Al Rajhi Bank’s Q2 profit drops 2.5% on lower operating income

Saudi Arabia's second biggest lender reports $1.1 billion in net profit during the three month period

Al Rajhi's second-quarter net income from special commissions/financing and investments slid 6.7 per cent to 5.1 billion Saudi riyals. Ahmed Yosri / The National

Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, reported a 2.54 per cent drop in its second-quarter profit as a result of lower operating income.

Net profit for the three months to the end of June declined to 4.15 billion Saudi riyals ($1.1 billion), from the same period a year earlier, the bank said on Monday in a statement to Tadawul, where its shares are traded.

Operating income for the period slid 4.5 per cent annually to 6.82 billion riyals.

Net profit declined “due to a decrease in total operating income …. caused by a decrease in net financing and investment income, fees from banking services, and exchange income, while there was an increase in other operating income,” the lender said.

Net income from special commissions/financing and investments slid 6.7 per cent to 5.19 billion riyals.

The bank also said total operating expenses including impairment charges for financing decreased by 8.4 per cent due to a decrease in other general and administrative expenses, while there was an increase in salaries and employee-related benefits and depreciation expense.

Impairment charges for financing decreased by about 38 per cent to 360 million riyals during the period.

The bank's board of directors also decided to distribute an 11.5 per cent cash dividend, or 1.15 riyal per share after deducting Zakat, to the shareholders for the first half of 2023 amounting to 4.6 billion riyals, according to a separate statement on the Tadawul.

Higher credit demand, better asset yield, and operating efficiencies drove the top Saudi lenders’ profitability amid rising benchmark interest rates in 2022.

The aggregate net income increased by 28.4 per cent year-on-year to 62.7 billion riyals in 2022 and the net profit of top 10 banks in the kingdom increased by 2.7 per cent quarter-on-quarter in the first three months of 2023, according to Alvarez & Marsal.

Lenders in the kingdom are likely to remain on a profitable path in 2023 with continued credit growth despite tighter liquidity, as they capitalise on a favourable operating environment amid continued growth momentum in the Arab world’s largest economy, according to Fitch Ratings.

Expansion of the kingdom’s non-oil gross domestic product will help the lenders further boost their profitability this year, the ratings agency said in its latest report on Saudi Arabia's banking sector.

Saudi Arabia had the highest annual growth rate among the world’s 20 biggest economies in 2022 after its gross domestic product expanded 8.7 per cent on higher oil revenue and a robust non-oil private sector.

This year, the International Monetary Fund expects the kingdom's overall real GDP growth to moderate to 2.1 per cent. The World Bank has estimated 2023 growth at 2.2 per cent, as the kingdom caps oil output as part of its commitments to the Opec group of oil producers.