Earnings Report /
Saudi Arabia

Al Rajhi Bank: Weak Q1 results on lower margin & higher provision

  • Revenues increased +4.1% yoy (-3.6% qoq) to SAR4.25bn, marginally lower than our estimate of SAR4.3bn.

  • As per our initial estimates, NIMs declined c25bps yoy to 5.4%, but more importantly were lower than our estimate.

  • Operating expenses increased +29.2% yoy (-10.1% qoq) to SAR2.31bn, higher than our estimate of SAR1.72bn.

SNB Capital
13 May 2020
Published bySNB Capital

AlRajhi Bank reported a weaker than expected set of results in Q1 20, with net income declining by -7.3% yoy (+9.2% qoq) to SAR2.38bn. This is lower than the NCBC and consensus estimates of SAR2.66bn and SAR2.80bn, respectively. We believe the variance is due to a combination of lower margins and higher provisioning expense. Strong loan growth of +11.3% yoy was a major positive of the result. From a broader perspective, we believe higher provisioning is a negative read-across for the sector.

Revenues increased +4.1% yoy (-3.6% qoq) to SAR4.25bn, marginally lower than our estimate of SAR4.3bn. This is mainly due to lower than expected NSCI, which offset the impact of strong growth in Fee and other income. NSCI (net special commission income) grew by +4.2% yoy to SAR4.11bn, but was slightly lower than our estimates of SAR4.14bn. Fee and other income increased by +23.5% yoy (+15.5% qoq) to SAR858mn and was significantly higher than our estimate of SAR740mn. 

As per our initial estimates, NIMs declined c25bps yoy to 5.4%, but more importantly were lower than our estimate of 5.6%. We believe this is one of the main negatives of the result, as we expected AlRajhi NIMs to remain resilient to interest rate decline due to higher portion of retail loans (particularly mortgage). Asset yields declined by c27bps to 5.6% even as funding costs remained unchanged yoy at 0.2%. 

Operating expenses increased +29.2% yoy (-10.1% qoq) to SAR2.31bn, higher than our estimate of SAR1.72bn. We believe the variance is mainly due to higher provisioning expense. Provisions increased by +78% yoy (+4.3% qoq) to SAR693mn vs. our estimate of SAR471mn. This is the highest level since Q1 14. We estimate cost of risk was slightly higher than our estimates and stood around c1.0% in Q1 20 vs 0.6% in Q1 19. 

A key positive highlight of the result was the strong loan and deposit growth, which increased by +11.3% yoy (+4.7% qoq) and +7.5% yoy (+1.0% qoq), respectively. L/D ratio stood at 82.8% vs. 80.0% in Q1 19. 

We are Neutral on AlRajhi with a PT of 57.3. AlRajhi trades at a 2020f PB of 3.1x, higher than peer average of 1.6x.