Saudi banks show strong liquidity, lower profitability in Q3: HSBC

Saudi Arabian banks showed strong liquidity, but lower profitability during Q3-2015 due to a steady drop in net interest margin (NIM), and a low ratio of non-funded income to average assets, according to a sector report from HSBC.

Aggregate earnings of Saudi banks missed their HSBC estimate by five percent. Q3-2015 liquidity remained at 78 percent year-on-year (YOY), while return on assets (ROA) declined to two percent.

However, two banks — Samba (SAMBA) and Banque Saudi Fransi (BSF) — exceeded earnings estimates by seven percent and six percent, respectively. The report attributed the success to higher income, low cost of risk, and lower-than-expected bad debt charges. Both banks garnered a “buy” rating.

Al Rajhi, Saudi Arabia’s second-largest bank, was given a “hold” rating after net income dropped 11 percent YOY to SAR 1.7 million due to a weak income stream that fell seven percent short of HSBC’s estimates.

Alinma Bank, National Commercial Bank (NCB), and Riyad Bank (RIBL) all received “hold” ratings. Alinma’s Q3 income was up 13 percent YOY on lower-than-expected bad debt charges that finished 82 percent below HSBC estimates. NCB and Riyad finished Q3 with especially weak results; missing earnings estimates by 12 percent and 13 percent, respectively. RIBL net profit fell 16 percent to SAR 899 million, marking the largest YOY drop among the group. HSBC said it expected its asset quality to perform better.

Arab National Bank (ANB), which is 40 percent owned by Jordan’s Arab Bank, also garnered a “buy” rating, but fell short of net income estimates by 4 percent. Nevertheless, customer loans grew 17 percent year-on-year (YOY); marking the highest among Saudi banks.