Saudi Banks Beating JPMorgan Urged to Boost Capital: Arab Credit

May 27, 2014 3:57 am ET

May 27 (Bloomberg) -- Saudi Arabia is urging lenders to support loan growth by boosting capital reserves, which are already above those of global peers including JPMorgan Chase & Co. and Citigroup Inc.

Lending in the oil-rich country is expected to increase more than 10 percent a year until 2017, according to Arqaam Capital Ltd. National Commercial Bank this year raised $1.3 billion through bonds, making it the strongest start to a year for bank issuance since 2007, as Central Bank Governor Fahad Al Mubarak seeks higher capital ratios.

“Saudi Arabian Monetary Agency continues to encourage Saudi banks to build up higher levels of capital adequacy,” Al Mubarak said May 21 in response to e-mailed questions. “Banks should anticipate that current and future economic growth will lead to increased credit demand.”

The kingdom’s economy is expanding about four times faster than the euro area as the government spends $130 billion to build new homes and boost the non-oil economy. Banque Saudi Fransi is planning to raise about 2 billion riyals ($533 million) to bolster Tier 2 capital, used to cushion against future losses, two people familiar with the matter said May 13.

‘Well Capitalized’

Saudi British Bank, part-owned by HSBC Holdings Plc, and Saudi Hollandi Bank have also sold Islamic bonds in the past six months, taking advantage of lower funding costs.

The average yield on Middle East sukuk declined 53 basis points this year to 4.11 percent, the lowest since June, according to JPMorgan Chase & Co. indexes.

Some banks “will raise more capital this year to fully comply with new regulatory requirements,” Jamal Al Kishi, chief executive officer of Deutsche Bank Securities Saudi Arabia, said yesterday. “Broadly speaking, banks in Saudi Arabia are well capitalized.”

Jeddah-based Bank Al Jazira had a capital ratio of 15 percent at the end of 2013, the lowest of the 11 publicly traded banks in the kingdom, according to data compiled by Bloomberg. That was still higher than JPMorgan Chase’s at 14.5 percent and Citigroup Inc.’s at 12.3 percent at the end of March.

Saudi Arabia is following Sweden, which already imposes some of the world’s strictest bank standards. The Swedish Financial Services Authority will raise capital requirements further in order to protect taxpayers from future financial crises, it said earlier this month.

“SAMA always prefers more capital and is a strong proponent of countercyclical measures,” David Dew, managing director at Saudi British Bank, said in an interview in Riyadh on May 5. “Saudi banks are among the strongest in the world.”

--With assistance from Samuel Potter in Dubai.