Profits of Saudi banking giants plunge in 2002

Two of Saudi Arabia’s largest banks, Saudi American Bank and Al-Rajhi Banking and Investment Corp., posted profit declines for fiscal year 2002.

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By  Massoud Derhally Published  February 2, 2003

Two of Saudi Arabia’s largest banks saw hefty declines in profits for fiscal year 2002.

Saudi American Bank (SAMBA), the largest listed bank in the kingdom, announced Saturday a 17.5% fall in 2002 net profits to SR1,857 million ($495.2 million) from $600 million posted in 2001.

Mike de Graffenried, the managing director of SAMBA, said the bank’s profits were impacted as SAMBA was cautiously tending to its loan loss reserves.

SAMBA is the third largest bank in the Arab world and the second largest private bank in the Kingdom after the National Commercial Bank.

Al Rajhi Banking and Investment Corp., the second largest bank in Saudi Arabia in terms of its market capitalisation (US$7.5 billion), saw its profits decline 8.4%.

The corporation posted net profits of SR1,413 million (US $376.8 million) at the end of 2002 compared to SR1,542 million ($411.2 million) in 2001.

The decline is less than that of 2001 where profits slipped by 16.7% from SR 1,852 million in 2000.

The bank’s general manager, Abdullah Al Rajhi, said in a statement that the decline in profits was a result of adverse conditions in world equity markets and a drastic instability in the global economy and investments.

Moody's, the international rating agency, says in a recent report that the bank's profits in 2001 and 2002 suffered largely because of a decline in interest rates and higher provision charges.

"Eight of the ten banks have reported strong profit growth for the first nine months of 2002, while SAMBA and Al Rajhi Bank have suffered a fall in profits," said Moody's in its outlook report on the Kingdom.

"Within the falling interest rate environment, [Saudi] banks have managed to improve their net interest margins by growing their higher return consumer lending. The banks' short-term liability profile has also enabled them to reduce interest expenses much faster than the slide in interest income. However, banks have also benefited from strong gains on investments, primarily involving government securities," the report said.

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