Al Rajhi Q3 profit jumps 12% as operating income grows

Impairment charges and staff costs both fell during the quarter

ATM machines at Al Rajhi Bank in Riyadh. The lender reported a 7 per cent drop in first-quarter net profit on higher operating expenses and impairment charge. Bloomberg
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Saudi Arabia's biggest retail bank, Al Rajhi Bank, reported a 12 per cent increase in third-quarter net profit as operating income grew and impairments fell.

The bank reported a net profit of Dh2.83 billion for the three months to September 30, which was ahead of analysts' expectations, as revenue also increased 12 per cent and operating profit rose almost 14 per cent. Although operating expenses also edged up 1.5 per cent, "there was a decrease in impairment charge[s] for financing from 417.3 million riyals to 332.2, by 20.4 per cent," the lender said in a statement to Saudi Arabia's stock exchange, Tadawul, where the company's shares trade.

"Also, there was a decrease in salaries and employee-related benefits expenses," the statement added.

Net profit for the first nine months of the year grew 10 per cent to 8bn riyals, as operating profit grew 13 per cent to 14.48bn riyals. The bank also reported a 5 per cent growth in its loan book to 244.59bn riyals, while customer deposits rose 3 per cent to 298.81bn. Overall, the bank's assets grew almost 4 per cent to 368.28bn.

The bank's shares were trading 1.7 per cent lower at 59.2 riyals at 12.48pm UAE time on Tuesday. A report on Saudi Arabia's banking sector by EFG Hermes analyst Shabbir Malik last week pointed out that valuations across the sector have dropped in recent months, and were trading an average of 2 per cent higher at the beginning of last week, having been 33 per cent higher at the beginning of May.

EFG Hermes had a neutral rating on Al Rajhi Bank after cutting its longer term earnings forecasts following recent interest rate cuts by the US Federal Reserve, which are mirrored by Saudi Arabia's central bank given the riyal's peg to the US dollar.

However, the note also pointed out that Al Rajhi Bank remains "the dominant player in Saudi Arabia, particularly in the retail segment", with about 9 million customers and the biggest network of branches (550) and point of sale terminals.

"The bank offers a strong funding profile with best-in-class cost of funds," EFG's report said.

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