Rise in Saudi banks’ NPLs ‘not worrisome’: Al Rajhi Cap

The 24 percent year-on-year (YoY) increase in non-performing loans (NPLs) of the Saudi banking sector by the third quarter 2018 (Q3), compared to gross loans increase of 1.2 percent, is not worrisome as it came off a low base, Al Rajhi Capital noted in its recent report on post-Q3 earnings of listed Saudi banks.

Noting that the loan growth continues to remain weak in Q3, the report said half of the 12 banks have a lower lending book now than was in 2015.

Excluding the smaller banks such as Albilad and Alinma, only Al Rajhi grew its loan book by double digits in mentioned period, the report added.

“Retail real estate lending is seeing the highest growth given government push, but it is unlikely to materially change total volume growth,” Al Rajhi Capital noted in the report.

“A few areas of growth in the future are from large projects in Saudi Arabia, which will be linked to government /PIF spending. Auto loans could slightly weaken given new responsible lending norms,” it added.

In Q3, deposit costs increased 26 percent YoY as compared to increase in gross interest income of 12 percent YoY.

Average asset yields of banks stood at 4.5 percent at the end of Q3 2018 as compared to 4.1 percent in Q3 2017 as SAIBOR increased, leading to 10.7 percent growth in earnings, the report added.