SAUDI Arabian banks may report higher second-quarter profit this week as industrial expansion and infrastructure spending in the biggest Arab economy raises earnings from corporate loans and project financing.
Net income at the 10 biggest Saudi banks probably advanced by an average 16 percent, according to EFG-Hermes Holding SAE, the largest Arab investment bank by market value. Kuwait-based Global Investment House KSCC forecasts profit at eight banks rose an average 12 percent.
"With economic growth and the mega-industrial projects in the kingdom, there is a need for more banking services," Faisal Hasan, Global Investment's head of research, told Bloomberg News. "Fee income should also grow."
Saudi Arabia's economy will expand 4.9 percent this year as record oil earnings fuel government spending on energy projects, public works and development ventures such as the US$120 billion King Abdullah Economic City, according to a Bloomberg News survey of economists. Saudi Electricity Corp, the kingdom's largest utility, has said it will borrow to help finance 26 billion riyals (US$6.93 billion) in new power plants.
Saudi British Bank, the country's third-largest bank by market value, may report a 30-percent jump in second-quarter earnings to 824.3 million riyals, according to a mean average of estimates at Shuaa Capital PSC, EFG-Hermes and Global Investment. Al-Rajhi Bank, the largest lender by market value, may say net income climbed 8.7 percent, according to Global Investment.
Loans a key factor
"Over the short and medium term, loans are going to be the key driver for Saudi banking growth," said Murad Ansari, a Riyadh-based analyst with EFG-Hermes.
However, profit growth at some banks may be constrained by rising inflation, weaker demand for consumer loans and losses on investments.
Samba Financial Group, the second-largest bank, may report second-quarter net income of 1.34 billion riyals, a 3.1-percent increase over the previous year, according to a mean average of estimates from Shuaa, EFG-Hermes and Global Investment. Profit at Saudi Investment Bank, whose shareholders include JPMorgan Chase & Co, probably fell 13 percent in the quarter to 195.8 million riyals, according to Global Investment.
Banks are unlikely to report strong growth in retail lending because consumers are already burdened with repaying loans previously secured to buy stocks, according to the EFG-Hermes report.
The capacity to take on more debt was "constrained by the weak performance of the stock market," Layla al-Ammar, analyst at Kuwait Financial Centre, Markaz, said in a telephone interview.