It is not all bad news at Royal Bank of Scotland. At least its Saudi franchise is improving, which might ultimately fetch the troubled UK bank a higher price if it decides to sell the stake it inherited from ABN Amro.
Saudi Hollandi Bank boasted strong net profit growth in the fourth quarter even as bigger local rivals reported increased provisions and falling profits. The bank made a net profit of a riyal equivalent of $82 million in the fourth quarter, against a loss of $28 million in the same quarter in 2007 because of provisions unrelated to the sub-prime crisis. Al Rajhi and Saudi British Bank, on the other hand, reported net profits in the fourth quarter of 2008 down by almost 10% and almost 7% respectively. Net profits at Arab National Bank and Banque Saudi Fransi were down by 11% in the fourth quarter.
In January, Saudi Hollandi became the first bank in the Kingdom to issue a sukuk to boost its capital adequacy ratio. In a self-led deal, the bank sold SR775 million ($207 million) of 10-year put five mudaraba sukuk through a private transaction. The deal is the first tranche of a SR1.5 billion tier 2 sukuk issuance programme. It was priced at 200 basis points over the Saudi inter-bank rate.
The issue follows the banks first tier 2 capital bond for a riyal equivalent of $187 million, raised in 2004. Bernd van Linder, general manager of treasury at Saudi Hollandi, says another tranche might follow later this year if market conditions permit.
"The timing of the issuance of the second tranche is dependent on the growth of our assets as well as our perception of market appetite," he says. We have the option to do it if and when the conditions are right and we need more capital."
A 40% share in the ownership of Saudi Hollandi Bank was transferred to Royal Bank of Scotland and its consortium partners after the takeover of ABN Amro in 2007. Local media report that RBS pledged to sell the stake in its offer letter.
A number of banks have reportedly expressed an interest in the stake in the past, including National Bank of Kuwait, Standard Chartered, and Dubais Emirates NBD. Saudi Hollandi is one of the smaller banks in Saudi Arabia. However, any toehold in the market is difficult to gain and would be sought after.
The proceeds of the sukuk will be used exclusively for Saudi Hollandis Islamic arm, Al Yusr. "This country and region is increasingly moving toward becoming completely Islamic when it comes to raising finance. If we hadnt raised money Islamically we would have excluded a very large section of target investors," says Van Linder.