Dubai: Leading Saudi Arabia based banks reported double-digit growth in net profits in the third quarter of 2014.
While Banque Saudi Fransi (BSF), Arab National Bank (ANB) and Saudi British Bank (SABB) delivered more than 20 per cent year on year net income growth in the quarter, Samba, Riyad Bank and Saudi Hollandi Bank (SHB) saw high-single digit growth. Al Rajhi lagged peers with year-on-year contraction in both net-interest income and net income levels, according to first-quarter numbers compiled by Shuaa Capital.
“For the seven banks we cover, net income was 4 per cent below consensus on aggregate. However, net income growth accelerated to 12 per cent year on year compared to 7 per cent year on year in the second quarter of 2014 on the back of NIM [net interest margin] resilience, double-digit non-interest income growth and sharp provision declines,” wrote Suha Urgan and Taher Safieddine, analysts at Shuaa Capital in a recent note.
BSF reported 926 million Saudi riyals (Dh905 million), 35 per cent year-on-year net profit growth in the third quarter of 2014, driven by higher operating income. Total operating income grew 16 per cent on stronger-than-expected non-interest income. Non-interest income soared 22 per cent year on year. The breakdown of non-interest income is not disclosed in Saudi banks’ preliminary earning releases.
ANB’s 2014 third quarter profit soared 27 per cent year on year, on higher operating income. While total operating income grew 8 per cent, largely driven by higher net-interest income and non-interest income net interest income increased 5 per cent year on year.
SABB, the Kingdom’s fifth-largest listed lender by assets, posted a 25.2 per cent rise in third-quarter net profit. The bank attributed the rise in quarterly profit to higher operating income, which increased 12.1 per cent to 1.65 billion riyals from a year earlier. Quarterly profit from special commissions increased 8.4 per cent to 1.03 billion riyals from the same period a year ago.
Saudi Hollandi Bank (SHB) reported single digit profit growth at 7 per cent in the third quarter and the operating income grew 21 per cent. While non-interest income soared 28 per cent, net interest income increased 18 per cent year on year. Potentially higher provisioning is seen as the reason for relatively low net profits despite the double-digit growth in both net interest income and non-interest income.
Preliminary results indicate a marginal slowdown in loan growth. Although seasonality was a key component of the weakness, analysts said corporate focused banks continued to outperform in the third quarter of 2014 their top picks SABB and SHB now leading the pack in terms of year-to-date loan growth (18 per cent and 10 per cent, respectively from the end of 2013 to the end of the third quarter this year) compared to their peers. Al Rajhi and Samba disappointed with their loan growth remaining more volatile than peers.
Increase in net interest income continued to remain a sweet spot for Saudi banks as loan growth continued to decline and further down ward pressure on net interest margins increased.
“In-line with our view, non-interest income accounted for about two-third of the total operating income growth on an aggregate basis for the seven banks we cover in the third quarter. This was higher than the contribution we saw in the second quarter at 53 per cent of total operating income growth,” Shuaa analysts said.
