The Saudi economy is booming and the country’s banks are reaping the benefits. Last year there were record profits yet again and the outlook is for further unprecedented gains. The roaring economy, plus the opening up of new market segments such as retail, has given the banking sector a significant boost and the aggregate figures from the Saudi Arabian Monetary Agency (central bank) tell a convincing story.
The combined net income of Saudi’s 10 banks rose 35.2% in 2004 to reach SR16.8bn ($4.5bn), a strong performance by any standard. Aggregate totals show a 17% growth in total assets and 16.5% growth in customer deposits, as banks expand not only in the retail area but also in the capital markets sector following the establishment of the Capital Markets Authority.
Fees jump
Of particular interest was the rise in fees from banking services. These shot up by a huge 72.8% to reach SR5.6bn, reflecting a new area of expansion that is likely to grow further in 2005.
Using aggregate figures the overall return on equity (net income/total shareholders funds) for Saudi banks reached 26.2%, a very healthy average return that is well in excess of that of most countries around the world.
National Commercial Bank, the biggest bank in the kingdom by a wide margin, unsurprisingly produced the largest profits at SR3.5bn, a 17.2% increase. But the second largest bank, Samba Financial Group, produced the largest profits increase at 74.4% to hit SR2.5bn, following a weak year in 2003 (see Saudi supplement, The Banker, March 2005).
ANB’s strong run
Arab National Bank (ANB) continued its run of strong performances over recent years with a 52.2% rise in net income to SR1.2bn. Profits have tripled in the past five years and return on equity has more than doubled to 26.6%, based on buoyant economic conditions and a focused strategy.
In March, ANB successfully concluded its first syndicated loan facility. Following a strong appetite by international banks the three-year facility was increased from $250m to $350m.
Saudi British Bank, Banque Saudi Fransi and Riyad Bank featured next, with profit growth rates of 30%, 29.6% and 26%, respectively. In early March, Saudi British issued its first Eurobond, the first international bond by a Saudi corporate.
Reflecting the bank’s good performance and strong global demand, the size of the deal was almost doubled to $600m. The five-year floating rate notes were also tightly priced at 41 basis points over Libor.
The above deals follow the first-ever regulatory capital bond by Saudi Hollandi Bank at the end of 2004. The SR700m lower tier II bond was the first by a Saudi bank and the first under the Capital Markets Authority Regulations; the seven-year floating-rate notes deal was joint lead by ABN AMRO and Saudi Hollandi Bank.
More issues on cards
“Institutions across the Gulf states are looking to implement Basel II capital accords and we expect further similar subordinated issues in 2005,” notes Zafar Alam, global head of emerging markets at ABN AMRO.
The above deals represent the tip of the iceberg, say analysts, as institutions take advantage of the new capital market legislation, and offer huge opportunities for new capital raising and many more IPOs, such as that of Al-Bilad Bank launched in late February.
