three banks cited an increase in operating income for the improvements in net profit for the quarter, without elaborating further. Saudi companies issue results statement with key numbers early in the reporting period before adding further detail in subsequent filings.

Sfakianakis said the results from SABB were impressive as it was the first time the bank had posted a quarterly net profit in excess of 1bn riyals.

“SABB has done really well because provisioning has declined extensively over the past few years and they have been growing the business across all segments of the bank. This is a historic quarter for SABB,” he said.

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