The Saudi economy and banks will be the biggest beneficiaries of the current surge in oil prices, continuing low interest rates and a booming local stock market, according to a new special report by Fitch. These, alongside a global economy recovery, helped the Saudi banks deliver strong earnings in 2003, in spite of heightened security concerns in the Middle East.
In the report, Fitch says growth at the Saudi banks will also be supported by increased loan demand, which is likely to offset pressure on margins from low interest rates and increase in non-interest bearing deposits. In addition, cost reduction will come to the forefront as an alternative means of boosting profitability.
In 2003, all Saudi banks with the exception of one reported strong results on the back of buoyant market conditions within the Kingdom, however, the continuing decline in interest rates, resulted in varying performance levels.
The two largest listed banks, excluding National Commercial Bank, with the biggest franchises were the poorest performers as the small- and medium-sized banks continued to record the highest rates of profit growth.
A global economic recovery and growing demand for oil resulting in surging oil prices have resulted in surplus liquidity being kept within the Kingdom. The banks have been a significant beneficiary of this influx of funds with deposits growing by 9.8 percent and non-interest bearing deposits increasing by 11.6 percent. This coupled with continuing demand for consumer loans, strong growth in commercial loans and a powerful performance from the local stock market have been the principal drivers of Saudi banks profitability in 2003.
Despite the surge in consumer and commercial lending, credit quality of the individual and corporate has held up quite well and credit losses have been relatively benign to date. The build up of reserves in good times by all Saudi banks should help them weather a downturn. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
