Banque Saudi Fransi recorded a 4.4 per cent decline in second-quarter profit due to an increase in the zakat, or Islamic tax, provision in Saudi Arabia.
Net income fell to 804 million Saudi riyals (Dh787.3m) in the three months to June 30, below estimates by the Egyptian investment bank EFG Hermes and NCB Capital, compared with 841m riyals in the prior-year period, the lender said on Monday in a statement to the Saudi stock exchange Tadawul, where its shares trade. However, the bank posted a 2.5 per cent increase in total operating profit due to net special commission income, gains on non-trading investments and exchange, fee and commission income.
"Net income decreased mainly due to zakat provision," Banque Saudi Fransi said. "Starting from the quarter ended June 30, 2019, zakat and tax are to be accrued on a quarterly basis and recognised in consolidated statement of income with a corresponding liability."
The General Authority of Zakat and Tax on March 8 said it concluded settlements with a number of financial institutions to close pending Zakat positions. It also clarified there are no plans to increase the Zakat levels in the private sector after Bloomberg reported that the kingdom was considering to double the Islamic tax paid by local lenders.
"We are underweight on Banque Saudi Fransi given its elevated credit impairment risk and high cost of funding," NCB Capital said on Monday. "The stock is also the most affected by the new zakat regulations."
Saudi Fransi also said total operating expenses increased by 0.9 per cent due to a higher impairment charge for credit losses, which was partially offset by a reduction in salaries, rent and impairment charges for other financial assets.
Total revenue from special commissions, financing and investments rose 8 per cent in the second quarter to 1.86bn riyals year-on-year, the lender said.
Banks in Saudi Arabia are expected to post high single-digit growth in annual earnings this year as increased government spending and climbing interest rates positively impact the kingdom's lenders, analysts say.