Three Saudi banks posted fourth-quarter earnings below forecasts, hit by a slowdown in lending growth and higher provisions, with Saudi Hollandi Bank <1040.SE> making its first quarterly loss in two years.

The earnings could reignite investor fears over the impact of the global crisis and a multi-billion dollar default by two family-owned businesses although local officials said the Saudi financial system has withstood these with little damage.

Saudi banks also bore the brunt of a slowdown in lending in 2009 after years of fast credit growth that brought the domestic banking system to its limits.

This is an embarrassing and surprising set of results. Investors will not like it and we will most likely see banking stocks going limit down tomorrow, said Hesham Abu Jamea, head of asset management at Bakheet Investment Group.

Both Hollandi and Banque Saudi Fransi <1050.SE> -- which reported its lowest quarterly net profit in at least five years -- blamed provisions for poor earnings in 2009.

Abu Jamea said Hollandi and Fransi appear to have made provisions for loan losses during the fourth quarter worth $200 million and $100 million respectively.

This is higher than any previous quarter of 2009 which is strange especially after the assurances we were given by officials while banks kept the market in the dark over this issue throughout the year, he said.

Samba Financial Group <1090.SE>, the second biggest Saudi lender by market value, was the only lender to record a small rise in net profit but was still below the lowest forecast in a Reuters poll.

Hollandi, partly owned by Royal Bank of Scotland , said on Sunday it made a net loss of 439.4 million riyals ($117 million) in the three months to end-December, having made a net profit of 309 million a year earlier.

It was the first quarterly loss by Hollandi since the fourth quarter of 2007 when it lost 106.3 million riyals.

PROVISIONS WEIGH

For 2009, Hollandi made a net profit of 85.9 million riyals, down from 1.22 billion in 2008.

The decline in net profit is mainly due to the bank's conservative policy aimed at continuing to boost provisions, Hollandi said, adding its loans portfolio fell 6 percent by the end of 2009 while deposits rose 4 percent.

Saudi Fransi, 31.1 percent owned by French bank Credit Agricole , said fourth-quarter net profit fell 43.3 percent after it booked provisions to support its finances.

Fransi made 324 million riyals, almost half the lowest forecast in a poll.

It was Fransi's lowest quarterly net profit since at least the fourth quarter of 2004 when it made a net profit of 374 million riyals, according to Reuters data. For 2009, Fransi made a net profit of 2.47 billion riyals, also the lowest since 2005.

The decline in earnings is due to the volume of provisions that were made during that year (2009) to continue supporting the bank's financial position, Fransi said.

Fransi said its loans portfolio fell 3.7 percent by the end of 2009 while deposits slid 2.2 percent.

Samba saw its net profit inching up 1.1 percent year-on-year in the fourth quarter, but was still below all forecasts. It made 835 million riyals, the lowest quarterly profit in a year.

Samba said its loans portfolio fell 14 percent by the end of 2009 to 84 billion riyals while deposits rose 10 percent to 147 billion.

(Writing by Souhail Karam; Editing by Thomas Atkins and Dan Lalor)

Royal Bank of Scotland ABN Amro