How the Banks shaped up in 2009

Unlike many banks across the globe, 11 of Saudi Arabia's 12 banks produced profits, with only the smallest, Bank Al Bilad, showing a loss. The banks can be divided into seven medium to large banks, led by Jeddah-based National Commercial Bank (NCB) whose total shareholders' equity at end 2009 reached SR30.9bn ($8.2bn), and five smaller banks which include the recently created state-affiliated Alinma Bank, which is in its first operational year.

Examining the results, Al Rajhi Bank, the third largest bank in the country in terms of capital, again was easily the most profitable bank with net income in 2009 of SR6.77bn ($1.8bn), a 2.2% increase on the previous year and more than SR2bn ahead of its nearest competitor.

Robust growth

Al Rajhi, the second largest Islamic bank in the world according to The Banker's Top 500 Islamic Financial Institutions listing, is a low-profile but highly effective bank with a vast retail network, strong traditions dating back 50 years and an impeccable reputation. The Riyadh-based bank has more than 550 branches across the country, including 100 dedicated branches for women, 2440 ATMs, 129 remittance centres and the largest customer base of any bank. The bank plans to open 90 new branches within the next three years.

Al Rajhi chief executive Abdullah Sulaiman Al Rajhi is optimistic about the Saudi market: "Growth in the domestic market will continue to be there and the new mortgage law will help." Not exposed to the global financial crisis, Dubai or the real estate business, the bank has stayed out of trouble and focused on the domestic market in retail and project finance, but is also now beginning to quietly expand abroad.

Al Rajhi Bank already has a sizeable 19-branch network in Malaysia, a major Islamic banking market, and now has a licence to open in Jordan by the end of 2010. It also plans to open a single branch in Kuwait in the second quarter of this year. While Mr Al Rajhi acknowledges that the need for finance at home is not as big as it was and some expansions have been delayed, he is still bullish about opportunities in their core domestic retail business and is confident about 2010.

Samba again claimed the position as the country's second most profitable bank with profits of SR4.56bn in 2009, 2.4% up on the previous year. Samba, which has 65 branches across the kingdom and a subsidiary in Pakistan, saw growth across the board with shareholders' equity up 12.5% to SR22.5bn and total assets up 4% to SR186bn. Chairman Eisa Al-Eisa praised the positive results in difficult regional circumstances and commented on the rise in the capital adequacy ratio to 17% and the strong platform available to take advantage of growth opportunities in 2010.

Jeddah-based NCB, the largest in the country in terms of capital and assets, provided a significant improvement in profits, coming in in third place with net income of SR4.12bn, a 103% increase on 2008. NCB, majority state-owned, took severe write-offs on goodwill and foreign assets in 2008 and, although domestic provisions hit SR2.47bn in 2009, net income doubled. NCB chairman, Sheikh Abdullah Bahamdan noted that the bank's rising profitability reflected effective execution of a strategy centred on service excellence, innovation and risk management which saw strong overall growth and customer deposits up 17.9% to SR203bn.

Riyad Bank, which had doubled its capital to more than SR28bn through a rights issue in 2008, had a good year in 2009, producing net income of SR3.03bn in 2009, 14.8% higher than in 2008. With minimal exposure to the Saad/AHAB groups and confident in its knowledge of its customers, Riyad continued to lend in 2009, increasing lending by 10% to SR106.5bn as well as boosting deposits by 19% to SR125bn.

Criticised for being too conservative two years ago, Riyad, under CEO Talal Al Qudaibi, has stuck to its strategy, used its increased capital carefully, expanded its market share and retail network and boosted profits. The bank had 216 branches at the end of 2009 but Mr Al Qudaibi expects this number to rise to 250 by the end of this year. He insists the opportunities are in retail and the bank now has a network of 2400 ATMs, almost the same as its key retail rival Al Rajhi.

With market share in lending now at 15% and capital adequacy of 16%, Mr Al Qudaibi is optimistic about Riyad's leading positions in project and trade finance and is bullish about the growing prospects for investment banking in regard to initial public offerings (IPOs). As Saudi family businesses need to become more institutionalised, he believes more IPOs are likely. Mr Al Qudaibi is also hopeful about the prospects of women working in banking; he explains that 16% of Riyad's staff are women, the highest level among Saudi Arabia's banks, and opportunities are growing.

Slumps reported

Meanwhile, profits at Banque Saudi Fransi, affiliated to Crédit Agricole, slumped by 12% to SR2.47bn as provisions for credit losses rose. While total equity rose by 12% year on year to SR15.8bn, Fransi saw small declines in assets, lending and customer deposits reflecting an overall downturn.

