Earnings Report /
Saudi Arabia

Al Rajhi Bank: Q3 22 Results Analysis | Strong loan book growth drives earnings

  • Revenues increased by 9.5% yoy (+0.8% qoq) to SAR7.21bn and were largely in-line with our estimates.

  • NIMs declined c56bps to 3.1% in Q3 22, in-line with our estimates.

  • Operating expenses (ex-provisioning) increased 6.1% yoy (+2.2% qoq) to SAR1.86bn and was in-line with our estimates.

SNB Capital
24 October 2022
Published bySNB Capital

AlRajhi reported an in-line set of Q3 22 results, with net income increasing by 14.8% yoy (+2.3% qoq) to SAR4.35bn. This compares with the SNB Capital and consensus estimates of SAR4.38bn and SAR4.39bn, respectively. The growth in net income was primarily driven by higher net special commission income (+9.1% yoy and +2.2% qoq) and supported by a decline in cost-to-income ratio to 25.8% in Q3 22 vs 26.7% in Q3 21. Adjusted for Tier 1, net profit stood at SAR4.32bn, up 13.7% yoy (+2.9% qoq). The bank recorded a robust growth of 32.4% yoy (+7.3% qoq) in loan book, which is a key highlight of the result.

  • Revenues increased by 9.5% yoy (+0.8% qoq) to SAR7.21bn and were largely in-line with our estimates. The growth in revenues was driven by an increase in net special commission income (NSCI), (+9.1% yoy, +2.2% qoq) to SAR5.7bn, marginally higher than our estimate of SAR5.6bn. Fees and other income increased by 11.4% yoy (-3.9% qoq) to SAR1.52bn.

  • NIMs declined c56bps to 3.1% in Q3 22, in-line with our estimates. The yoy decline in NIMs can be attributed to flat asset yields yoy at 4.6%, coupled with an increase in funding costs by c89bps yoy to 1.2%. The contraction in NIMs is indicative of the bank’s tightening liquidity position and increased competition. We believe the bank is targeting growth in market share at the expense of margins.

  • Operating expenses (ex-provisioning) increased 6.1% yoy (+2.2% qoq) to SAR1.86bn and was in-line with our estimates of SAR1.83bn. Subsequently, cost to income ratio declined to 25.8% in Q3 22 vs 26.7% in Q3 21.

  • Provisioning expenses declined sharply both yoy and qoq to SAR490mn in Q3 22 and was significantly lower than our estimate of SAR547mn. This resulted in a decline in cost of risk to 0.4% in Q3 22 vs. 0.6% in Q3 21.

The bank’s strong loan book growth of 32.4% yoy (+7.3% qoq) to SAR557bn is higher than our estimate of SAR545bn and is the strongest growth reported from the four banks that have reported so far in Q3 22. Deposits increased 16.2% yoy (+0.5% qoq) to SAR556bn, albeit lower than our estimate of SAR578bn. The bank’s L/D ratio witnessed a sharp increase to 100.3% in Q3 22 vs 88.0% in Q3 21 and 94.0% in Q2 22. Adjusted for Tier 1 sukuk offering, LDR ratio remains high at 99% in Q3 22 vs 93% in Q2 22.

 

Outlook

Based on our last update in June 2022, we are Neutral on Al Rajhi with a PT of SAR94.3. The stock is trading at 2023f P/B of 3.8x and is higher than the peer average of 2.0x. We believe that tightening liquidity is the main concern.