Samba Financial Group reports 10.2% rise in its second quarter net profit. Credit: AP Photo
Samba Financial Group reports 10.2% rise in its second quarter net profit. Credit: AP Photo
Samba Financial Group reports 10.2% rise in its second quarter net profit. Credit: AP Photo
Samba Financial Group reports 10.2% rise in its second quarter net profit. Credit: AP Photo

Banking

Samba reports 10.2% jump in second quarter net profit as commission income rises

Operating expenses also dropped during the period

Sarmad Khan
Sarmad Khan
Abu Dhabi

July 23, 2018

  • English
  • Arabic

Samba Financial Group, Saudi Arabia’s third-largest bank by assets, reported a 10.2 per cent jump in the second quarter net profit amid an increase in contributions from special commissions and a slide in operating expenses.

Net profit climbed to 1.4 billion Saudi riyals (Dh1.37bn) in the three-month period ending June 30, the bank said in a regulatory filing to Saudi stock exchange, where its shares are traded. Total operating income climbed 4.6 per cent to 2.08bn riyals at the end of the second quarter, mainly due to an 11.2 per cent rise in the net special commission income during the period.

Profit for the period came in above the average analysts' estimate of 1.33bn riyals, according to Reuters data, which included SICO Bahrain’s 1.32bn riyals, EFG Hermes’ 1.33bn riyals and NCB Capital’s 1.32bn riyals projections.

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The bank’s income for the first six months of 2018 also climbed  8.1 per cent to 2.71bn riyals from 2.5bn riyals reported at the end of the same period in 2017, Samba said.

The rise came despite a 3.2 per cent decline in the lender’s loans and advances portfolio and a 1.5 per cent slide in its customers’ deposits to 116.6bn riyals and 168.6bn riyals respectively.

Banks and financial institutions in Saudi Arabia and in the broader Arabian Gulf market are expected to perform better this year as economic activity picks up after a three-year oil price slump. Analysts including Moody’s expect the operating conditions to improve and credit growth to return as governments in the region shift focus from austerity to spending amid an uptick in oil prices.

Regional banks will see "slight recovery in loan growth, driven by the corporate segment, and an improvement in spreads quarter-on-quarter," Egyptian investment bank EFG Hermes said in its Mena banks second-quarter preview paper published earlier this month.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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