Aggregate profit after tax for ten largest Saudi banks increased by 4.3% QoQ to SR19.5 billion ($5.2 billion) in Q2’24 due to net interest income (NII) growth (+2.5% QoQ) and a substantial decline in impairment charges (-27.0% QoQ). 

 

The increase in net income resulted in return on equity (RoE) expanding to 16.8% (+0.7 percentage points QoQ) while return on assets (RoA) remained steady at 2.0% for the quarter, said leading global professional services firm Alvarez & Marsal (A&M) in its KSA Banking Pulse for Q2 2024. 

 

The report shows that the ten largest Saudi banks reported a 3.2% quarter on quarter (QoQ) increase in Loans & Advances (L&A), driven by a 7.2% rise in corporate and wholesale banking. Deposits grew by 2.3% QoQ, led by a 4.1% increase in time deposits. 

 

Operating income

Operating income rose by 1.9% QoQ, primarily due to a 2.5% growth in net interest income (NII), despite a slight 0.1% decline in non-interest income. A 27.0% reduction in impairment charges boosted net income by 4.3% QoQ.

 

Asad Ahmed, Managing Director and Head of Middle East Financial Services at A&M, commented: “The continued positive performance in Q2 2024 reflects a balance of growth and improved cost efficiencies among Saudi Banks. Profitability has increased primarily due to an increase in net interest income (NII) and a significant reduction in impairment charges. 

 

“As the Saudi Central Bank (SAMA) maintains interest rates in line with the US Fed, a potential rate cut in September, could begin to affect interest margins. Banks are no doubt looking to see how the effect of rate cuts plus any regional headwinds are best handled; focus on non-interest income (mainly fees and commission income) and improved cost efficiencies, is most likely to remain central going forward.”

 

Key prevailing trends

Loans & advances (L&A) of the main Saudi banks grew by 3.2% quarter on quarter (QoQ), primarily driven by a 7.2% QoQ growth in corporate/wholesale banking. Deposits increased by 2.3% QoQ, with term deposits seeing the highest growth at 4.1% QoQ. Consequently, the loans-to-deposit ratio (LDR) increased by 0.8%age points QoQ to 97.8% in Q2’24.

 

Operating income increased by 1.9% QoQ to SR34.8 billion in Q2’24, mainly due to a 2.5% QoQ growth in net interest income (NII) to SR27.4 billion. Non-interest income fell marginally by 0.1% QoQ to SR7.4 billion. Net fees and commission income increased slightly by 1.4% QoQ in Q2’24. 

 

Aggregate net interest margin (NIM) contracted by 2 basis points to 2.94% in Q2’24. Yield on credit (YoC) increased by 10 basis points QoQ to 8.4%, while the cost of funds increased by 10 basis points QoQ to 3.4%. Seven of the top ten banks in KSA reported a contraction in NIM. 

 

Cost efficiencies improved during the quarter, with the cost-to-income (C/I) ratio improving by 29 basis points QoQ to reach 31.3% in Q2’24. The increase in operating income (+1.9% QoQ) outpaced operating expenses in Q2’24.  

 

Cost of risk

The cost of risk continued to improve for KSA banks, reaching a multi-year low. The cost of risk improved by 11 basis points QoQ to settle at 0.28% in Q2’24. Half of the top ten banks reported a deterioration in the cost of risk. 

 

A&M’s KSA Banking Pulse examines data of the 10 largest listed banks in the kingdom, comparing the Q2 2024 results against Q1 2024 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.--TradeArabia News Service

 

The country’s 10 largest listed banks analysed in A&M’s 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).