Al Rajhi Fourth-Quarter Net Increases 0.6%, Misses Estimates

Jan. 16 (Bloomberg) -- Al Rajhi Bank, the biggest Saudi Arabian lender by market value, posted a 0.6 percent increase in fourth-quarter profit, missing analysts’ estimates.

Net income advanced to 1.911 billion riyals ($510 million) from 1.899 billion riyals a year earlier, the bank said in a statement to the Saudi stock market today. The mean estimate of 11 analysts was for a profit of 1.97 billion riyals, according to data compiled by Bloomberg.

Saudi banks’ earnings have been supported by demand for credit amid an economic growth of 6.8 percent last year and government spending plans of $500 billion. Lending growth of 15 percent in October, the highest in almost four years, helped Saudi British Bank and Banque Saudi Fransi beat profit estimates in the fourth quarter.

“We expected revenues to continue benefiting from strong loan-growth trends, which should feed into higher net interest income as well as non-interest income,” Murad Ansari, an analyst at EFG-Hermes Saudi Arabia, said in an e-mail before the results were published. “Our key area of concern for the fourth quarter are around provisioning costs. Al Rajhi reported a slight deterioration in asset quality in the third quarter.” EFG-Hermes had forecast earnings of 1.99 billion riyals.

Shares of Saudi banks underperformed the benchmark index last year and third-quarter net missed estimates as rising provisions against bad loans from construction companies eclipsed the fastest loan growth in three years. The Tadawul All Share Bank Index rose 0.4 percent in 2012, compared with a 6 percent gain for the Tadawul. Al Rajhi shares dropped 6.5 percent in the period.

Mortgages

Al Rajhi plans to offer more mortgages this year and step up loans to small and medium enterprises and project finance to diversify its portfolio, Chief Executive Officer Sulaiman Al Zaben said in December. The bank expects growth in lending this year similar to 2012, he said.

Saudi Arabia approved its first mortgage law last July after more than a decade of debate. Home lending soared 83 percent to 48 billion riyals year on year in the second quarter, the highest on record according to the latest central bank data.

“The reason for the rise in profits in the current quarter compared with the same period of previous year is due to higher operating income,” the bank said in the statement.

Al Rajhi said operating income in the fourth quarter increased 5 percent to 3.5 billion riyals. Lending rose 23 percent to 172 billion riyals as of Dec. 31, while deposits increased 24 percent to 221 billion riyals as of Dec. 31, the company said.

The shares rose 1.8 percent to 69.5 riyals in Riyadh trading.

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net