Earnings Report /
Saudi Arabia

Al Rajhi Bank: Earnings call summary

  • Alrajhi reported a net income of SAR4.26bn in Q2 22, up 18.1% yoy (+3.0% qoq).

  • The bank recorded a strong growth of 33.2% yoy (+7.3% qoq) in the loan book to SAR520bn.

  • The bank’s NIMs stood at 3.76% in H1 22, a contraction of c68bps yoy compared to H1 21.

SNB Capital
7 August 2022
Published bySNB Capital

Earnings call summary - Alrajhi Q2 22

Below are the key highlights of Alrajhi Q2 22 earnings call. The key highlight of the call was that the management guidance remains unchanged compared to the previous quarter. Loan growth for FY 22 is expected to be in the low twenties, contraction in net profit margins are expected between -55bps to -65bps. Cost to income is expected to stay below 26.5% and ROE between 23%-24%. I have also attached Q2 22 result analysis and earnings presentation for your reference.

Overview of Q2 22 results

  • Alrajhi reported a net income of SAR4.26bn in Q2 22, up 18.1% yoy (+3.0% qoq). This is compares with SNB Capital and consensus estimates of SAR4.27bn and SAR4.18bn, respectively. The growth in net income was primarily driven by an increase in fees and other income (+23.1% yoy, -2.2% qoq) and supported by a decline in cost/income ratio to 25.5% in Q2 22 vs 27.3% in Q2 21.

  • The bank recorded a strong growth of 33.2% yoy (+7.3% qoq) in the loan book to SAR520bn, which we believe is a key highlight of the results.

  • The balance sheet grew by 30.0% yoy (+7.9% qoq) to SAR710bn, mainly driven by 45.0% yoy increase in Due from other banks to SAR29.4bn.

Loans

  • The bank’s loan book grew 33.2% yoy (+7.3% qoq) to SAR520bn in Q2 22.

  • Retail loans constituted c79% of the bank’s total book in Q2 22. Retail financing increased 64% from 2020 to SAR410bn in Q2 22 driven by all lines of business.

  • Mortgage book contributed to c45% of growth in loan book. It accounted for 38% of loan book and 49% of retail loan book.

  • Corporate financing increased 39.1% yoy to SAR109.8bn and accounts for c21% of the total loan book.

  • SME lending increased c77% yoy to SAR22bn in Q2 22 vs SAR12bn in Q2 21. SME financing represents c20% of corporate loan book in Q2 22.

  • Stage I loans stood at c97% of total gross loans.

  • The management expects loan book to increase by low twenties in 2022f (guidance remains unchanged from Q1 22).

Asset Quality

  • NPL ratio declined to 0.57% in Q2 22 from 0.67% in Q2 21. Coverage ratio was slightly lower at 293% in Q2 22 vs 318.1% in Q2 21. NPL came mostly from retail portfolio.

  • ECL coverage for stage III loans declined slightly to 70.7% in Q2 22 from 71.7% in Q2 21.

  • Cost of risk stood at 0.47% in H1 22 compared to 0.48% in Q1 22. Cost of risk guidance for 2022f is in the range of 40-50bps (upgraded in last quarter, unchanged since then).  According to management, the increase is due to improved Saudi GDP forecasts.

Deposits

  • Deposits increased 23.6% yoy (+8.9% qoq) to SAR553bn in Q2 22. Time deposits increased c14% qoq to SAR156bn.

  • Demand deposits recorded an increase of 8.5% yoy to SAR389bn in Q2 22 from SAR358bn in Q2 21.

  • Digital account opening represented 91% of retail accounts.

  • LDR (SAMA) stood at 83.8% in Q2 22, a significant decrease from 87.9% in Q1 22.

NIMs

  • The bank’s NIMs stood at 3.76% in H1 22, a contraction of c68bps yoy compared to H1 21.

  • The main drivers for the contraction of NIMs are: 1) lower retail portfolio mortgage yield, and 2) increased competition in the corporate segment.

  • The management guides for a NIM contraction of 55-65bps in 2022f, mainly due to the impact of rising interest rates.

  • Alrajhi’s ROE and ROA stood at 23.4% and 2.6%, respectively, in H1 22.

  • The management has left its ROE guidance unchanged at between 23%-24% for 2022f.

Cost to income ratio

  • Operating expenses (ex-provisioning) increased 5.3% yoy (+2.9% qoq) to SAR1.82bn in Q2 22. Consequently, cost to income ratio declined to 25.5% in Q2 22 from 27.3% in Q2 21.

  • The bank guides for cost to income ratio to remain below 26.5% (unchanged from last quarter) for 2022f.