National Commercial Bank third-quarter profit falls short of forecast

NCB is a bellwether for the industry in the Arab world’s largest economy, and the drop may be a harbinger of more losses at banks amid the biggest drop in oil prices in almost a decade.

National Commercial Bank said its net income fell to 1.96 billion Saudi riyals, weighed down by an increase in operating expenses. Michael Bou-Nacklie for The National

National Commercial Bank (NCB), Saudi Arabia’s biggest publicly traded bank, says its third-quarter net profit fell by 1.6 per cent, missing analyst expectations, as money set aside for bad debt increased.

NCB is a bellwether for the industry in the Arab world’s largest eco­nomy, and the drop may be a harbinger of losses at banks amid the biggest drop in oil prices in almost a decade.

That has raised the level of non-performing loans across the Arabian Gulf while putting a damper on loan growth. Third-quarter bank earnings have been affected, however, by a number of holidays and the summer business slowdown.

NCB shares dropped by 5.57 per cent to 33.90 on the benchmark stock index Tadawul. NCB said net income fell to 1.96 billion Saudi riyals (Dh1.92bn), compared with 1.99bn riyals, weighed down by a rise in operating expenses.

“Net income decreased due to the increase in total operating expenses by 18.7 per cent on account of higher impairment charges on financing and advance and impairment charges on investments as well as higher other general and administrative expenses,” the bank said in a statement posted on the stock exchange website.

Saudi lenders have been reeling from a slowing economy, battered by the more than 60 per cent drop in the price of oil over the past two years, lowering deposits and crimping the ability to lend. Some analysts, however, have been betting that Saudi banks and financial institutions may be among the biggest beneficiaries of the kingdom’s plan announced in April this year to make it less dependent on oil.

The planned reform measures would raise an additional US$100bn a year by 2020 from state asset sales and taxes such as a value added tax (VAT).

In the long term, the banks will benefit from measures such as reduction of subsidies and the introduction of VAT. But in the short term they are more likely to benefit from the government tapping the debt market to plug a deficit and guarantees they may make to banks on mortgages to promote home ownership.

But in the absence of major moves by the government of Saudi Arabia to start the transformation plan, banks have been hit by a further lull in business activity during the third quarter. That has prompted many analysts to predict lower overall earnings for banks during the quarter.

“We expect Saudi banks’ aggregate earnings to decline 1 per cent quarter-on-quarter as seasonality should drive a weaker set of earnings,” analysts at the Egyptian investment bank EFG-Hermes wrote in a report. “Holidays for both Eids fell in the third quarter, resulting in 10 fewer working days during the quarter. This along with sluggish business activity during the quarter should dent fee income.”

Still, non-performing loans remain a possible flashpoint for Saudi banks as more businesses find it difficult to repay loans. Riyad Bank, another Saudi lender, said last week that its third-quarter profit was hit by a threefold rise in provisioning.

Fahd Iqbal, the head of Middle East research at Credit Suisse’s wealth management unit, said in a report that non-performing loans may increase during the second half of the year. “We are cautious about the banks in general and, in particular, we highlight our least favoured names, Bank AlJazira and Bank Albilad, which suffer from expensive valuations and deteriorating fundamentals,” said Mr Iqbal.

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