Aggregate Q2 net profit of top 10 Saudi Arabian banks rises 2.7% on interest income growth

Total interest income grew by 16.2% at the end of the April-June quarter, consultancy Alvarez & Marsal says

Banque Saudi Fransi is among the top 10 lenders in A&M's survey of Saudi Arabia's banking sector. Waseem Obaidi for The National

The aggregate net profit of Saudi Arabia's 10 largest banks increased by 2.7 per cent quarter on quarter, driven by a rise in their net interest income, according to professional services consultancy Alvarez & Marsal.

The aggregate net income for the three months to the end of June climbed to 15.1 billion Saudi riyals ($4.02bn), the consultancy said in its latest Saudi Arabia Banking Pulse report.

Total net interest income for the lenders, which is what banks earn from their lending activities minus the interest they pay to depositors, grew 16.2 per cent quarter on quarter at the end of the April-June period.

Saudi Arabia's central bank raised the policy rates in the second quarter, in line with the US Federal Reserve's move to tame surging inflation and restore price stability.

“The rising oil output supported by the high crude price along with the benchmark interest rate increase indicate a positive outlook for KSA banking sector," Asad Ahmed, managing director and head of Middle East financial services at Alvarez & Marsal, said.

"We expect the Saudi Central Bank (Sama) to continue matching the US Federal Reserve rate hike polices which will assist banking sector profitability.”

The Fed will probably raise rates again when it meets on September 20 and 21.

Brent, the global benchmark for two-thirds of the world’s oil, closed 0.71 per cent higher on Friday at $93.02 a barrel. West Texas Intermediate, the gauge that tracks US crude, settled up 0.3 per cent at $86.87 a barrel.

Saudi Arabia’s economy is set to grow at the quickest pace in a decade and will probably be one of the world’s fastest-growing economies this year, according to the International Monetary Fund.

The kingdom’s gross domestic product is forecast to expand by 7.6 per cent this year after 3.2 per cent growth in 2021, the IMF said in its World Economic Outlook update in July. Non-oil growth will increase to 4.2 per cent in 2022 before returning to its medium-term potential of 4 per cent.

Saudi Arabia’s economy, the largest in the Arab world, grew 11.8 per cent in the second quarter of the year, with oil-related economic activity in the kingdom rising 23.1 per cent annually. Non-oil economic activity climbed 5.4 per cent during the period, according to government data released in July.

Alvarez & Marsal's survey covered the kingdom's 10 largest listed banks: Saudi National Bank, Al Rajhi Bank, Riyad Bank, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank and Bank Aljazira.

While the banks' profitability rose, it did so at a slower pace than the previous quarter due to a 75.5 per cent rise in funding cost, a 24.3 per cent decrease in other operating income and 21.3 per cent increase in impairment charges to 2.7bn riyals, A&M said.

The kingdom's banking sector’s aggregate net interest margin improved for the first time since the last four quarters, it said. NIM expanded to about 3 per cent, supported by a rise in benchmark rates.

The aggregate loans and advances at the end of the second quarter grew 4.2 per cent from the previous three-month period, continuing to outpace the 3.2 per cent growth in deposits.