Al Rajhi Capital expects Saudi banks’ Q3 earnings to improve

Saudi Arabia’s banking sector earnings are likely to continue to improve in Q3 2018 along with a moderate growth in the asset yields, Al Rajhi Capital noted in its Q3 2018 earnings estimates report on Monday.

“Despite a relatively slower pace of growth in the net income in August 2018, the QTD (till August) banking sector profits rose 12 percent year-on-year (YoY) to stand at SAR 8.905 billion,” it noted, adding “the business sentiments could have improved due to a gradual rise in the GDP (1.6 percent YoY in Q2 2018) amid rising oil revenues”.

However, the brokerage firm expects the loan book growth to be weak in Q3 as it believes loan growth needs an impetus from large government projects before private capex could pick up.

“Meanwhile, we believe asset quality could improve gradually with improvement in oil price and government’s recent initiatives to support SME space,” it added.

Overall, however, the report expects like-for-like sales declining across consumer companies.

“Q3 focus is going to be mainly on consumer spending as we wait to see the impact of the exit of around 1 million expats in the past one year. Though it may not reflect on the overall numbers given that banks and petchem are major contributors to the overall index earnings, we could see LFL sales declining across consumer companies,” it noted.

Conversely, it continued, nationalization in automotive, apparel, home appliances and furniture from mid-September could help gain market share for the market leaders in their respective segments.

For the retail sector, Al Rajhi Capital expects bottom-line to decline around 14 percent YoY in Q3 2018, while for the cement sector sales volumes and prices are expected to be flat compared to the previous quarter.