SAUDI BANKS FACE FURTHER LEAN PERIOD
Saudi Arabia's 11 commercial banks are
reporting a further decline in profits for 1986 as increasing
provisions have to be set aside to cover the burden of non-
performing loans.
    Bankers in the Saudi capital said the need to build
reserves for bad and doubtful debts may start to decline a
little this year.
    But the kingdom's still sluggish economy and legal problems
hampering traditional lending operations mean earnings will
remain vulnerable.
    One senior bank credit officer said "The work is largely
done in terms of identifying bad loans and making provisions,
but banks are still going to face difficulties earning money."
    The sudden decline of Saudi Arabia's corporate sector in
1983 - culminating in a number of debt reschedulings - has
taken a heavy toll of bank profits, with first results now
appearing for 1986 showing a fourth successive year of broad
decline.
    The cumulative net 1985 earnings of the kingdom's banks had
sunk to 827.9 mln riyals from 2.66 billion in 1982 before world
oil prices tumbled.
    Of the kingdom's nine joint-venture banks which operate on
the Gregorian calendar year, four have already reported and
revealed a further profits decline - or net loss - for 1986 at
the expense of increased provisions.
    The newest and smallest of the joint ventures, <United Saudi
Commercial Bank> (USCB) reported a 1986 net loss of 15.9 mln
riyals, marginally less than 1985's shortfall of 17.0 mln.
    Profits before provisions were sharply higher, in part
reflecting an 18 pct staff cut last year. But the bank nearly
trebled the amount set aside against bad and doubtful loans to
60 mln riyals from 22 mln in 1985.
    Other results released so far show <Saudi American Bank>
(SAMBA) reporting a 53.8 pct fall in 1986 net profit to 80.7
mln riyals, while <Al Bank Al Saudi Al Fransi>, known as Saudi
French, slid 14 pct to 94.9 mln riyals.
    Both Saudi American, owned 40 pct by Citicorp's <CCI.N>
Citibank NA and Saudi French, 40 pct owned by Banque Indosuez,
increased provisions sharply.
    <Arab National Bank>'s net profit fell 17.8 pct to 152.1
mln riyals and provisions were more than doubled to 86.6 mln
riyals.
    Bankers said there are first signs that the number of non-
performing loans has stopped growing as the decline in the
Saudi economy bottoms out.
    Few are willing to predict a sharp upturn in economic
activity, but one banker said "The top 50 pct of the Saudi banks
are now at or close to international levels on provisions."
    From 1982 to 1985, the kingdom's largest bank <National
Commercial Bank> (NCB) stashed away 1.7 billion riyals in
provisions or 8.9 pct of its total loans and advances to the
private sector, bankers calculated.
    Between 1982 and 1985, <Riyad Bank>, NCB's rival as the
second biggest of the two all-Saudi shareholding banks, had
covered 12.8 pct of its loans and advances. Both banks operate
on an Islamic year that does not coincide with the other nine.
    Although the Saudi Arabian Monetary Agency (SAMA) has been
tightening supervision, there is still no standardised rule for
declaring loans as non-performing.
    Bankers say this makes comparison of profit figures
difficult because some banks still book non-accruing interest
as revenue while others follow more conservative practices in
force in major world financial centres.
    Bankers generally said NCB, Riyad Bank and the
joint-ventures SAMBA, Saudi French and Arab National Bank rank
as the strongest earners.
    Other banks such as <Saudi British Bank>, 40 pct owned by
the <British Bank of the Middle East>, are disadvantaged by a
relatively low deposit base.
    Saudi British slashed 1985 profit 91 pct to just 9.1 mln
riyals and 1986 accounts due soon are expected to show another
low figure. But the bank has traditionally been one of the most
conservative in making provisions.
    Bankers said SAMA has proved it is not prepared to see a
Saudi bank go under and not only supported <Saudi Cairo Bank>
after its troubled 1985 accounts came to light but also made
available cheap deposits to <Saudi Investment Bank> and USCB.
    The banks can on-lend these to generate profit, but
generally banks are awash with liquidity since they are
unwilling to risk incurring fresh non-performing loans.
    And while banks in more liberal financial markets can
attempt to diversify away from traditional lending,
conservatism in Saudi banking has made it difficult to generate
fee income from new investment banking products.
    One banker said "Operating earnings in the Kingdom are not
good."
    Reflecting the caution in new lending, the amount of
advances is showing a declining trend, while the days when
banks had ample funds in interest-free current accounts to
invest are disappearing as Saudi customers seek a better return
on their money.
    In 1979, the ratio of interest-bearing accounts to current
accounts was 27 to 73 pct. Today, only about 40 pct of customer
funds are held on current account.
 REUTER
