Dubai: Preliminary results of Saudi banks showed that the profits of the listed banks grew by about 10 per cent to hit 40.2 billion riyals ($10.7 billion) by the end of 2014, compared to 36.6 billion riyals in 2013.
While the fourth quarter numbers were mixed in terms of loan growth, interest and non-interest income, the overall trend points to further pressure on both interest and non-interest income as decline in oil prices likely to adversely impact loan growth and recent banking sector regulations to hurt fee and commission incomes.
Analysts say the year ahead in terms of operating income growth will be challenging for Saudi banks.
“Although the pace of operating income growth year on year declined for the second consecutive quarter, net income growth continued to climb on lower provisions. While Samba, Banque Saudi Fransi (BSF), Riyad and Saudi Hollandi Bank (SHB) delivered beating consensus, Al Rajhi, Arab National Bank (ANB) and SABB’s (formerly known as the Saudi British Bank) net income was about 10 per cent below consensus in the fourth quarter of 2014,” Suha Urgan and Taher Safieddine, banking analysts with Shuaa Capital wrote in a recent note.
“Overall, the fourth quarter results confirmed our conclusion from our field trip in November that operating income growth will be challenging in 2015,” Shuaa analysts said.
Early reports suggest that loans of Saudi banks grew by 12 per cent to 1.2 trillion riyals by the end of 2014 whereas bank deposits rose by 11 per cent to hit 1.58 trillion riyals. In terms of full year loan growth, SHB led the sector with a stellar 21 per cent year on year growth. Riyad Bank, BSF and SABB disappointed with quarter on quarter contraction on their loan books in the fourth quarter.
Based on the fourth quarter loan growth trends analysts expect modest loan growth in the first quarter of 2015 and an overall decline for the year ahead. “Interestingly, more than half of the banks we met had a relatively bearish tone and said they expected their 2015 loan growth to be lower than the sector,” Shuaa analysts said.
Non-interest incomes took a big hit in the fourth quarter of the year. Saudi banks enjoyed strong non-interest income in the second and third quarter of the year thanks to strong fee income and investment gains. The fourth quarter saw a sharp decline which is largely attributed to regulatory restrictions on retail fees and investment losses due to stock market volatility.
“The contraction was sharper than we anticipated based on our management discussions in November. For the seven banks we cover, non-interest income declined 16 per cent quarter on quarter on aggregate,” said Urgan and Safieddine.
Al Rajhi was hit most due to large retail exposure with 47 per cent quarter on quarter decline while ANB stood out as the only bank that posted non-interest income growth with 13 per cent quarter on quarter.
