Emerging markets rating agency Capital Intelligence has assigned Saudi Arabian banks a sovereign rating of A- long-term and A2 short-term for full year 2001. The rating is based on audited accounts, taking interim financial statements into consideration.
Saudi Arabia conducts a highly effective regulatory and supervisory system of its banking sector, which consists of ten commercial banks, as well as numerous specialized banks, foreign branches, and other supervised institutions.
Like its economy, Saudi Arabia’s banking sector is the largest in the Gulf. It is characterized by an asset quality which is very good by the standards of emerging markets and reasonable by almost any standard. Coverage of non-performing loans reached 104 percent at the end of 2001, with six of nine Saudi banks reporting coverage in excess of 100 percent.
Saudi banks are among the best capitalized in the developing world. All of the banks are in compliance with the Saudi Arab Monetary Agency (SAMA)’s eight percent risk asset ratio requirement, and most banks report ratios in the range of 19 percent, with a high of 25 percent. Liquidity in the sector is excellent, as Saudi banks benefit from a high level of non-interest bearing deposits.
Recognizing the volatility of those deposits, most banks maintain a similar portion of assets in safe and liquid government securities, allowing time deposits and capital to be deployed in a loan portfolio which tends to be short to medium-term. Despite a dependence on interest income, the profit picture at most banks is good and continually improving, notwithstanding a lack of growth in net loans in recent years.
Improvement in interest differentials and a downward trend in the system’s cost ratio have both been major factors in producing robust ratios of return on average assets for almost every bank in the sector. Most banks are showing improvement at one or more levels of the income statement, which will ultimately produce higher profitability. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
