Saudi banks navigate slowing economy

14 July 2015

Profit and loan growth remain positive for first half

  • Saudi Arabia’s banks post mixed results as lower oil prices affect economy
  • Overall, profits, assets and loan portfolios continued to grow

The majority of Saudi Arabia’s banks increased profits and loan portfolios in the second quarter of this year, although growth is slowing.

Year-on-year loan growth has slowed from 13-14 per cent in previous years to 8.5 per cent between June 2014 and June 2015, despite a strong first half for syndicated loans and project finance.

Loan growth may slow further as banks buy up sovereign bonds, and interest rates rise along with expected increases in US Federal Reserve rates.

Increases in profits also fell from 2014 when many banks enjoyed double figure increases.

The IMF expects Saudi Arabia’s GDP growth to slow to below 3 per cent in 2015. Non-oil economic growth is also flagging, according to Dubai-based Emirates NBD’s purchasing managers’ index.

Samba Financial Group was the best performer among the large banks, posting SR1.3bn ($355m) in net profits for the quarter, up 4.3 per cent on the previous quarter and 6 per cent on the second quarter of 2014. Its loan portfolio grew 6.9 per cent to SR130.5bn.

National Commercial Bank, Saudi Arabia’s largest, had a difficult first half. Its net profits fell 9.3 per cent quarter on quarter, to SR2.4bn, and were also down 2.6 per cent on the second quarter of 2014, partly due to a one off payment in that period. First half profits remained constant, growing just 0.1 per cent to SR4.97bn.

The bank continued to grow, recording a 5.9 per cent year-on-year increase in assets to SR461.4bn. It also managed excellent loan growth, increasing its portfolio by 13 per cent to SR233bn.

Al-Rajhi Bank’s new CEO Steve Bertamini began arresting the bank’s waning profits. Al-Rajhi was able to post an SR1.94bn net profit in the second quarter, 27.8 per cent higher than the bank’s poor first quarter showing. However, this was still 0.4 per cent down on the second quarter of 2014 profits and follows an 8.1 per cent fall in profits on 2014.

The consumer bank managed to continue expanding its business, growing its assets by 10.8 per cent to SR327bn, and its loanbook by 4.8 per cent to SR211bn.

Riyad Bank had a challenging second quarter. It recorded a 3.8 quarter-on-quarter fall in net profits to SR1.1bn, 0.7 per cent down on the second quarter of 2014. Thanks to a strong first quarter its first half profits continued to grow by 3.8 per cent to SR2.3bn. However, Riyad Bank’s loan portfolio fell by 2.9 per cent year on year to 136.7bn.

The Saudi British Bank (SABB) stayed on track, increasing its net profits by 2 per cent compared to the first quarter, to reach SR1.14bn. It showed strong growth in both assets, up 9.6 per cent to SR192bn, and loans, up 12.3 per cent to SR126.6bn.

Among medium and small Saudi banks, the Islamic Bank Aljazira performed strongly. It increased its net profits to SR736m, a 224.2 increase on the first quarter and a 340.7 per cent increase on the second quarter of 2014. This follows a disappointing 2014, where profits fell by 12.1 per cent.

Other banks recorded quarterly profit growth of between 0 and 7 per cent. Banque Saudi Fransi was an exception, as its SR1bn in quarterly net profits were 3.2 per cent lower than first quarter profits, but still 14.9 above disappointing second quarter of 2014 results.

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