x Abu Dhabi, UAEThursday 27 July 2017

Saudi bank's results off key but outlook bright

Riyad Bank, Saudi Arabia's third largest lender by market capitalisation, is benefiting from lower provisions and has potential to return to profit in 2011

Riyad Bank has posted results that were lower than expected for last year, but it is in good shape to boost its balance sheet and swing to a profit this year.

Fourth-quarter net profit for the third-largest lender in Saudi Arabia by market capitalisation fell 16 per cent to 764 million riyals last year compared with 2009, due to lower fees and higher operating costs.

But the results were offset by the bank's provisions, which were less than expected and led analysts to predict an improved performance for this year.

"The severity of asset quality deterioration is already behind [the bank]," said Mohammad Ali Shah, a financial analyst at Global Investment House in Kuwait.

Net interest income also had a "significant impact" on bottom- line results, making up about 70 per cent of the total operating income last year.

"Although we do not expect the interest rates to have a strong chance of increasing any time soon, an increase in lending activity could lead to a marginal rise in lending rates," said Mr Shah.

The bank is also in a good position to capture more business from public infrastructure spending.

Mr Shah has a target price of 28.7 riyals a share for the bank and a "buy" recommendation. He said the bank's credit quality was not a concern.

The bank's shares were up 0.4 per cent at 25.5 riyals yesterday.

A reduction in provisions and improved operating performance has led Mr Shah to predict the bank will swing to a profit this year with a net income increase of 8.4 per cent.

Guidance from the Saudi Arabian Monetary Agency on banks' provisioning for the third quarter of last year probably did not extend to the fourth quarter, a note from Credit Suisse said.

Analysts believe the bank is sitting on excess capital that has yet to be reflected in its profits and see potential for a stronger retail banking performance.