Improving net interest margins, key positives for Saudi banks in first quarter

Saudi Banks’ first quarter (Q1) earnings were supported by improving net interest margins (NIMs), but banks’ balance sheet growth remains tepid, an analyst told Zawya.

Eight of the biggest Saudi banks reported a year-on-year (y-o-y) NIM expansion in Q1 2019, while six of the eight also reported margins widening on a quarterly basis, an analysis of Q1 results by SICO Bank showed on Thursday.

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“Improving NIM was the key positive for KSA banks, however we expect it to stabilise in subsequent quarters as (the) Fed (United States Federal Reserve) looks to freeze rate hikes,” Chiro Ghosh, research manager at investment bank SICO, said in the note.

The eight banks covered in the SICO note are Al Rajhi Banking and Investment Corporation, Alinma Bank, Arab National Bank (ANB), Banque Saudi Fransi, National Commercial Bank (National Commercial Bank2), Riyad Bank, Samba Financial Group and Saudi British Bank (SABB).

SICO’s data shows that the banks reported an average 10 basis points quarter-on-quarter (q-o-q) NIM expansion in Q1 2019. Riyad Bank and National Commercial Bank2 were the only two banks to report a drop in quarterly interest margins.

“National Commercial Bank2’s NIM was impacted by Turkish operations and higher funding cost, while Riyad Bank likely paid higher funding cost to gather deposits,” Chiro Ghosh, research manager at investment bank SICO, said in the note.

NCB posted a 5.69 percent increase in Q1 net profit, a 14.89 percent increase in revenue and a 0.7 percent rise in total operating expenses. (Read more here).

Riyad Bank’s Q1 total operating expenses were higher by 4.7 percent, with the bank posting a 44.74 percent increase in Q1 net profit and a 29.95 percent increase in revenue.

NCB and Riyad bank announced late in December last year that they began preliminary discussions about a potential merger. The two banks will have a combined market share of 30 percent if the merger happens, according to analysts.

A $5 billion merger by Saudi British Bank and Alawwal bank announced last year was also approved by shareholders from both organisations at meetings last week, the respective lenders announced on Thursday.

Alvarez and Marsal said in March this year that it expects UAE banks NIMs to continue seeing pressure going forward.

The professional services firm’s UAE Banking Pulse report, which covers ten banks, showed that Q4 2018 NIMs for the biggest banks in the country dropped by six basis points q-o-q.