Sunday 18 November 2018

Saudi banks Q3 income edges up marginal 0.4pc

RIYADH, November 19, 2017

The consolidated net income of Saudi Arabian banks was only marginally higher in the third quarter (Q3) of 2017, at 0.4 per cent quarter-on-quarter (q-o-q), resulting in an increase of 14.3 per cent year-on-year (y-o-y), a report said.

The restriction on net income growth came about as the earnings were under pressure from stagnant credit and the increase in provisioning, said Al Rajhi, a leading financial services provider in Saudi Arabia.

 The liquidity situation slightly tightened over the past few months as indicated by higher loan to deposit ratio and rising SAIBOR. Credit quality also deteriorated in Q3 2017, as indicated by the rising NPLs to gross loans ratio.

“We studied the financial performance of 60 listed small caps on the Tadawul to get a sense of the financial health of the smaller companies in the Kingdom,” Al Rajhi said in its Saudi Banks Sector report.

“Our study showed that the financial health of these companies has started to improve. Thus, going forward, we are unlikely to see a material decline in asset quality from the current levels, and therefore the spike in provisioning seen in Q4 2016, is unlikely to return this year. Further, there is a potential upside for the Banking sector with the possibility of recovery in capital expenditure from the government and some troubled companies repaying their dues.”

Asset yields firm as effective SAIBOR level remains elevated: SAIBOR has been trending higher after touching a low in May, resulting in a marginal increase in effective SAIBOR rate for the banking sector (as per our calculations) in Q3.

As a result, asset yields also remained firm, marginally higher at 4.9 per cent (~2bps q-o-q) in Q3 2017. With overall credit remaining stagnant, gross interest income still improved in Q3 2017 (+1.8 per cent q-o-q; +0.8 per cent y-o-y). Following the trend in SAIBOR, bank deposit costs also increased marginally, while total deposits declined 2.4 per cent q-o-q (-0.5 per cent y-o-y) by the end of Q3.

This resulted in NIMs remaining largely flat for the quarter (on a sequential basis) and net interest income growth slowing down to 1.7 per cent q-o-q in Q3 2017, compared to 4.3 per cent growth witnessed in the previous quarter.- TradeArabia News Service

Tags: Al Rajhi |

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