The Banking Executive Magazine - May 2021

Saudi Banks' Q1 The cumulative net income of Saudi Arabia’s listed banks in the first quar- ter of 2021 excluding Samba Finan- cial Group, improved 20 percent year-on-year on the back of lower provisions, higher non-financing in- come and improved efficiency, said Al Rajhi Capital in a note. The Riyadh-based investment bank said, however, that net interest mar- gin (NIM) fell due to the low interest rate environment and the decline in mortgage financing rates. NIM is the difference between a bank’s income from loans and mortgages and what it pays out on liabilities and consti- tutes is a key component of Saudi banks’ profitability. Aggregate net income increased by about 20 percent y-o-y in Q1 sup- ported mainly by a 27 percent y-o-y rise in non-financing income and a 21 percent lower provisioning. This helped offset the drop in NIM, the in- vestment bank said. Loan assets grew 13 percent y-o-y with nearly 40 percent of the new loans underpinned by robust mort- gage origination. Al Rajhi Bank, Al- bilad and Alinma Banks led the growth with loan book expanding 13percent q-o-q, 8 percent and 5 percent respectively. No bank showed contraction in its loan book. Deposit growth was also largely driven by the same set of banks with Al Rajhi, Albilad and Banque Saudi Fransi growing by 10 percent, 8 per- cent and 5 percent. Overall, the percentage of non-per- forming assets (NPA) dropped 9 basis points to 2.14 percent on a sequen- tial basis in the first quarter. The av- erage coverage ratio improved to 135 percent from 131 percent at the end of Q4 20202 as the Saudi Cen- tral Bank’s loan deferral program continues. For full-year 2021, Al Rajhi Capital said support to lending growth from mortgages will continue amid strong demand and favourable demograph- ics in the kingdom. However, the margins remain susceptible to a pos- sible increase in cost of financing eventually, it added. Banks could benefit from the various mega projects that are in the pipeline, the note added. “We note here that non-financing in- come has positively surprised us sup- ported by payments, brokerage and treasury activities…Accordingly, we see aggregate bottom line to post a healthy growth of 16 percent in FY21. Also, considering lower than average dividend in FY20 (approxi- mately 29 percent average payout ratio) and adequate capital position of most banks, aggregate dividend payout ratio is likely to improve this year.” Samba has not reported its financial results for the quarter following its merger with National Commercial Bank to form the combined entity, Saudi National Bank. the BANKING EXECUTIVE 14 ISSUE 149 MAY 2021 Saudi Banks' Q1 AGGREGATE NET INCOME UP 20% ON YEAR