Profitability of the top 10 KSA banks showed a moderate improvement as growth in aggregate net profit was 2.7% from Q1’22 resulting in an increase of 41 bps in return on equity (RoE), said the Saudi Arabia (KSA) Banking Pulse for Q2 2022. 

 

The country’s 10 largest listed banks analysed in leading global professional services firm Alvarez & Marsal’s (A&M) KSA Banking Pulse are Saudi National Bank (SNB), Al Rajhi Bank, Riyad Bank (RIBL), Saudi British Bank (SABB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Alinma Bank, Bank Albilad (BALB), Saudi Investment Bank (SIB) and Bank Aljazira (BJAZ). 

 

Asad Ahmed, Managing Director and Head of Middle East financial services at A&M commented: “The rising oil output supported by the high crude price along with the benchmark interest rate increase indicate a positive outlook for KSA banking sector. Strong growth is expected in FY 2022 for the Saudi Arabian economy and this expectation stems from the International Monetary Fund (IMF) forecasting GDP growth of 7.6% in 2022 and 3.7% in 2023, as global demand for oil and improvement in non-oil activities recovers. Additionally, we expect the Saudi Central Bank (Sama) to continue matching the US Federal Reserve rate hike polices which will assist banking sector profitability.” 

 

Loans and advances

Meanwhile, L&A (loans and advances) and deposit growth slowed while NIM (net interest margin) expansion and improvement in cost efficiencies continued, according to the Banking Pulse by. 

 

L&A of the major Saudi banks increased by 4.2% quarter-on-quarter (QoQ) while deposit grew by 3.2% QoQ in Q2’22. NIM expanded to 3% and yield on credit increased to 5.3% due to rise in benchmark rates.  

 

The return on assets (RoA) declined 3 bps QoQ due to an increase in total assets relatively higher than the net profit. Asset quality deteriorated slightly as non-performing loans (NPL) / net loan ratio increased from 1.5% in Q1’22 to 1.6% in Q2’22.

 

16 different metrics

A&M’s KSA Banking Pulse examines data of the 10 largest listed banks in KSA, comparing the Q2’22 results against Q1’22 results. Using independently sourced published market data and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital.

 

L&A and deposits grew at a slower pace for Q2’22 as compared to the previous quarter. Aggregate L&A increased by 4.2% QoQ in Q2’22, while the aggregate deposits for top 10 banks grew at 3.2% QoQ. Consequently, the industry wide loan-to-deposit ratio (LDR) increased 1.0% QoQ to 93.6%. 

 

Operating income witnessed an uptick primarily due to growth in total interest income. Total operating income increased marginally by 3.8% QoQ in Q2’22, relatively slower as compared to 5.8% QoQ in Q1’22. Aggregate non-interest income (NII), the primary growth driver of operating income, increased substantially by 16.2% QoQ. Operating income was largely offset by increase in the total interest expense of +75.5% QoQ due to the rise in Saudi Arabian Interbank Offered Rate (Saibor) by 84 bps QoQ.

 

NIM expands

NIM expanded with the benchmark rate increase across the board. Aggregate NIM expanded for seven out of the top 10 banks in KSA as aggregate net interest income grew by 8.7% for the quarter. Further, the yield on credit increased by 0.5% to 5.3% due to the hike in benchmark rates for Q2’22.  The cost of funds increased by 29 bps to 0.7% in Q2’22 as Saibor rose. 

 

Overall operating efficiency improved as banks continued branch rationalisation and increased digitalisation. Cost-to-income (C/I) ratio improved by 28 bps QoQ to reach 32.8%. The cost efficiency stemmed from growth in operating income of +3.8% QoQ outpaced growth in operating expense of +2.9% QoQ. 

 

Cost of risk (CoR) increased marginally by 7 bps QoQ to settle at 0.5% in Q2’22 as banks reported higher impairment charges. Total allowance for impairments increased by 21.3% QoQ in Q2’22 to SR2.7 billion ($720 million). Six of top 10 banks reported CoR deterioration, whereas SABB reported an increase of 127.3% QoQ in impairment charges.

 

Aggregate net profit

Aggregate net profit of the Saudi banks grew +2.7% QoQ in Q2’22, much slower than the previous quarter. Aggregate RoE improved by 0.4% QoQ to 13.5%, primarily due to higher total interest income growth. The +2.7% QoQ of aggregate net profit was largely offset by funding expense of +75.5% QoQ and increased impairment charges of +21.3% QoQ. However, RoA across top 10 KSA banks shrunk by 3 bps QoQ to 1.9% in Q2’22 as the growth in total assets was relatively higher than the net profit.-- TradeArabia News Service