"I would love to own a bank in Saudi Arabia now. Everyone would. Just look at their profit margins," says an economist in Riyadh. It is hard to question his logic.
In Saudi Arabia lending is a low-risk business and government expenditure is high, as is confidence in the wider economy. As a result, profits at some of the country’s larger banks rose by 12% last year and even more at the smaller institutions. That trend has continued into this year. Even if oil prices dip, the government has plentiful financial reserves to maintain spending for years to come.
To some observers in Riyadh, the recent performance of the banks is not indicative of a particularly strong financial sector so much as a sign of a strong economy. "Everyone is doing very well," says an industry observer in the city. "Saudi banks are very fortunate. They’re making a lot of money, not because they’re good, but because the economy is very good."
A critical element of this economic environment is the central bank, the Saudi Arabian Monetary Agency (Sama),whose cautious approach to regulating the sector is widely praised in the country and has helped the banking system weather both the global economic storm and domestic travails such as the collapse in 2009 of two local conglomerates, Saad Group and Ahmad Hamad Al Gosaibi & Brothers Company.