Riyadh – Mubasher: The consolidated net income of Saudi banks inched up 0.4% quarter-on-quarter and 14.3% year-on-year for the third quarter of 2017, as earnings were pressured by stagnant credit and the increase in provisioning, according to a recent report by Al-Rajhi Capital Research.
“The liquidity situation slightly tightened over the past few months as indicated by higher loan to deposit ratio and rising the Saudi Arabian Interbank Offered Rate (SAIBOR), the report added.
Moreover, credit quality deteriorated in Q3-17, as indicated by the rising non-performing loan to gross loans ratio.
“We studied the financial performance of 60 listed small caps on the Saudi Stock Exchange (Tadawul) to get a sense of the financial health of the smaller companies in the Kingdom. Our study showed that the financial health of these companies has started to improve,” Al-Rajhi said.
“Thus, going forward, we are unlikely to see a material decline in asset quality from the current levels, and therefore the spike in provisioning seen in Q4-16, is unlikely to return this year,” the research firm highlighted.
The firm further noted that there is an upside potential for the Saudi banking sector with a possible recovery in capital expenditure from the government and some troubled companies repaying their dues.
This resulted in NIMs remaining largely flat for the quarter (on a sequential basis) and net interest income growth slowing down to 1.7% q-o-q in Q3 2017, compared to 4.3% growth witnessed in the previous quarter.
SAIBOR has been moving upward after touching a low level in May, resulting in a marginal increase in effective SAIBOR rate for the banking sector in accordance with Al-Rajhi Capital’s calculations in Q3-17.
Accordingly, asset yields remained firm, as it marginally rose at 4.9% or 2 basis points quarter-on-quarter in Q3-17.
Gross interest income increased 1.8% quarter-on-quarter and 0.8% year-on-year as overall credit remained stagnant, the report indicated.
“Following the trend in SAIBOR, bank deposit costs also increased marginally, while total deposits declined 2.4% quarter-on-quarter and 0.5% year-on-year by the end of Q3-17,” the firm continued.
“This resulted in NIMs remaining largely flat for the quarter, on a sequential basis, and net interest income growth slowing down to 1.7% quarter-on-quarter in Q3-17, compared to 4.3% growth witnessed in the previous quarter,” the report concluded.
