SAUDI ARABIAN banks may report higher second-quarter profit this week as the economy expands on the back of record oil prices.

Net income at the 10 biggest Saudi banks probably advanced by an average 16 per cent, according to EFG-Hermes Holding SAE, the largest Arab investment bank by market value. Kuwait-based Global Investment House KSCC forecasts profit at eight banks rose an average 12 per cent.

"With economic growth and the mega-industrial projects in the kingdom, there is a need for more banking services," said Faisal Hasan, Global Investment's head of research. "Fee income should also grow."

Saudi Arabia's economy will expand 4.9 per cent this year as record oil earnings fuel government spending on energy projects, public works and development ventures such as the $120 billion (€76 billion) King Abdullah Economic City, according to a Bloomberg survey of economists.

Saudi Electricity Corp, the kingdom's largest utility, says it will borrow to help finance 26 billion riyals (€4.4 billion) in new power plants.

Saudi British Bank, the country's third-largest bank by market value, may report a 30 per cent jump in second-quarter earnings, according to a mean average of estimates at Shuaa Capital PSC, EFG-Hermes and Global Investment. Al-Rajhi Bank, the largest lender by market value, may say net income climbed 8.7 per cent, according to Global Investment.

Murad Ansari, an analyst with EFG-Hermes, said: "Over the short and medium term, loans are going to be the key driver for banking growth. If you look at Saudi Aramco and Sabic, they are both expanding."

Even so, profit growth at banks may be constrained by inflation, weaker demand for consumer loans and losses on investments. - (Bloomberg service)