Saudi banking assets show growth

The domestic banking system in Saudi Arabia relative to many of the global peers, developed or developing, had maintained its inherent strengths that emanate from greater reliance on core banking activities, lower non-performing loans (NPLs) ratio, little recourse to wholesale funding and ample liquidity.
During the last two years, Saudi banks have returned to a higher growth trajectory after a lackluster performance in 2009 that saw total credit and in turn profitability shrink on an annual basis by 1.1 percent and 0.2 percent, respectively.
The inflection to double-digit net income growth that started in Q2, 2011 aided banks in crossing the SR35 billion threshold in 2012 for the first time since 2006, according to a report by the National Commercial Bank (NCB).
In comparison to other countries, the Saudi banking system had a comfortable loan to deposit ratio (L/D) of 77.3 percent by the end of Q1, 2013, a level that reflects excess capacity to lend and a lower systemic risk.
Meanwhile, the capital adequacy ratio (CAR), which rose to 17.4 percent, is another signal of an ample cushion to match the embedded risk in assets, especially after taking into consideration the lower capacity utilization compared to regional and international counterparts, with the UAE, Kuwait and Russia at 90.4 percent, 91.6 percent and 124.3 percent L/D ratios, respectively.
The improvement in asset quality since mid-2011 is another plus for the domestic banking system, illustrating the prudent management and supervisory practices that have been applied by banks and SAMA (Saudi Arabian Monetary Agency).
Indeed, the buoyant domestic business cycle had reduced credit and investment provisions, as NPLs fell drastically from a record SR25.8 billion in 2009 to SR19.9 billion by the end of 2012.
Given the robust economic growth Saudi Arabia is experiencing, banks have been able to expand their portfolios and improve their asset quality.
The government’s expansionary fiscal policy is providing adequate opportunities for businesses, thus, creating a favorable landscape for banks.
During 2012, total banking sector assets grew by an annual 14.0 percent, the first double digit growth in assets post the financial crisis, and the momentum was carried over with a growth of 11.7 percent by the end of March 2013. The oligopolistic market structure remains to be dominated by NCB, Al-Rajhi, Samba Financial Group, and Riyad Bank, holding a combined 58.2 percent of total assets by the end of Q1, 2013.
NCB maintains its dominant position with regards to total assets at 20.4 percent, followed by Al-Rajhi that captures around 17.1 percent of the banking sector’s assets.
The newest bank in the Saudi financial system, Alinma Bank, has been growing rapidly with its assets rising by 41.0 percent Y/Y, reaching SR56.2 billion by the end of Q1, 2013.-Arab News