Aljazira Cap issues forecast for Saudi banking sector

The Saudi banking sector continues to move forward as deposits and loans growth remains steady, Aljazira Capital said in a recent note.

“Shariah banks continued to outperform as deposit growth of 7.9% year-on-year (YoY) outpaced 7.1% growth in conventional banks,” Aljazira Cap added.

Mortgage loans since 2016 showed strong growth of 41% YoY, 65% YoY in FY 2017 and FY 2018 and a total of SAR 27 billion worth of loans were signed.

“The banks that stand to benefit are those that have a heavy retail presence”, Aljazira noted, adding that Al Rajhi Bank stands to benefit the most with its heavy concentration of retail clientele.

In the first 9 months of 2019, the capital adequacy ratio of AlRajhi Bank, Bank Albilad, Alinma Bank and Bank Aljazira went down to 19.5%, 17.8%, 20.0%, 26.0% from 21.7%,18.1%, 21.0% and 28.0% in Q3 2018 respectively.

“We expect Alinma Bank to post net profit of SAR 2.73 billion, despite zakat expense recognition in FY 2019. We reiterate our “Overweight” recommendation on Alinma Bank with a TP of SAR 26.80/share,” the brokerage added.

Funding cost for Bank Albilad will likely continue rising as it tried to attract higher murabaha deposit. Aljazira Cap maintained a “Neutral “recommendation on the bank, with a revised TP of SAR 24.1/share.

“The amendments made to the mortgage law placed Al Rajhi Bank in a favorable position given its retail heavy portfolio. We maintain our “Neutral” recommendation with a TP at SAR 62.8/share,” Aljazira Cap said.