Saudi Banks, generally speaking, Doing well -Al Jazira Capital Outlook

Banking sector continued its good performance for the third consecutive quarter, as a result of the recovery, since the economic activity gradually begun the return to the pre-pandemic normal as well as the oil prices surge to their highest level in seven-year, in mid-October, grace to increased demand, Al Jazira Capital confirmed.

Fears of oversupply owing to the United States’ release from the strategic petroleum reserves (SPR) as well as a lack of clarification regarding the Omicron variant, contributed to the drop in oil prices, at the end of both October and November, it added.

Credit growth was in the region of double digits, in the same quarter last year, while deposit growth was at the high single digit.

Individual mortgage loans began to decline, following recording increases until Q1-2021, and the trend reversal continued in Q2-2021 to Q3-2021, as the value of contracts stabilized, at around the level of the same quarter of the previous year, with an increase of 11.2% compared to the previous quarter of this year, and amounted to SR33.6 billion, while the number of mortgage loans in the third quarter remained stable, at SR33.6 billion.

Due to a decline in demand, as a result of rising real estate prices, the number and value of contracts last October decreased by 6.3% and 2.8%, respectively, compared to the same month in 2020, in addition to early signs of a slowdown, but they have proven to be not decisive enough, later on, because the decline was not significant.

The banking sector’s net profit climbed by 24.3% to SR13.3 billion the Q3-2021, compared to the same quarter the previous year.

Finance and investment sector net income climbed by 29.1%.

In Q3-2021, Banque Saudi Fransi had the greatest profit growth rate, with earnings rising to SR907.3 million, or 172.1%, while SABB had the worst profit decrease, with profits falling 15.7% to SR885.3 million.

The banking sector’s total deposits increased by 9.4% to SR2.06 trillion, in Q3-2021, while loans increased by 16.1% to SR2 trillion, during the same period.

Al-Rajhi Bank had the best performance in terms of deposits and loans, with rates of 38.5% and 44.8%, respectively, compared to the same quarter of the previous year.

The Saudi Investment Bank performed the worst in terms of loan growth, declining by 0.3%, while the Arab National Bank posted the worst, in terms of deposit growth, declining 5.4% from the same quarter the previous year.

On the other hand, the sector’s allocations decreased by 17.3% compared to the Q3-2020, totaling SR2.6 billion.

The Saudi National Bank received the most allocations, totaling 724.8 million, while the Saudi Investment Bank received the least, totaling SR51 million.

As a result of the bank’s continued achievement of good growth in loans and deposits, supported by the improvement in the cost-to-income ratio, Al-Jazira Capital maintained its neutral recommendation for Al-Rajhi Bank, with a target price of SR126, expecting earnings per share of SR5.75 for the Year 2021.

On Alinma Bank, as a unique case, Al-Jazira Capital reported a profit increase of 17.5% in Q3-2021, while anticipating an increase in provisions, following the end of the payment deferral program, as the bank had a large exposure to corporate loans and expected to benefit from future interest rate increases.

Because of the re-pricing of loans, the net interest margin would be supported.

By the end of this Year 2021, Al-Jazira Capital recommends a neutral share for Alinma Bank, with a target price of SR23 per share, expecting earnings per share at SR1.38.

Attributing Bank Albilad’s 17.5% increase in pofits to SR449.7 million in Q3-2021, and a 3.7% increase in net income from investment and financing assets, during the same period and an 11.1% decrease in credit provisions, Al Jazira Capital added that net loans increased by 20.7% to SR81.8 billion, and deposits increased by 20.7% to SR81.8 billion.

Al-Jazira Capital maintained its neutral recommendation for Bank Albilad, with a target price of SR41 per share, noting that the bank owns a nearly equal mix of corporate and individual loans, and that the rate of non-performing loans has remained stable, at 1.25% in Q3-2021, compared to 1.24% in Q3-2020, as expected.

By the end of 2021, earnings per share would have risen to SR2.24.