Bigger is Better


Public sector spending in Saudi Arabia will continue to send business the banks' way in what looks to be another strong year at the till.

According to the local giant National Commercial Bank’s economic report for the 2014-15 period entitled Growth Moderation on the Horizon, the Saudi banking system has been bolstered by a conservative strategy tightened further in the wake of the global credit crunch. Moreover, “The vibrancy of the private sector underpinned economic activities, which, in turn, provided opportunities for banks to expand their balance sheets.” Fitch Ratings has a rosy view of the sector, confident that public sector spending will remain a key driver of the sector in 2015. The government has earmarked around $400 billion worth of high-octane projects, including Jeddah’s prospective 1km-high Freedom Tower costing a cool $1.3 billion. Even during the shockwaves of the credit crunch no single Saudi bank approached insolvency and the prospect of a state-sponsored rescue, as Fitch Ratings acknowledges. And as Arab News notes Saudi Arabia boasts one of the world’s fastest growing banking sectors, moreover, being among the lowest-risk systems. The banks additionally, have a keen role to play in the Kingdom’s private sector diversification away from oil.


Though a measured exercise in diversifying liquidity sources, the limited opening of the Saudi bourse, Tadawul, to qualified foreign investors (QFI) on June 15 2015, will doubtless ultimately spell business for the local banking sector. Optimistic estimates put potential foreign capital inflows at up to $40 billion. Meanwhile, aside from construction—growing at 40% per annum over the past four years—Fitch Ratings alights on retail spending as a catalyst of sector performance, posting annual growth of roughly 9%. A sector-wide rise in product offerings to include credit cards and the continued novelty of home loans stand to increase consumer momentum.


As Fitch points out, the Kingdom’s banks are used to excellent liquidity and margins, which has meant freedom from the price competition observed in many other markets. And as the agency explains, despite being a massively concentrated sector where more than 90% of the market is held by just 12 banks, consolidation does not seem to be on the horizon. Moreover, the stock market may have opened the door to foreign participation this year, but entry to the banking system is no mean feat.

Of note, in order to cater to foreign investor interest, Banque Saudi Fransi, fifth by assets in 2014 on $50.3 billion, is set to launch a division named Saudi Fransi Capital International within the Dubai International Financial Centre (DIFC) enabling foreign such involvement, through asset management and brokerage business offerings. Indeed, Banque Saudi Fransi isn’t the first Saudi financial institution to set up shop in the DIFC.


Glancing back at 2014 provides welcome evidence that all is well, as regardless of global economic deceleration, Saudi banks performed healthily. The sector’s 12 major, and listed, banks posted an overall 2014 profit of SAR41.47 billion in 2014, marking YoY growth of 10.2%, where Al-Rajhi Bank and the National Commercial Bank (NCB) alone accounted for around 37% of consolidated net profit.

Other key metrics continue the blissful story, where overall core operating profitability with the top 12 banks posting consolidated operating income of SR75.7 billion, up 9% YoY from SAR69.4 billion. NCB delivered best, on total operating income of SR 16.2 billion up 9.15% YoY. It was followed by Al Rajhi Bank on SAR13.67 billion for 2014, on what was actually a modest 1.29% YoY decline. Then came Riyad Bank and Samba on total operating income of SAR8.01 billion and SAR 7.38 billion for 2014, respectively up 13.26% and 5.48%

Meanwhile, growth was led by Saudi Investment Bank, the operating income of which was up a solid substantial 25.5% YoY at SAR2.5 billion compared to 2013’s SAR2.02 billion. Second in line was Saudi Hollandi Bank on SR3.18 billion, having expanded of 21.64% YoY. In a stunning annual performance, the consolidated value of the twelve commercial banks’ total assets reached SAR2.1 trillion at YE2014, on 12% YoY growth.

Up 15.26% YoY, NCB alone accounted for one fifth of the aggregate sum, at SAR434 billion. Industry data reveals that Alinma Bank ruled the roost in percentage terms having soared 28.35% from 2013 to a 2014 print of SAR80.8 billion.


An active year also saw aggregate deposits climb 12.1% YoY to SAR1.64 trillion from 2013’s SAR1.46 trillion on the back of dynamic industry-wide investment in branch networks. In this metric, NCB accounted for almost a fifth of total deposits, at SAR 333 billion on a double-digit rise of 10.8% for 2014. Completing the picture of bulked-up deposits were Al-Rajhi Bank, Alinma Bank and Al-Bilad, respectively posting increases of 10.5%, 38.97%, and 26.16% for the year


Loans and advances in the Kingdom’s banking sector soared 12.04% in 2014 to an aggregate sum of SAR1.26 trillion compared to the 2013 print of SAR 1.13 trillion.

