Despite a tighter economic environment, the Saudi Arabian banks continued to record growing results in Q1, 2015.
The Kingdom’s proactive regulatory measures to enhance economic activity are appreciable.
Saudi stock market’s opening to direct foreign investment can be a good example, specifically in an environment of lower oil prices. We believe that the banking sector is going to be the biggest beneficiary, considering its heavyweight position.
The banking market has been very adaptive in terms of technological advancement, offering innovative products and services including the fast-developing Islamic products.
Infrastructure spending has been a major factor of increased credit demand of banks over the past few years. Liquidity and capitalization are a key support for lending growth.
Quarterly results show increasing trends of major factors like revenue generation, assets growth and net profitability. However, Saudi banks consolidating their financial position further show a remarkable performance.
Profitability
The Kingdom’s 12 major banks generated a total profit of SR11.2 billion in Q1, 2015, reflecting a quarter-on-quarter growth of 15 percent and year-on-year growth of 5.4 percent.
The National Commercial Bank (NCB), which is the oldest and largest bank in the Kingdom, represented nearly 23.3 percent of the consolidated net profit.
NCB’s profitability reported SR 2.6 billion, rose by 2.8 percent compared to same quarter last year.
Al-Rajhi Bank with a profitability of SR 1.5 billion contributed 13.6 percent to the sector’s aggregate value.
Among other players in the sector, Bank Al-Jazira’s bottom line grew exceptionally by 42.5 percent from the SR159.3 million recorded in the year-earlier period.
NCB and Al-Rajhi Bank also managed to retain a healthy level of top line, representing 42 percent of aggregated value.
NCB’s net special commission income exceeded three billion Riyals, 11.7 percent greater than corresponding period of previous year.
Core operating profitability of all the banks improved significantly, NCB represented a total operating income of SR4.4 billion for the first quarter 2015, an increase of 26.7 percent compared to the same period last year. Alone NCB contributed 22 percent to the overall operating income of the sector.
Al-Rajhi Bank recorded a substantial operating income of SR3.4 billion for the three-month period, up 10.9 percent from fourth quarter of 2014.
Its relative sector share is 16.9 percent. Riyad Bank has recorded a total operating income of two billion Riyals, achieving 10 percent of total value.
Total assets
As per 12 commercial banks’ consolidated balance sheet at end of Q1, 2015, total assets grew exceptionally to SR2.15 trillion, recording a growth of 8.9 percent over the figure of SR1.97 trillion in the corresponding period of the preceding year.
All Saudi banks reflected a positive growth.
The main contributor to the increase was the National Commercial Bank, which represented largest share of SR449.8 billion, approximately one-fifth of the total assets recorded at the end of Q1, 2015.
On the other hand, Alinma Bank remained at top in terms of percentage growth, achieving 27.9 percent higher value of total assets from SR65.4 billion recorded in the year-earlier period.
Deposits
Deposits of the sector reached to SR1.67 trillion by March-end 2015, showing a marked increase of 8.8 percent over the SR1.53 trillion, mainly due to deposit mobilization and expansion of branch networks by banks.
Major contribution in terms of deposits was made by the NCB, representing SR342 billion or nearly one-fifth of the aggregate value of all commercial banks.
Alinma Bank’s deposits grew by an impressive 36.4 percent over the March 2014 level to reach SR61.6 billion recorded at the end of first quarter of 2015.
Loans and advances
Saudi banks continued to expand their lending activities.
The banks recognized a 10.4 percent increase in loans and advances. Loans reached SR 1.29 trillion by March-end 2015 versus SR1.17 trillion a year earlier.
NCB represented a funding of SR225.9 billion for Q1, 2015, contributing 17.5 percent of the overall value.
Stock market
At Saudi Stock Market, the banking sector has achieved a healthy year-to-date return nearly 16 percent or 3000 points.
Currently, the sector’s index is trading above 21,000 points mark. Banking stocks spent the entire quarter with impressive gains.
Positive performance boosted by SAMBA Financial Group, soared up 15.84 percent for the quarter. NCB also showed a splendid performance, advancing over 28.79 percent on year-to-date basis, National Commercial Bank and Al Rajhi Bank achieved handsome gain of 21 percent during the same period.
Total market capitalization of Banks & Financial Services sector reached around 600 million Riyals, represents 29 percent of the overall market capitalization value of Saudi Stock Market.
National Commercial Bank alone represents 23 percent in the Sector and 6.5 percent in overall market in term of market capitalization.
— Both writers are senior Financial Analyst at Zughaibi & Kabbani Financial Consultants, Jeddah.
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