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RIYADH: Saudi Hollandi Bank, the kingdom’s oldest bank, will put more focus on retail banking in the short-term to boost profit growth after multi-billion dollar defaults by some Saudi family-owned firms.
The lender, part-owned by Royal Bank of Scotland, does not have a new cost-cutting policy, Managing Director Bernd van Linder said yesterday, after a 50 percent drop in costs led it to a stellar profit growth performance during the second quarter.
This performance had prompted analysts to wonder whether the savings were one-offs or Hollandi had started a cost-cutting strategy that could help it sustain strong profit growth performances.
“The main goal of our new strategy, approved by the board, is focus on personal banking considering the kingdom’s young population ... We feel there is a market for it and will balance the bank’s recurrent income,” van Linder said in a telephone interview.
Van Linder did not put numbers on the targets of the retail banking push. Its contribution to Hollandi’s net profit fell to 8 percent by end-June down from 15 percent a year earlier, while corporate banking’s contribution to net profit rose to 71 percent from about 56 percent in the first half of 2009.
“We want to raise the contribution of personal banking which will help us stabilise net profit,” van Linder said.
He declined to talk about the financial cost of the new strategy. The bank has 44 branches, or about three percent of total banking branches in the kingdom.
Growth in bank lending, especially to the private sector, has been slow since early 2009. Saudi bank credit growth was flat throughout much of 2009 due to the global slump and after defaults the same year by local family firms.
“The issue of family-owned firms is an isolated incident that does not reflect the overall strength of the Saudi economy,” van Linder said.
For Hollandi, the impact translated into an 11.1 percent drop in its loan portfolio by end-June, 2010, an acceleration from a 7.4 percent decline in the 12 months to end-March 2010.
Like several other Saudi lenders, substantial provisions for non-performing loans and a low-interest rate environment eroded Hollandi’s profitability in 2009.
Hollandi responded by setting aside enough provisions to cover all non-performing loans and which stood at SR2.24bn by end-2009.
“We had strong control on costs, we have been happy especially that this was achieved without compromising revenue growth ... But I am not sure there is a cost-cutting strategy,” van Linder said. “Provisions for non-performing loans caused volatility in profit performance ... We continued to maintain a 100 percent coverage of non-performing loans in 2010,” he added.
“It is hard to say whether the worst is over because we are a listed company,” he said, in an apparent reference to stock market regulations on public disclosure.
In a note in March, Fitch said Hollandi’s capitalisation was “moderately tight” compared to peers. “This may be a constraint on its ability to develop its franchise and exploit opportunities for organic growth in the future,” Fitch said.