Saudi Banks Lower Loan-Loss Provisions by 52% in Second Quarter

Saudi banks, led by Al Rajhi Bank (RJHI), reported a 52 percent decline in provisions for bad loans in the second quarter as lending improved in the Arab world’s largest economy.

Provisions of 11 publicly traded lenders dropped to 871.3 million riyals ($232 million), from 1.83 billion riyals in the year-earlier period, according to Bloomberg calculations from data posted on the Saudi bourse website. Bank Al Jazira, the last to post provisions data on the site, reported today a 33 percent decline in money set aside to cover bad loans to 43.9 million riyals.

Saudi banks have been cleaning their loan portfolios after large provisions for credit losses reduced their earnings over the past three years. Provisions in the previous quarter dropped 35 percent to 1.01 billion riyals compared with the year-earlier period.

“Provisions should remain at similar levels for the rest of the year, said John Sfakianakis, chief economist at Riyadh- based Banque Saudi Fransi. “Banks have upped their risk-profile measures since 2009 in light of a growing economy.”

Al Rajhi, the kingdom’s largest publicly-traded lender by market value, lowered provisions by 18 percent to 346.8 million riyals in the three months ended June 30, while Samba Financial Group (SAMBA), Saudi Arabia’s second-largest lender by market value, decreased provisions by 80 percent to 11 million riyals.

“Corporate profitability has improved in the second quarter, which will positively affect the repaying capabilities of the corporate,” said Akef Al Tanbouz, head of asset management at The Investor Securities in Riyadh.

All banks except Samba reported gains in second-quarter profit. Al Rajhi’s net income rose 3.6 percent to 1.84 billion and Riyad Bank (RIBL)’s profit advanced 9 percent to 836 million riyals. Samba’s net retreated 10 percent to 1.1 billion riyals.

“Provisions for the next two quarters will not total above 2 billion riyals, which is very good news for banks’ profitability and prudence,” said Sfakianakis.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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