NCB had stumped up SAR 220.7 billion in loans by YE2014 at 17.4 % of the total value. Meanwhile, up 21.43% YoY, Saudi Hollandi Bank had a total outstanding financing portfolio of SAR65.15 billion. Global Finance notes that Saudi Arabia has reserves estimated at $750 billion, leaving the Kingdom sitting pretty, despite oil deflation. Consider, too, that banks’ oil and gas industry exposure, at less than 4% of total loans is slender. Furthermore, nonperforming loans are the region’s lowest, at roughly 1.3%, according to current industry data. Financial markets regulator, the Saudi Arabia Market Authority (SAMA) stipulates a capital adequacy ratio (CAR) of 8%. The vibrant sector, meanwhile, has a CAR print of around 18%. The sector’s Loan-to-Deposit ratio was all but flat in 2014 on the 77.4% of 2013. The highest ratio was that of Alinma Bank, which at 90.3% was followed by Saudi Hollandi and Riyad Bank, respectively on 84.8% and 81.4%.


National Commercial Bank

Shares of the National Commercial Bank (NCB)—the oldest and largest bank in the Kingdom—started trading on the Tadawul in mid-November 2014. It was the first bank in the Kingdom to offer mutual funds. Predominantly geared to the Saudi market with over 3.5 million customers, the bank has, however, expanded its international footprint through the 2008 purchase of Turkish participation bank Türkiye Finans Katılım Bankası. For 2014 the banking behemoth had assets of SAR 434.9 billion, with liabilities of SAR388 billion. It posted a net profit of SAR8.65 billion, up 10.23% YoY. This amounted to 21% of the banking sector’s consolidated net profit. In 2014 the investment portfolio of the leading 12 Saudi banks grew prominently by 16.9% to an aggregated SAR 494 billion. Meanwhile, NCB’s 2014 investments of SAR152.9 billion, up 22% YoY, accounted for 31% of the sector’s overall investments for that year

Al Rajhi Bank

Styling itself as the largest sharia-compliant bank in the Kingdom, and one of the largest in the world, Al Rajhi Bank posted a 2014 net profit of SAR6.8 billion. Al Rajhi has a huge retail footprint, with around 500 branches and over 3,600 ATMs within Saudi Arabia, and 28 branches in its international operations in Malaysia, Kuwait, and Jordan. As of April 8 the bank had a market capitalization (MCap) of $25.5 billion.


In third place by assets for 2014 is SAMBA, formerly the Saudi American Bank, with total net assets of $57.94 billion. The bank has around branches within Saudi Arabia, and around 30 others thanks to its Pakistani operations. It also has a single branch and 12 ATMs in Dubai, and representative offices in the UK and Qatar. In March 2014, Saudi Arabian Airlines’ purchase of 26 aircraft was enabled by SAMBA extending a SAR7.2 billion sharia-compliant loan facility.

Samba Financial Group, Saudi Arabia’s third-largest bank by assets, posted a 3.1 percent rise in its first-quarter net profit, according to a bourse statement on Monday, ahead of analyst forecasts. The bank posted a net profit $341.3 million for 1Q2015, up YoY from SAR1.24 billion, putting its performance down to higher total operating income, which climbed 5.3% year-on-year.

Riyad Bank

Having risen to third place by assets in 2013 on 8% YoY growth, it ranked fourth in asset terms in 2014 on $57.2 billion. The bank has around 300 branches across the Kingdom. For 2014 total assets posted at SAR214.6 billion, up YoY from SAR205.2 billion. Liabilities, too, had risen for the period to SAR179 billion from SAR171.4 billion. Meanwhile, net income for 2014 registered at 4.4 billion, improved on the 2013 print of 2.4 billion. 1Q2015 net profit rose 8.6% YoY to $312 million. Additionally income arising form special commissions and investments climbed 4.2% for the period to SAR1.28 billion. On May 5 the Bank revealed plans for a $1.07 billion bonds issuance to shore up its capital base. According to Reuter’s, the privately placed bonds are to have a tenor of 10 years, and be redeemable after five. The move is symptomatic of banks in the Kingdom, which, healthily, have seen a sustained period of intense lending and are now looking to restock their capital reserves.


SABB, or the Saudi British Bank, is a joint venture that is 40% owned by HSBC and 60% by Saudi shareholders lead by Olayan Saudi Investment Company and the General Organization for Social Insurance. Although HSBC has its own independent presence in the Kingdom under the foreign banks category, SABB represents the lion’s share of its activities. Assets as at YE2014 stood at SAR187.6 billion, up from SAR177.3 billion at 31 December 2013. Net profit was at SAR4,266 million at 31 December 2014, up from SAR3,774 million a year earlier. SABB has a network of 103 branches, which include 18 exclusive women-dedicated sections. With over 3,314 employees, it had an 89.9% Saudization ratio at YE2015.

Saudi banks have been actively lending in recent years as the economy benefits from internal stability and flush macro-metrics. And with the latest radical legislation opening up the capital markets to QFIs, the money markets can but become more liquid.