Saudi banks set to double lending this year

Thursday, 24 March 2011 00:00 - - {{hitsCtrl.values.hits}}

Riyadh, Reuters - Saudi Arabia’s banks are set to double lending to the private sector this year and see higher profits than last year partly due to government handouts of more than $100 billion, said the top-executive at the country’s biggest lender by assets.

“The economic effect of the stimulus that the king has announced has a turbo charging effect because more money will be injected into the economy and this money will be looking for financial services and opportunities,” Abdul-Kareem Abu Al-Nasr, chief executive officer of the National Commercial Bank (NCB) told Reuters.

Abu Al-Nasr said increased lending would be driven by the economic activity in the kingdom where multi-billion dollar infrastructure projects are underway, plus the return of private sector demand.

On March 18, King Abdullah offered a $39 billion handout to boost security and religious police forces as well as some infrastructure projects. This handout follows a previous package of $37 billion, announced earlier this month.

“We are already seeing a higher level of activity and competition with Saudi banks on the lending side and we expect in 2011 to see something close to 7-10 percent in terms of growth,” he said on the sidelines of an economic forum in Jeddah.

“It will be higher growth. Last year the total lending in the banking sector grew close to 5 percent and it mostly came in the second half of 2010.”

“Overall the environment is conducive of growth and the banks are looking for yield because we are working in a low interest rate environment and the banks have a lot of liquidity so they have to find ways to make this liquidity work for them,” he added.

Banks’ profits are also expected to rise more than last year, he said, as bad debt provisions which ate into profits in the past year are expected to drop.

“I think, given the level of provisions that the banks have already taken, and where we are today, I think there will be less provisions taken,” Abu Al-Nasr said.

“The effect of less provisions in itself and the increased lending activity will improve the level of profitability...Overall it will be a positive year,” he said.

In 2009, banks in Saudi Arabia saw lower profits as they increased provisions and lending slowed down following the 2008 financial crisis and due to concern over non-performing loans.

Last year, Saudi Central Bank Governor Mohammad Al-Jasser urged banks to be more conservative and make sure provisions for bad loans exceeded 100 percent of their value.

When asked about NCB’s expectations for profits this year, Abu Al-Nasr said, “better, hopefully, than last year.” NCB made a net profit of 4.7 billion riyals ($1.3 billion) in 2010.