Saudi Alawwal full-year net income drops as expenses climb

Bank is in the process of merging with the rival Saudi British Bank to create third-largest Saudi lender

Soren Nikolajsen, managing director of Alawwal Bank, says 2018 was "challenging". Antonie Robertson / The National

Saudi Arabia’s Alawwal Bank, which is in the process of merging with a rival lender, said its full-year 2018 net income dropped 15.4 per cent as revenues and income from operations fell.

Net profit at the end of 12-month period ending December 31, slumped to 1.13 billion Saudi riyals (Dh1.1bn), Alawwal said in a statement to Saudi Stock Exchange, where its shares are traded. Total operational profit dipped 4 per cent year-on-year to 3.56bn riyals, while total revenues from special commissions and investments fell 3.8 per cent to 3.76bn royals, it said.

“Net income decreased due to lower total operating income, which decreased by 4 per cent, mainly due to a fall in fee and commission income,” the lender said in the bourse filing.

“Total operating expenses increased by 2.3 per cent, mainly due to an increase in impairment charge for credit and other losses, general and administrative expenses, depreciation and amortisation and rent and premises-related expenses.”

The bank’s assets at the end of 2018 slumped 17.9 per cent to 82bn riyals, while loans and advances totalled 57.8bn riyals, a 9.2 per cent year-on-year decline, it noted.

Alawwal last year announced its intention to merge with the rival Saudi Brtish Bank (Sabb) and boards of the two banks gave a nod for the tie up that will create the third-largest financial institutions in the Saudi Arabia.

Alawwal expects to receive regulatory approval "pretty soon" for its $5bn (Dh18.4bn) merger with Sabb and it will seek a vote of approval from shareholders by the end of the second quarter, Soren Nikolajsen, managing director of Alawwal Bank told The National in January.

The deal is expected to be finalised during the first half of this year.

HSBC owns about 40 per cent of Sabb and Alawwal is 40 per cent controlled by RBS Holdings, a consortium that includes Royal Bank of Scotland. The boards of the two banks have agreed on the initial terms, under which, Alawwal shareholders will receive 0.485 Sabb shares, valuing each Alawwal share at 16.3 riyals.

After the dilution of the shareholdings, the consortium will be left with a 10.8 per cent stake in the combined entity, and could get a seat on the extended 11-member board. HSBC can nominate three members, Mr Nikolajsen said last month.