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Asad Ahmed

Saudi banks’ net profit up 6% in Q1; non-interest income rises

RIYADH, June 6, 2024

Aggregate net income of Saudi banks increased by 6 per cent QoQ to SAR18.7 billion in Q1’24 despite slow growth in net interest income (+0.8 percent QoQ), a report said.
 
Banks were profitable mainly due to a substantial growth in non-interest income (+16.2 percent QoQ) and decreased operational expenses (-0.5 percent QoQ). The increase in net income resulted in return on equity (RoE) expanding to 16.1 per cent (+0.7 percent QoQ) and Return on Assets expanding to 2.0 percent (+0.1 percent QoQ) for the quarter, said consulting firm Alvarez & Marsal in its latest KSA Banking Pulse quarterly report.
 
A&M’s KSA Banking Pulse examines data of the 10 largest listed banks in the Kingdom, comparing the Q1 2024 results against Q4 2023 results. The 10 banks are:  are Saudi National Bank (SNB), Al Rajhi Bank, Riyad Bank (RIBL), Saudi British Bank (SABB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Alinma Bank, Bank Albilad (BALB), Saudi Investment Bank (SIB) and Bank Aljazira (BJAZ). 
 
The report shows that deposits of the main Saudi banks grew at a faster pace (+5.9 percent) than loans & advances (+3.5 percent) quarter on quarter. Consequently, the loans-to-deposit ratio (LDR) retreated by 2.2 percent QoQ on higher deposit growth, to be at 97 percent in Q1’24. 
 
However, looming interest rate cuts could squeeze margins and profitability in H2 2024, testing banks' ability to adapt, the report said.
 
Asad Ahmed, Managing Director and Head of Middle East financial services at A&M, commented: “The positive tone on Q1 2024 performance follows a strong 2023 for bank profits. Profitability ratios for the current fiscal improved as bank’s fees and non-interest income contributed to the growth. 
 
"While SAMA continues to follow US fed with respect to the benchmark interest rates, we expect higher interest rates will constrain mortgage lending growth in FY’24. A downward rate adjustment is being predicted in the second half though both the timing and the size of the cuts have gone though many predictive revisions; nevertheless, lower rates are likely to gradually affect margins; banks will need to increase their focus on fee and transactional banking income. We also can expect a continued focus on costs throughout 2024,” he said.
 
Key trends for Q1 2024:
* Combined loans and advances (L&A) of the top 10 banks increased by 3.5 percent QoQ, faster than the previous quarter (+1.5 percent QoQ). Total deposits increased by 5.9 percent QoQ; growth in CASA deposits was highest (+8.2 percent QoQ), which drove the aggregate. 
* Operating income increased because of a significant growth in non-interest income despite a slow growth in NII. Total operating income increased by 3.8 percent QoQ to SAR34.1 billion in Q1’24. This was mainly due to 16.2 percent QoQ growth in non-interest income to SAR7.4 billion, whereas NII grew only marginally by 0.8 percent QoQ to SAR26.7 billion.
* Net Interest Margin (NIM) contracted marginally by 6 bps QoQ to 2.96 percent. Seven of the top 10 banks reported a contraction in NIM.  Yield on credit decreased by 7 bps QoQ whereas cost of funds remained stable at 3.3 percent in Q1’24. Overall, at the peak of the interest rates, NII grew marginally (+0.8 percent QoQ) indicating the banks could not reprice all assets favourably. The net spread between yield on credit and cost of funds shrunk marginally by 6bps QoQ in Q1’24. This coupled with decrease in LDR by 2.2 percent QoQ led to NIM contraction.
* Cost-to-income ratio (C/I) ratio improved for the first time after four consecutive quarters by 138 bps QoQ to 31.6 percent in Q1’24. This was due to a fall in operating expense (-0.5 percent QoQ) and a rise in operating income (+3.8 percent QoQ) in Q1’24. Majority of the KSA banks reported an improved cost efficiency in Q1’24. 
* Eight of the banks witnessed improved profitability. Higher operating income and improved cost efficiency resulted in ROE expansion. -TradeArabia News Service
 



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