Review: Saudi banks' Q1 aggregate net income up 20% on year

Outlook for FY2021 positive on back of mortgages growth, says Al Rajhi Capital

  
A Saudi man inspects a screen showing stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019.

A Saudi man inspects a screen showing stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019.

REUTERS/Ahmed Yosri

The cumulative net income of Saudi Arabia’s listed banks in the first quarter of 2021 excluding Samba Financial Group, improved 20 percent year-on-year on the back of lower provisions, higher non-financing income and improved efficiency, said Al Rajhi Capital in a note.

The Riyadh-based investment bank said, however, that net interest margin (NIM) fell due to the low interest rate environment and the decline in mortgage financing rates. NIM is the difference between a bank’s income from loans and mortgages and what it pays out on liabilities and constitutes is a key component of Saudi banks’ profitability.

Aggregate net income increased by about 20 percent y-o-y in Q1 supported mainly by a 27 percent y-o-y rise in non-financing income and a 21 percent lower provisioning. This helped offset the drop in NIM, the investment bank said.

Loan assets grew 13 percent y-o-y with nearly 40 percent of the new loans underpinned by robust mortgage origination. Al Rajhi Bank, Albilad and Alinma Banks led the growth with loan book expanding 13percent q-o-q, 8 percent and 5 percent respectively. No bank showed contraction in its loan book.

Deposit growth was also largely driven by the same set of banks with Al Rajhi, Albilad and Banque Saudi Fransi growing by 10 percent, 8 percent and 5 percent.

Overall, the percentage of non-performing assets (NPA) dropped 9 basis points to 2.14 percent on a sequential basis in the first quarter. The average coverage ratio improved to 135 percent from 131 percent at the end of Q4 20202 as the Saudi Central Bank’s loan deferral program continues.

For full-year 2021, Al Rajhi Capital said support to lending growth from mortgages will continue amid strong demand and favourable demographics in the kingdom. However, the margins remain susceptible to a possible increase in cost of financing eventually, it added.

Banks could benefit from the various mega projects that are in the pipeline, the note added.

“We note here that non-financing income has positively surprised us supported by payments, brokerage and treasury activities…Accordingly, we see aggregate bottom line to post a healthy growth of 16 percent in FY21. Also, considering lower than average dividend in FY20 (approximately 29 percent average payout ratio) and adequate capital position of most banks, aggregate dividend payout ratio is likely to improve this year.”

Samba has not reported its financial results for the quarter following its merger with National Commercial Bank to form the combined entity, Saudi National Bank.

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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