Al Rajhi leads the way among Saudi banks

Al Rajhi set the tone for what is shaping up to be a jubilant earnings parade for Saudi Arabian banks.

Al Rajhi posted net profit of 1.84 billion riyals in the three months to the end of June. Ahmed Yosri for The National

Al Rajhi, the Middle East's largest lender by market capitalisation, set the tone for what is shaping up to be a jubilant earnings parade for Saudi Arabian banks.

Al Rajhi posted net profit of 1.84 billion riyals in the three months to the end of June, compared with 1.78 billion riyals in the same period last year.

The bank also said its board recommended a dividend of 1.25 riyals for the first half of this year, keeping in line with a regular cash dividend it has distributed for the past few years.

The bank is "setting a trend among the Saudi banks", said Tarik El Mejjad, a banking analyst at Nomura who covers the stock.

"At this stage [the bank] has only posted very [limited] results but the main conclusion, in my view, is that margin expansion will continue into the rest of 2011."

Mr El Mejjad has a price target of 92 riyals, more than 20 per cent above its current level, but also has a "hold" rating on the stock. He said the results did not shed light on the level of provisions the bank had booked and that he would wait for more details. This has not put off other analysts, with Credit Suisse raising its price target on the lender to 97 riyals from 90 riyals yesterday, following the results.

A note from Kuwait's Global Investment House also anticipates Saudi banking provisions are at "the start of a downhill journey from historically high levels".

Provisions for the banking sector slipped 7 per cent last year compared with 2009 and are forecast to drop by a further 33 per cent by the end of this year, in a sign that banks are setting aside less for future losses.

Shares in Al Rajhi dropped 1 per cent to 74.75 riyals on the Tadawul All-Share Index yesterday, amid a wider slump caused by uncertainty over euro-zone debt.