Saudi Arabia's banks netted more than SR28 billion ($7.5 billion) in the first 10 months of 2012 as lending continued to rebound and banks largely eased a provisioning drive triggered by a severe domestic debt default crisis three years ago.
The figures by the Saudi Arabian Monetary Agency ( SAMA ), central bank, indicated the Gulf Kingdom's 12 banks could be heading for their best financial year following negative profit growth during 2009-2010.
Releasing its monthly report this week, SAMA put the total net earnings of the banks at SR28.75 billion during the first 10 months of 2012, below the full year profits of SR30.9 in 2011 but above the 2010 net income of about SR26.1 billion.
Analysts said that in case banks earned SR six billion in the remaining two months of 2012, they could record their highest profits and bear the previous 2006 record income of more than SR34 billion.
The analysts attributed the high earnings this year to a surge in domestic credit as banks are slowing down their bad debt provision build up and taking advantage of an upswing in the economy and in public sector projects.
The surge in domestic credit followed a sharp slowdown in previous years in the wake of the 2008 global financial distress and the ensuing debt default problem by two Saudi family businesses.
Slackening domestic credit allied with a rise in provisions to trim Saudi banks' net profits to around SR26.8 billion in 2009 from SR29.9 billion in 2008. Profits again slipped to SR26.1 billion in 2010 before bouncing up to SR30.9 billion in 2011, their highest level since 2006.
SAMA 's figures showed banks' claims on the private sector swelled year-on-year by about 14.6 per cent in October 2012 compared with 10.7 per cent in 2011 and only around 5.5 per cent in 2010. Credit growth was negative in 2009.
Month-on-month, bank credit to the private sector "continued to expand at a healthy rate", the Riyadh-based Jadwa Investments said.
A notable trend is the strong expansion in medium-term credit which reflects the banks participation in financing infrastructure and housing projects undertaken by the private sector, it said in a study.
"The strong performance of banks this year is mainly due to the expanding credit to the private sector, lower provision this year as well as low funding cost," Jadwa's senior economist Fahad Al Turki said.
Saudi banks have the second largest asset base in the Arab region after UAE banks, with their combined assets standing at SR1.69 trillion (Dh1.67 trillion) at the end of October against about Dh1.76 trillion for UAE banks.