Saudi banks see Q3 profits fall on provisions

Two of Saudi Arabia's biggest banks posted lower than expected third-quarter earnings on bad-loan provisions on Tuesday as the central bank urged them to be more conservative in the amounts they were setting aside.

Provisions for non-performing loans and a low-interest rate environment have been hitting the profitability of Saudi banks since early 2009 and so far those that have reported on the third quarter have shown falls in earnings and attributed it to bad loan provisions.

The majority of Saudi banks have had to book higher provisions for the previous four quarters to cover possible loan losses linked to debt defaults by some troubled Saudi family-owned firms.

Al-Rajhi Bank, the Gulf's biggest Islamic lender by market value, posted a 8.6 per cent fall in third-quarter earnings, missing the average estimate of a 9.2 per cent rise in a Reuters poll of analysts.

The bank attributed the fall in earnings to booking bad-loan provisions, without specifying the amount.

SAAB, HSBC's Saudi affiliate whose profitability has been hit most by bad loan provisions since the start of 2009, reported a 26.5 per cent drop in quarterly profit, also missing the average estimate of a 0.3 per cent increase in a Reuters poll of analysts.

SAAB also attributed the fall to bad loan provisions as well as a drop in lending income. It did not specify the provision amount.

Earlier on Tuesday, Saudi central bank Governor Muhammad al-Jasser said banks should be conservative and make provisions covering more than 100 percent of their non-performing loans.

SABB and Rajhi were not the only banks to have posted poorer quarterly earnings during the third-quarter - Arab National Bank, Aljazira Bank and Saudi Investment Bank all cited provisions for bad loans as reason for a drop in their net profits for the period.

Rajhi's earnings per share for the nine months to end of September stood at 3.40 riyals against 3.53 riyals a year earlier and 2.31 riyals for the first half of this year.

SABB's earnings per share for the nine months to the end of September stood at 1.98 riyals against 2.68 riyals a year earlier. HSBC holds a 40 per cent stake in SABB.

Besides the issue of provisions, SABB has not done well on core lending business, with net profit from lending declining 6.3 per cent during the third quarter while Rajhi's rose 1.9 per cent to 2.28 billion riyals.

Arab National Bank, affiliated to Jordan's Arab bank, also saw its net profit from lending fall by 7 per cent.

Growth in bank lending, especially to the private sector, has been slow since early 2009 and Saudi bank credit growth was flat throughout much of 2009 due to the global slump and after defaults the same year by some local family firms.