28/01/2015

In spite a slowdown in world economy, the performance of Saudi banks remained sound in 2014.
Fitch Ratings says in a new special report that high public sector spending will continue to drive a favourable macroeconomic outlook and business opportunities for Saudi banks in 2015. In fact, Saudi Arabia proved to be a world's fastest growing banking market and ranks amongst the lowest-risk banking systems.
In the presence of an economic threat due to oil deflation, the banking sector can play a vital role supporting the Kingdom for expansion in non-oil private sectors.
Unaudited 2014 results show increasing trends of major factors like revenue generation, assets growth and net profitability. The heavyweight National Commercial Bank (NCB), which is the oldest and largest bank in the Kingdom, also started its share trading on the Tadawul market during mid Nov, 2014. NCB was first bank to offer mutual funds in the Kingdom. The growth and diversification of the bank’s finance and investment products have been effective strategies to produce sustained and fruitful results.
Al Rajhi Bank, which engages itself in providing a full range of commercial banking services in accordance to Islamic Sharia, ranks second in the sector.
However, Saudi banks consolidating their financial position further show a remarkable performance.

Profitability
The Kingdom’s 12 major banks generated a total profit of SR 41.47 billion in 2014, reflecting a year-on-year growth of 10.22 percent. Al-Rajhi Bank and the National Commercial Bank (NCB) represented nearly 37 percent of the consolidated net profit. National Commercial Bank’s profitability reported SR 8.65 billion, rose by 10.23 percent. While, Al Rajhi’s net profit reported SR 6.8 billion, reflecting a decline by 8 percent.
National Commercial Bank alone represented a share of 21 percent of the consolidated net profit of banking sector. The Bank also managed to retain a healthy level of special commission income. At the end of 2014, its top line climbed to SR 11.3 billion reflecting a growth of 11.72 percent.
Among other players in the sector, Banque Saudi Fransi’s bottom line grew by 46.13 percent from the SR 2.4 billion recorded in 2013. It reported a net income of SR 3.5 billion for twelve months of 2014. 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, listed 12 banks reported consolidated operating income of SR 75.7 billion for fiscal year 2014 compared to SR 69.4 billion for year 2013, an increase of 9 percent. National Commercial Bank remained major contributor, representing a total operating income of SR 16.2 billion for 2014, a yearly increase of 9.15 percent. Al Rajhi Bank reported SR 13.67 billion for year 2014, showing a decline of 1.29 percent. Riyad Bank and Samba have recorded a total operating income of SR 8.01 billion and 7.38 billion for 2014, exceeding the previous year’s values by 13.26 percent and 5.48 percent respectively.
On growth basis, Saudi Investment Bank remained at top, posting a substantial operating income of SR 2.5 billion for 2014, up 25.5 percent from SR 2.02 billion a year earlier. Saudi Hollandi Bank with SR 3.18 billion and a growth of 21.64 percent, ranked second.

Total assets

12 commercial banks’ consolidated value of total assets grew exceptionally to SR 2.1 trillion by ending year 2014, recording a growth of 12 percent over the preceding year’s figure of SR 1.87 trillion.
All Saudi banks reflected a positive growth in total assets, where the National Commercial Bank (NCB) representing the largest share of SR 434 billion (+15.26 percent), approximately one-fifth of the sector’s aggregate value.
On the other hand, Alinma Bank topped on percentage basis, achieving 28.35 percent higher value of total assets in 2014 to SR 80.8 billion, compared to SR 63 billion recorded in 2013.

Customer Deposits

Deposits of the 12 commercial banks reached SR 1.64 trillion by the end December, 2014, a handsome increase of 12.1 percent over the SR 1.46 trillion of 2013, 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 333 billion or nearly one-fifth of the aggregated deposits value. NCB’s deposits grew by 10.8 percent in 2014. Al-Rajhi Bank reported customer deposits SR 256 billion compared with SR 231.6 billion of end-2013, an increase of 10.57 percent.
Alinma Bank showed an impressive 38.97 percent growth in deposits for the year 2014, reaching at the level of SR 59.4 billion. While Bank Al Bilad with SR 36.7 billion and a growth of 26.16 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 12.04 percent increase in loans and advances. The aggregated value reached SR 1.26 trillion by end of December 2014 versus SR 1.13 trillion a year earlier.
National Commercial Bank represented a funding of SR 220.7 billion at the end of December 2014, contributing 17.4 percent of the overall value.
Saudi Hollandi Bank reported total financing portfolio outstanding on Dec. 31, 2014 amounting to SR 65.15 billion, representing a yearly increment of SR 11.5 billion or 21.43 percent.

Investment Portfolio

Investment portfolio of listed Saudi banks expanded significantly, reflecting a growth of 16.9 percent during year 2014. The aggregated value of 12 Saudi banks reached SR 494 billion by end of December 2014 versus SR 423 billion a year earlier.
National Commercial Bank investments reached SR 152.9 billion at the end of December 2014, increased by 22 percent compared to SR 125.3 billion a year earlier, contributing 31 percent of the overall value of investments of banking sector.
On growth basis, Bank Al Bilad remained at top, posting a substantial Investments of SR 2.6 billion for 2014, up 58 percent from SR 1.67 billion a year earlier. Alinma Bank with SR 8.04 billion and a growth of 48.84 percent, ranked second.

Loan-to-Deposit Ratio

The Loan-to-Deposit ratio remained nearly unchanged from 77.4 percent as of 2013. Alinma Bank with 90.3 percent recorded the highest Loan-to-Deposit ratio in the sector. It was followed by Saudi Hollandi and Riyad Bank, posting 84.8 percent and 81.4 percent respectively.

Stock market

At Saudi Stock Market, the banking sector was marching relentlessly higher since the start of 2014 till ending August 2014. Even the sector supported Tadawul’s rally to hit the highest level in six and half years.
By ending August 2014, the sector index gained more than 35 percent and crossed the 24,000 points mark. But since mid-Sep, 2014 the Saudi stocks have been facing a challenging time in response to OPEC’s various strategic decisions. The sliding oil prices put significant downward pressure on these. The benchmark TASI’s entire gains of 2014 vanished even turned to negative after this oil turmoil.
Still banking sector index managed a gain of 449 points or 2.51 percent for 2014, closing at 18314.14. Alinma Bank outdid rest of the banking issues, marching higher roughly 37 percent to SR 20.39 at the end of 2014. SABB and Saudi Hollandi Bank followed it, souring up 32.61 percent and 28.19 percent respectively.
Al Rajhi Bank’s shares value declined by 23.65 percent to SR 51.45 during year 2014. Saudi Investment Bank was another significant decliner, going down by 9.65 percent.
The capitalization of the sector reached to SR 524 billion in 2014, contributing 28 percent to the total market capitalization. Newly listed National Commercial Bank with SR 109.9 billion capitalization remained at top.

Mushtaq Ahmed & Tazeem Anwar