Painful But Manageable Stress in the Saudi Banking System

All eleven Saudi banks have  now issued financials for 3Q09 so it's possible to get an insight into  the state of the banking market.

For the first nine months of 2009, Saudi banks' provisions were SAR 5.78 billion (US$1.54 billion) versus SAR 1.51 billion (US$403 million) in the comparable period in 2008.

Most of the provisions are believed to be related to exposure to  two Saudi borrowers:  Ahmad Hamad AlGosaibi Brothers ("AHAB") and the Saad Group.   Estimates are that Saudi banks hold approximately US$5 billion out of the aggregate US$22 billion to these two groups.

A closer look at individual banks may give some idea where the problems are.

On that topic, it's important to note that SAMA (the central bank) does not set mandatory provisioning guidelines.  Individual banks make their own determination.  Banks may  therefore have different provisioning percentages for the same credit.     

Two banks accounted for 54% of the provisions:

1. National Commercial Bank ("NCB"), the largest in the country, with SAR 1.876 billion 
   
2. AlRajhi Bank ("ARB"), the third largest, with SAR 1.237 billion.  

NCB's provisions were 9x those in 2008.  ARB's a more modest 1.9x. 

Among the other majors:

1. Samba,  the old Citibank joint venture and the second largest,with SAR 377 million - just shy of 3x. 
   
2. Riyad Bank, the fourth largest, SAR 434 million - 3.7x 2008.

Two banks had larger percentage increases than NCB:

1. Banque Saudi Fransi, the sixth largest, at 15x with SAR 224 million and 
2. Saudi Hollandi (the eighth largest) at 10.7X  with SAR 415 million.

Both reflect rather rapid buildups and are due either to provisioning for Saad and AHAB (more likely) or severe deterioration in other borrowers.

No one expects Saudi bank failures.

Even with the dramatic rise in provisions, NCB's profit was only down 28% from 2008.

The banks are relatively well capitalized.

The Saudi Arabian Monetary Agency has a tradition of engineering bank rescues when needed.

But the increase in provisions says something about the pain being felt.

More details for those who read Arabic from AlRiyadh newspaper. 

(Exchange rate:  SAR 3.75 = US$1.00)