Saudi’s Al Rajhi Bank posts negative surprise (By IFN)

Tuesday 16^th October 2012

SAUDI ARABIA: Al Rajhi Bank, which announced on the 14th October 2012 a decline in net profit for the third quarter, is likely to have booked higher-than-expected provisions during the period, disappointing analysts who forecast a strong quarter for the kingdom’s banks. In a research note, NCB Capital said that: “Based on the preliminary results, we estimate an 85% year-on-year growth in provisioning to SAR755 million (US$201.32 million), which was 86% higher than our estimate of SAR405 million (US$107.99 million).” It also cautioned that while Al Rajhi continued to expand its credit portfolio, by 4.7% quarter-on-quarter and 23% year-on-year, this is likely to have come at the expense of margins, estimated to have declined 32 basis points on a year-on-year basis. The glitch in the bank’s profit follows two previous quarters of growth. Al Rajhi said that the decrease in profit during the third quarter, which declined 3.61% year-on-year to SAR1.87 billion (US$498.62 million), was due to an increase in total operating expenses. The bank’s performance contrasts that of its peers, such as Arab National Bank, Bank Albilad, Riyad Bank and Samba Financial Group, which have recorded growth in profits in the third quarter; some as much as 40.5% higher than a year earlier. The industry’s overall positive performance is in line with analyst expectations, with Riyad Capital earlier forecasting a 12% growth in third quarter profit for the kingdom’s top 10 banks. Arqaam Capital has projected that Saudi’s banks would record 8.7%-higher profits during the period, outpacing the performance of banks in Kuwait, Qatar and the UAE. In its report earlier this month, Moody’s noted that the outlook for Saudi’s banking system remains stable, driven by a benign operating environment, low “problem loan”/financing levels, strong loss-absorption capacity and a low-cost deposit base coupled with ample liquidity. “However, these system-wide strengths will remain counterbalanced by structural weaknesses – high loan and deposit concentrations and the financial opacity of certain family conglomerates – over the 12-18-month outlook period,” it said.