23/01/2014

Saudi Arabia with “Positive” rating is the largest economy in the Gulf Cooperation Council (GCC).The strong fundamental performance of Saudi Banksappears to be continuing during 2013. Unaudited 2013 results show increasing trends of major factors like revenue generation, assets growth and net profitability. Such positive indications are vital to foster the regional economic growth.

Recently published reports by Fitch, Moody’s, Standard & Poor’s (S&P) and other major international rating agencies also affirm a stable outlook for the Saudi Arabian banking system.

Sound supervisory role by regulating bodies (SAMA, CMA, IOB etc), ideal operating environment, strong operational efficiency, sound funding dynamics, solid deposit base, strong loss-absorption capacity and continued growth in business activity are prominent features of the Saudi Arabian banking system, which are collectively rated as ‘stable’ by international rating agencies.

Again Samba Financial Group is included among the World’s 50 Safest Banks, Global Finance reported in its annual ranking for 2013.Al Rajhi Bank and Riyad Bank also qualified for inclusion in the list but did not make the ranking owing to their total assets. However, Al Rajhi Bank has been awarded as the best Islamic Financial Institution.

Al Rajhi Bank is the largest Islamic bank globally and boasts the largest branch network in Saudi Arabia, according to Fitch Ratings. Furthermore, most of Saudi banks are considered to be the safest/biggest in the MENA region.

However, Saudi banks strengthening their financial position further showed a remarkable performance during 2013.

Profitability

The Kingdom’s 12 major banks generated a total profit of SR 37.6 billion in 2013, reflecting a year-on-year growth of 7.18 percent. Al-Rajhi Bank and the National Commercial Bank (NCB) represented nearly 41 percent of the consolidated net profit. National Commercial Bank’s profitability rose by 21.65 percent while Al Rajhi’s net profit declined by 5.67 percent.



National Commercial Bank also managed to retain a healthy level of special commission income. At the end of 2013, its top line climbed to SR 10 billion reflecting a growth of 11.3 percent. Among other players in the sector, Saudi Investment Bank’s bottom line grew by 41.1 percent from the SR 912 million recorded in 2012. It reported a net income of SR 1.29billion for 2013. The higher profitability can be attributed to increase in operating income and the decrease in operating expenses.

Operating income

Core operating profitability of all the banks improved significantly. Al-Rajhi Bank remained major contributor, representing a total operating income of SR 14.1 billion for 2013, a yearly increase of 0.94 percent. Riyad Bank and Samba have also been able to record a total operating income of over SR 7 billion for 2013, exceeding the previous year’s values by 4.24 percent and 4.59 percent respectively.

On growth basis, Alinma Bank remained at top, posting a substantial operating income of SR 2.28 billion for 2013, up 24.81 percent from SR 1.8 billion a year earlier. Saud Investment Bank with SR 2.02 billion and a growth of 17.13 percent, ranked second.

Total assets

12 commercial banks’ consolidated value of total assets grew exceptionally to SR 1.87 trillion, recording a growth of 9.33 percent over the preceding year’s figure of SR 1.71 trillion.



All Saudi banks reflected a positive growth in total assets, where the National Commercial Bank (NCB) representing the largest share of SR 377 billion (+9.27 percent), approximately one-fifth of the sector’s aggregate value.

On the other hand, Saudi Investment Bank topped on percentage basis, achieving 36.28 percent higher value of total assets in 2013 to SR 80.5 billion, compared to SR 59.07 billion recorded in 2012.

Deposits

Deposits of the 12 commercial banks reached SR 1.46 trillion by the end December, 2013, a handsome increase of 10.16 percent over the SR 1.32 trillion of 2012, mainly due to deposit mobilization and the expansion of branch networks by banks.



Major contribution in terms of deposits was made by NCB, representing SR 300.6 billion or nearly one-fifth of the aggregateddeposits value. NCB’s deposits grew by 9.71 percent in 2013. Al-Rajhi Bank reported customer deposits SR 231.6 billion compared with SR 221.4 billion of end-2012, an increase of 4.6 percent.

Saudi Investment Bank showed an impressive 41.15 percent growth in deposits for the year 2013, reaching at the level of SR 57 billion. While Alinma Bank with SR 42.8 billion and a growth of 32.75 percent, ranked second in term of year-on-year growth.

Loans and advances

Saudi banks continued to expand their lending activities. The sector recognized a 12.41 percent increase in loans and advances. The aggregated value reached SR 1.13 trillion by end of December 2013 versus nearly SR 1 billion a year earlier. National Commercial Bank represented a funding of SR 187.7 billion at the end of December 2013, contributing 17 percent of the overall value.

Saudi Investment Bank reported total financing portfolio outstanding on Dec. 31, 2013 amounting to SR 47.57 billion, representing a yearly increment of SR 13.5 billion or 39.7 percent.

Stock market

At Saudi Stock Market, the banking sector has been marching relentlessly higher since the start of 2013. Even the sector supported Tadawul’s rally which loggedits highest 5-year level. The sector’s index also achieved its highest 5-year level during 4th quarter of 2013, crossing the 18,000 points mark. It accumulated 3,220 points or 22 percent for the entire year.Saudi Arabia's benchmark stock index achieved a return of 25.5 percent during 2013, closing at 8,535.6 points.

Bank Al-Bilad outdid rest of the banking issues, marching higher roughly 65 percent to SR 35 at the end of 2013. Saudi Investment Bank and Saudi Hollandi Bank followed it, souring up 58 percent and 54 percent respectively.

A large number of investors continued to engage in speculation of banking stocks and took the advantage of high returns by providing a substantial liquidity. Its total turnover 6.4 billion shares worth 132.8 billion were liquidated at Tadawul during 2013. This turnover reflects a relative market share of 10 percent in terms of liquidity and 5 percent in terms of volume.

— Mushtaq Ahmed is a senior financial analyst at Zughaibi & Kabbani Financial Consultants.

Mushtaq Ahmed - Zughaibi & Kabbani Financial Consultants