Saudi Arabia's Al Rajhi Bank's first quarter profit surges 40% on stronger economic recovery

The country’s second-largest lender by assets reported a profit of more than $890m

Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, reported a 40.1 per cent increase in first-quarter net profit . Simon Dawson / Bloomberg

Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, reported a 40 per cent increase in first-quarter net profit on the back of lower impairment charges and higher net income from special commissions, financing and investments as the Arab world’s biggest economy recovers from the coronavirus pandemic.

Net profit for the period ending March 31 rose to 3.34 billion Saudi riyals ($890.6 million), the lender said in a statement to the Tadawul stock exchange, where its shares trade. Net income from special commissions, financing and investments grew 16 per cent to 4.77bn riyals, while impairment charges declined almost 17 per cent to 577m riyals, according to the lender.

Total operating expenses also dropped 3.7 per cent due to a “decrease in depreciation expenses" during the period.

Economic growth in the Middle East is expected to speed up in the second half of 2021 as oil prices edge higher and countries roll out vaccines to control the spread of the coronavirus pandemic, according to a new report commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW).

Economies in the region will grow at 2.5 per cent in 2021, similar to the 2.6 per cent average growth rate recorded between 2010 and 2019, following a 5.2 per cent contraction last year, the report said last month.

Saudi Arabia's economy is set to grow 2.9 per cent in 2021 after shrinking about 4.1 per cent last year, according to the International Monetary Fund.

Al Rajhi Bank's total assets grew 31 per cent to 512.2bn riyals and customer deposits rose 33 per cent to 421.2bn riyals. Its loan book grew 36.3 per cent to 356bn riyals.

“Decent results, underpinned by strong balance sheet growth and solid non-interest income,” EFG-Hermes analyst Shabbir Malik said in a note on Wednesday.

“[The] key positive surprise is loan growth … We expect Rajhi to have maintained its leadership in mortgages, and it would have taken the lion’s share of the new mortgage origination in the first quarter of 2021, which sector data as of February suggests was strong.”

Arqaam Capital said the bank’s profit surged on “stronger top-line margins and balance sheet growth, better than expected cost control and slightly lower-than-expected credit costs.”

“Loan growth was a whopping 36.3 per cent ... already almost meeting its financial year guidance of 15 per cent credit growth,” the company said.