Riyadh – Mubasher: Al Rajhi Capital expected that the consolidated earnings of the Saudi banking sector would see “some weakness” in the first quarter of the year.

The investment firm attributed this decrease to risk of higher provisions as well as moderation of commission and fee income.

On the other hand, provisions were forecasted to stay high year-on-year and low quarter-on-quarter, due to a 23% year-on-year increase in ageing financing at the end of 2016.

Net Interest Margins (NIMs) may see a slight improvement, while non-financing income may witness a moderate decline year-on-year, due to weak credit growth along with lower traded volumes in the Saudi Stock Exchange (Tadawul), the report remarked.

After posting record monthly profit in January, banks achieved lower profit by 20% month-on-month in February, while on the first two months level, the sector recorded higher earnings by 3.5%.

Ageing financing has risen 23% year-on-year, which may indicate higher provisions year-on-year in Q1, Al Rajhi Capital reported.

Al Rajhi Capital noted that there are a few banks have seen a sharp increase in ageing financing, including Al Rajhi Bank, Riyad Bank, and Alawwal Bank.

In the last two years, the aggregate provisions of banks amounted to 5.8% - 7.7% of its ageing advances in the first quarter of the following year.

Moreover, the report indicated that the potential provisions in Q1-17 could be in the range of SAR 1.63 billion and SAR 2.15 billion, compared to SAR 1.75 billion in Q1-16.

The loss coverage levels of banking’ loans stand at “comfortable levels,” reaching 176% for the sector, while the coverage levels in some banks have exceeded 230%.