Saudi banks to report marginal profit rise in Q2 2018: Al Rajhi Capital

The Saudi banking sector is expected to report a "marginal" rise in topline in the second quarter of 2018, thanks to the improving financial health of small-cap companies and stable provisioning by banks, Al Rajhi Capital said in a new report.

Despite total operating income rising by 0.9 percent quarter-on-quarter (QoQ) in Q1, 2018, a sharp decline in sequential provisions led to a 17.8 percent year-on-year (YoY) jump in the sector’s bottom line, the report noted.

The sector posted its best-ever quarterly net profit of SAR 12.5 billion led by Banque Saudi Fransi, National Commercial Bank and Saudi British Bank.  

However, Al Rajhi said it expects asset yields to trend higher amid rising SAIBOR in Q2, pushing up net interest margins (NIMs) further.

"Given the phase delay in transmission, we could gradually see the yields play catch up," it added.

The sector’s gross special income fell 2.4 per cent QoQ in Q1, as asset yield remained mostly stable, and net loans slipped 0.3 percent QoQ.

The consultancy, however, warned that rising interest rates may put further pressure on lending growth, as companies de-lever to weaken corporate loan growth. Deposit growth is also likely to remain modest on the back of stable money supply.

Meanwhile, uncertainty related to Zakat, which based on market expectations of 10 percent of profit before tax after zakat (PBT) for future years, is likely to impact stocks either ways depending on the bank’s position.

“Final decision on Zakat is awaited. Based on our calculations, the impact is bank-dependent,” Al Rajhi noted.