15/09/2010
Saudi banks top GCC financial health chart
Saudi Arabia's banking system has topped the financial health chart in the GCC and showed more resilience to the consequences of the financial crisis than its peers in the GCC region, thanks to the prudent regulations of the Saudi Arabian Monetary Agency (SAMA) and the well diversified loan portfolio of local banks, KIPCO Asset Management Company (KAMCO) said in its GCC Banking Outlook issued on Tuesday.
The report said the Saudi banks remained adequately capitalized throughout the crisis period.
"The banking loan portfolio is well diversified with respect to the private sector with loans to the commerce sector accounting to around 24 percent of total loans while manufacturing and processing sector contributes to around 10 percent of banks' loan portfolio as of March-10. However, miscellaneous loans which correspond in large part to personal loans and loans to high net worth individuals and lending to equities constitute around 40 percent of Saudi banks' loan portfolios," it said.
"This high concentration might expose banks to credit risk. In contrary to other GCC countries, loans to the real estate and construction sector contribute to a marginal portion of total banking loans with a percentage contribution of 6.5 percent. The prudent regulations implemented by SAMA before and during the financial crisis have protected the banking system to a large extent from the repercussions of the financial and credit turmoil and helped Saudi banks to emerge more resilient from the global financial crisis," the report said.
Overall, it said, the GCC banking system has shown to a large extent resilience to the financial crisis helped by the liquidity and prudential measures introduced by the monetary authorities which contributed in mitigating the adverse impact of the financial and credit turmoil on the banking system.
However, it warned, the banking systems had few vulnerabilities that were revealed by the financial turmoil and the adverse impact it had on the economies of the GCC countries. "Among those are high exposure to the real estate and construction sectors and stock markets along with increased reliance on external financing and capital inflows especially in the UAE. Banks in the GCC region will continue to make profits despite higher provisioning and slowdown in credit growth along with the deterioration in the quality of loan portfolios," it added.
