Saudi Arabian banks report high earnings

What's Up: Every one of Saudi Arabia's banks to have reported profits so far has blown past analysts' estimates. But will that continue as earnings season continues?

Early signs from Saudi Arabia's earnings season show the country's banking sector steamed ahead during the fourth quarter, with blowout earnings at each of the kingdom's lenders having reported so far. The profit growth figures are the envy of almost every bank in the region.

Banque Saudi Fransi topped expectations last week with profits for the fourth quarter of 808 million Saudi riyals, an increase of 22.2 per cent when compared with the same period in 2011.

Saudi Hollandi then followed on Saturday with profits of 313.4 million riyals, a 35.5 per cent increase on the same period a year earlier.

Bank Albilad generated profits of 156.7m riyals, 46.4 per cent higher than a year earlier.

And yesterday, Saudi Investment Bank reported profits of 245.6m riyals for the quarter 66.6 per cent higher than a year earlier. Not only do the numbers astonish, every one of the Saudi banks to have reported earnings has blown past analysts' estimates this quarter.

That will probably be a hard act to follow, both for the banks that have reported during the year ahead and for big lenders still to produce figures this month.

However, analysts from JP Morgan express confidence that Samba and Saudi British Bank will either match or exceed last year's full-year earnings.

Less optimistic is Arqaam Capital, which expects high levels of provisioning at the kingdom's biggest lenders as the end-of-year earnings report reveals any problem loans.

Saudi banks may see an "overall drop in profitability due to typical Q4 clean-up", analysts from the firm wrote in a research report. Meantime, high levels of credit growth have been tempered by margin compression for the Saudi lenders that have reported so far, analysts from NCB Capital wrote in a research report.

Saudi bank profitability might be a volume game for the time being. But with the kingdom's latest budget pointing to an expansion of 19 per cent higher than last year's, there should be plenty of projects to go around.