Saudi banks continue to maintain growth momentum

Moody's Investors Service in a new Banking System Outlook published in October, 2012, said: "Saudi Arabia's banking sector continues to maintain its growth momentum in 2012, due to the positive factors as well as the effort of financial governmental bodies in Saudi Arabia in coordinating to develop the financial sector and ensure its efficiency and prosperity. The outlook for Saudi Arabia's banking system remains stable."
In fact, Saudi Arabia ranks among the lowest-risk banking systems in the world, according to new global assessment recently published by Standard & Poor's. The ratings agency upgraded the Kingdom’s banking system rating, assigning it a Banking Industry Country Risk Assessment (BICRA) rating of 2. With this rating Saudi Arabia's banking sector is the most low-risk in the Middle East.
Commenting on the performance of banking sector, Basil Kabbani of Zughaibi & Kabbani Financial Consultants, said: "Ideal operating environment, ample liquidity, effective asset management and notable efforts by regulatory entities continue to support Saudi banks' high profitability. Saudi banks certainly are meeting global best practices," he added.
However, Saudi banks strengthening their financial position further showed a remarkable performance during 2012.
Profitability
The Kingdom’s 12 major banks generated a total profit of SR 35.1 billion in 2012, reflecting a year-on-year growth of 11.02 percent. Al-Rajhi Bank and the National Commercial Bank (NCB) represented nearly 41 percent of the consolidated net profit. Both banks’ profitability rose around seven percent.
Al-Rajhi Bank also managed to retain a healthy level of income from investing and financing activities. At the end of 2012, its top line climbed to SR 9.5 billion reflecting a growth of 4.75 percent.
Among other players in the sector, Bank Al-Bilad’s bottom line grew exceptionally by 186.08 percent from the SR 329.6 million recorded in 2011. It reported a net income of SR 942 million for 2012. This huge increase can be attributed to the increase in the bank’s non-operating income specifically a land sales transaction of SR 373 million.
Operating income
Core operating profitability of all the banks improved significantly. Al-Rajhi Bank remained major contributor, representing a total operating income of SR 13.98 billion for 2012, an yearly increase of 11.85 percent. Riyad Bank and Samba have also been able to record a total operating income of over SR 6.7 billion for 2012, exceeding the previous year’s values by 7.4 percent and 2.0 percent respectively.
On growth basis, Bank AlJazira remained at top, posting a substantial operating income of SR 1.6 billion for 2012, up 32.52 percent from SR 1.2 billion a year earlier. Alinma Bank with SR 1.83 billion and a growth of 31.53 percent, ranked second.
Total assets
As per the 12 commercial banks’ consolidated balance sheet at the end of 2012, total assets grew exceptionally to SR 1.71 trillion, recording a growth of 14 percent over the preceding year’s figure of SR 1.5 trillion. This is the highest growth on YoY basis during the past 5 years.
All Saudi banks reflected a positive growth in total assets, with the National Commercial Bank (NCB) representing the largest share of SR 345 billion (+14.64 percent), approximately one-fifth of the sector’s aggregate value.
On the other hand, Alinma Bank topped on percentage basis, achieving 46.84 percent higher value of total assets in 2012 to SR 54.01 billion, compared to SR 36.78 billion recorded in 2011.
Deposits
Deposits of the 12 commercial banks reached SR 1.32 trillion by the end December, 2012, showing a handsome increase of 15.52 percent over the SR 1.15 trillion of year prior, mainly due to deposit mobilization and the expansion of branch networks by banks.
Major contribution in terms of deposits was made by NCB, representing SR 274 billion or nearly one-fifth of the aggregate value of all commercial banks. NCB’s deposits grew by 14.43 percent in 2012. Al-Rajhi Bank reported customer deposits SR 221 billion compared with SR 173 billion of end-2011, an increase of 27.43 percent.
Alinma Bank showed an impressive 81.22 percent growth in deposits for the year 2012, reaching at the level of SR 32.21 billion. While Bank AlJazira with SR 40.67 billion and a growth of 30.54 percent, ranked second.
Loans and advances
Saudi banks continued to expand their lending activities. The sector recognized a 17.85 percent increase in loans and advances. The aggregate value reached nearly SR 1 trillion by end of December 2012 versus SR 855 billion a year earlier.
Al-Rajhi Bank represented a funding of SR 172 billion at the end of December 2012, contributing 17 percent of the overall value.
Alinma Bank reported total financing portfolio outstanding on Dec. 31, 2012 amounting to SR 37.18 billion, compared to SR 25.26 billion recorded in the same period of preceding year. This represented an yearly increment of SR 11.9 billion or 47.22 percent.
Stock market
At Saudi Stock Market, the banking sector has been marching relentlessly higher since the start of 2012. Even the sector supported Tadawul’s rally which sustained for several weeks in a row. The sector’s index achieved a healthy return nearly 24 percent at the end of the first quarter of 2012, crossing the 18,000 points mark.
Subsequently, profit booking has been taking place from time to time and the index reached 14,645.38 point level at the end of 2012, accumulating 63.62 points or 0.44 percent for the entire year. It performed in a range of more than 4,000 points during 2012, touching a peak of 18,125.34 points and a low of 14,073.4 points. Saudi Arabia's benchmark stock index achieved a return of 5.27 percent during 2012, closing at 6,801.22 points.
Bank AlJazira outdid the rest of the banking issues, marching higher roughly 54 percent to SR 26.10 at the end of 2012. Bank Albilad and Alinma Bank followed it, advancing more than 42.5 percent and 37.4 percent respectively.
A large number of investors continued to engage in speculation of banking stocks and took the advantage of high returns by providing a substantial liquidity.
The sector’s daily average turnover reached a significant level of SR 650 million during 2012, a substantial increase of 119 percent as compared with preceding year’s daily average of SR 296.6 million.
The powerful trading waves expanded the sector’s daily average volume to 37.8 million shares during 2012, increasing by 99.37 percent over the last year’s daily average volume of 18.9 million shares.
— Mushtaq Ahmed is a senior financial analyst at Zughaibi & Kabbani Financial Consultants.