Non-performing loans at eight Saudi banks rated by Standard and Poor's could double to four percent by mid-2010 but they will remain manageable even at this level, a senior S&P analyst said.

S&P covers Al Rajhi Bank, Riyad Bank, Samba Financial Group, Banque Saudi Fransi, SABB, Arab National Bank, Saudi Investment Bank and unlisted National Commercial Bank (NCB).

S&P has stable outlooks for all the banks except Saudi Investment Bank whose outlook is negative, said Emmanuel Volland, S&P's senior director of analytical ratings for Middle East and north African financial institutions.

"This indicates that under our base case we don't expect downgrades in the foreseeable future for these (rated) banks with a stable outlook. The timeframe for our outlook is two years," Volland told Reuters in an interview on Tuesday.

"We believe that the slight deterioration in asset quality will continue and that non-performing loans could increase up to 3-4 percent by end June 2010. That would still be manageable by Saudi banks," he said.

Volland did not elaborate on reasons for this possible increase. Analysts in the region have said an improvement in the economy takes time to reflect on banks' asset quality.

Saudi banks have sharply raised provisions for loans losses this year, and they have more than tripled in the nine months to end-September.

"This year, Saudi banks had to set aside more provisions for the lending business," Volland said, noting that non-performing loans were fully covered by S&P-rated banks.

Non-performing loans at the eight Saudi banks almost doubled to slightly more than 2 percent at the end of June 2009 from slightly more than 1 percent at end-2008 Volland said.

Saudi banks issue non-performing loan data every six months.

"It's still a low level compared regionally and internationally. Our base case is that asset quality will continue to slightly deteriorate over the next two to three quarters, mainly in the loan books. (Reuters)

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