Executive Summary - Al Rajhi Capital - الراجحي الماليه

Banks & Financial Services
Notwithstanding an increase in provisions for bad loans,
the financial results of the Banking sector showed growth in
third quarter profits of 1% to SR 6.14 billion compared with
the corresponding quarter of the previous year, thanks to the
rise in income from basic operations and higher returns on
commissions. Six banks reported growth in their net income,
while four banks reported declines of varying degrees due to
the rise in the provisions for bad loans. The Saudi Investment
Bank ranked first on the gainers list as it achieved the highest
growth rate of above 200% amongst all the banks in the third
quarter as a result of achieving high investment returns,
followed by Riyadh Bank with close to 50% growth rate, mainly
attributable to the rise in the operating profits. In contrast, Al-
Bilad Bank reported the highest decline in the seasonal profits
with its third quarter profits plunging by about 96% due to the
conservative policy adopted by the Bank and reflected in higher
loan loss provisions. The largest bank, Al Rajhi Bank, reported
net profit of SR 1.7 billion, constituting 29.2% of the total
sector’s profits. Samba ranked second on 19.0%, followed by
Riyadh Bank on 12.4%.
The sector’s performance for the first nine months showed a
slight decline in profits of 2.6% year-on-year from SR19.4 billion
to SR 18.9 billion, with six banks witnessing declines in their net
profits and only four banks reporting profits. Al Rajhi Bank led
the gainers list with 4% growth due to higher customers’ deposits
and the diversification of the Bank’s financing and investment
products to both the retail and corporate segments; however,
the Bank maintained its conservative policy by increasing the
financial provisions. Samba grew by 2.7% due to higher profits
from basic operations and growth in the customers’ deposits.
ARNB and Riyadh Banks staged minor growth rates at 1.1% and
0.4% respectively. It is to be mentioned here that Alinma Bank
profits were excluded due to non-existence of a comparable period.
The corporate profit announcements have reflected the general
soundness of the Saudi banking sector, which has not been
greatly affected by the financial crises that shook even many of
the strongest global banks. As evidence of this, it is worth noting
that the sector achieved growth in assets of 2.3%, deposits of
7.0 % and loans of 1.6%. It seems reasonably clear that that the
conservative policies adopted by the Saudi banks have guarded
them against the international credit risks. This is evident from
the increase in the credit risks provisions as the listed banks
(with the exception of the Hollandi and Al-bilad banks) allocated
about SR 1.5 billion in the third quarter to meet expected credit
losses, with an increase of more than 330% compared with the
provisions appropriated for this same purpose during the same
quarter of the previous year. It is noteworthy, however, that the
Saudi banks have not revealed their precise exposure to the
heavily indebted and struggling Saudi groups Saud and Ahmad
Hamad Algosaibi.