Close behind Fransi in sixth place is Arab National Bank (ANB) which produced net income of SR2.37bn, a fall of just 4.7% on 2008's profits of SR663m. ANB, an affiliate of Jordan's Arab Bank, felt the impact of the downturn and suffered declines in key indicators with assets down 9.1%, the loan portfolio down 10.5% and customer deposits down 10.9%. Nevertheless, Dr Robert Eid, chief executive of ANB, was not pessimistic. "Against the backdrop of a difficult international and regional environment, the bank managed to turn a relatively good performance, consistent with previous years."

Mr Eid expects demand for credit to increase in 2010 but not at the pace of previous years; slower growth but growth nevertheless. The bank, which has 168 branches, including 31 branches for women, continued its branch network transformation and expansion project in 2009 and Mr Eid believes the bank is well positioned to achieve good results in 2010 backed by the strong Saudi economy.

Saudi British Bank (SABB) posted the lowest profits of the seven large and medium-sized banks, with net income of SR2.03bn in 2009, a significant 30.4% decline on the previous year. Reports indicate that SABB, 40% owned by HSBC, had a 16-fold increase in non-performing loans to SR3.5bn or 4.6% of total loans at end 2009 from near zero in 2008. And although it increased provisions massively in 2009, it is reported to have covered only half the loan losses. "SABB is leaving the decision to make more provisions for these loans to 2010," Hesham Abu-Jamea, head of asset management at Bakheet Investment Group is reported as saying.

The Saad/AHAB shock

Richard Groves, managing director of SABB, explains that the Saad/AHAB shock was unexpected and consumer confidence dipped, but he adds that, provided there is not a repeat, he is optimistic about 2010. He notes: "SABB's continued strong operating income streams and control over costs have enabled the bank to report encouraging profits for the year ended December 31, 2009, notwithstanding the increase in provisions for possible credit losses. The capital adequacy ratio, liquidity and overall quality of our loan book remains strong." He believes that there is a high level of confidence that business in the country will improve, especially given the Saudi government is able to invest without increasing its debt burden, placing it in a strong position.

Of the five smaller banks, Alinma Bank, the newest, fared the best. Born big with a paid-up capital of SR15bn and 30% state-owned, Alinma launched operations publicly in October 2009 but produced net income for the year of SR605m. Chief executive Abdulmohsen Al Fares sees the bank's strategy as building branches and having the right infrastructure. At present the bank has 22 branches (13 for men and 9 for women) and 100 ATMs, though 16 branches are under construction. Mr Al Fares hopes to have 30 branches and 200 ATMs by the end of 2010.

The smaller banks

Saudi Investment Bank (SIB) follows Alinma among the smaller banks with profits of SR522m, a 2% increase on the previous year, despite high provisions and net losses in the fourth quarter of 2009. While SIB managed to post an annual profit increase and also increased lending by 1%, its operating income for the year dropped by a sizeable 22% and both total assets and customer deposits dipped by 6%.

Saudi Hollandi Bank, an affiliate of Royal Bank of Scotland, had a tough time in 2009, with non-performing loans doubling to SR2.2bn and increased provisions leading to a 93% fall in profits from SR1.22bn in 2008 to SR86m in 2009. The higher impairment charges forced Hollandi, along with SIB and Aljazira to report net losses in Q4 2009.

Meanwhile, Jeddah-based Bank Al Jazira, like Hollandi, saw profits destroyed with net income dropping 87.8% from SR222m in 2008 to just SR27m in 2009. Al Jazira is a small bank with only a 2.2% market share of assets in 2009 but its subsidiary Al Jazira Capital is a market leader in brokerage in the country with a 17% market share by value in 2009.

Bank Al Bilad is another new bank with an old heritage; it was born out of the traditional exchange houses founded 50 or more years ago. New chief executive Khalid Al-Jasser, the brother of the SAMA governor, describes the bank as the first Islam-based bank. "We were born Islamic and although small, we are enthusiastic and keen to grow," Mr Al-Jasser explains.

The bank, which posted a loss of SR248m in 2009 compared to a SR125m profit in 2008, has 69 branches in the country, including 23 women's branches, and 105 remittance outlets, the largest provider of remittance services in the kingdom with a key link to global provider Western Union. Mr Al-Jasser hopes to open 22 new branches this year as well as another 22 in 2011 and is keen to grow between 20% to 50% this year. With more than 40% of the remittance market Mr Al-Jasser sees plenty of opportunities for growth for Al Bilad.