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Saudi banks face a spike in bad debt

Saudi banks often set aside most of their provisions for bad debt in the fourth quarter. Last year, there was more reason to do so, as debt problems at the local Saad and Al Gosaibi groups emerged in May and information only came out gradually.

At the end of last year, Saudi banks’ provisioning rose just under 120% quarter on quarter. This compares with a rise in the fourth quarter of around 300% in 2008.

The preliminary results of the eight largest Saudi banks (with about 90% of assets) suggest that provisioning in 2009 was up roughly 150% from 2008. Even so, the banks’ net income rose 1% last year. Banks are clearly expecting some lending to the Saad and Al Gosaibi groups to be retrieved – especially the collateralized portions.

Banks with bigger retail franchises did slightly better, perhaps because of the crisis in family businesses. Earnings at Al Rajhi, the biggest Islamic bank, rose 3.7% in 2009. This was also because of margin gains as its funding costs fell but lending income remained stable.

Samba, the biggest listed bank by assets, posted 2.4% earnings growth. Its lending to Al Gosaibi should have been collateralized, as it was a related party.