Saudi banks post strong H1 growth

The Saudi banking sector is in positive territory as profits and customer deposits increase in the first half of 2014.

Analysis of six months results of major banks in Saudi Arabia reveals that net income growth has accelerated during the period and net interest margins are favorable.

Bank Al Bilad’s net profit grew 18.72 per cent while Alinma Bank and Arab National Bank reported increases of 29.5 and 7.27 per cent respectively. Saudi British Bank and Samba Financial Group saw respective net profit increases of 14.6 and 7.03 per cent, while Banque Saudi Al Fransi’s net profit grew 20.33 per cent in the first six months of 2014.

However, Al Rajhi declined. One of the major players in the Saudi banking sector says net profit declined by 12.43 per cent in H1 2014 as against H1 2013 owing to operational expenses.

Overall, the healthy banking sector indicates solid economic fundamentals in a country – and Saudi Arabia has witnessed steady growth in the first six months of 2014.

Taher Safieddine of Dubai-based Shuaa Capital says: “For the seven banks we cover, net income was five per cent above consensus on aggregate. Net income growth accelerated to seven per cent year-on-year (vs. four per cent YoY in Q1 14) on the back of strong loan book expansions, net interest margins’ resilience and double-digit non-interest income growth across the board.”

He goes on to add: “Saudi Hollandi Bank, one of our top picks among Saudi banks, posted the highest net income growth at 28 per cent YoY, followed by Riyad, Bank Saudi Al Fransi and Saudi Arabian British Bank posting YoY growth at mid-teens.”

Shuaa Capital expects net interest margin pressures to persist this quarter on the back of low asset yields and limited room for improvement in cost of funding.

“In our June update, we highlighted that cost of risk would not ease off this year as we expected Saudi Arabia Monetary Agency, the country’s central bank, to retain its conservative stance in terms of coverage, particularly on collective provisioning.

ANB, Riyad and BSF, which held the lowest collective provision coverage (as percentage of performing loans) at the end of 2013, reported 30-45 per cent YoY rise in estimated provisions which were based on our individual C/I ratio assumptions.

“We believe they utilized their operating income strength (10-15% YoY rise) to ramp up their collective provision coverage,” says a note from Shuaa Capital.