Stimulus lifts Saudi bank profits

Saudi Arabian banks are expected to notch up big profits in the coming weeks as the kingdom's stimulus plans filter through the economy.

On Monday, Banque Saudi Fransi reported net income of 808 million Saudi riyals (Dh791.3m) in the fourth quarter of last year, a 22.2 per cent increase compared with the same period a year earlier, on the back of a 16.1 per cent rise in operating income.

The earnings beat expectations for the lender, which is 31.1 per cent owned by France's Crédit Agricole.

The profits set the tone for a strong earnings season in Saudi Arabia, with Samba and SABB also expected to fare well, analysts from JPMorgan wrote in a note to clients.

"This is an encouraging start to the Saudi banks' reporting in our view and will likely set upbeat expectations for full-year reporting of peers, given investor concerns on the sector post a damp third quarter, which was negatively impacted by higher-than-expected provisioning," said the note.

Banque Saudi Fransi's shares rose 3.74 per cent in trading on the Saudi Tadawul All-Share Index yesterday.

The improved outlook for Saudi lenders in the fourth quarter comes as the kingdom's government rolls out a vast budget expansion for the year ahead.

Last month, the Saudi council of ministers endorsed 820 billion riyals in expenditures for this year, a spending increase of 18.8 per cent compared with its budget for last year.

Saudi Arabia has poured money into building projects and infrastructure in an effort to provide work for its large and growing population of young adults in an effort to prevent the kind of social unrest experienced elsewhere in the region during the past two years.

That largesse is paying off in increased economic activity.

Recent industrial data shows that the Saudi economy is "well placed to maintain momentum", analysts from HSBC wrote in a report.

"Even if taken as a statement of intent rather than a detailed spending plan, [the 2013 budget] leaves no doubt of the government's intention to maintain its expansionary fiscal stance."

The bank estimates that the Saudi Arabian economy grew at more than 6 per cent last year, more than double its five-year average, led by the non-oil sector.

Fitch Ratings said last month that government spending underpinned the private sector, with construction growing faster than any other industry.

"With policy remaining expansionary in 2013, further healthy private sector growth is anticipated," said the ratings agency.

"Bank lending and strong consumer and corporate confidence should also support the private sector."