Saudi Arabia Banking Pulse Quarter 3, 2020 Alvarez & Marsal Middle East Limited (A&M) is delighted to publish the 3rd edition of the Kingdom of FOREWORD Saudi Arabia (KSA) Banking Pulse (“The Pulse”). In this quarterly series, we share results from our research examining the top ten largest listed KSA banks by assets, and highlight key performance indicators of the KSA banking industry. The Pulse aims to help banking executives and board members stay current on industry trends. Kindly note that total asset base of Bank Albilad (BALB: SAR 92.3bn) has exceeded that of Bank AlJazira (BAJ: SAR 91.9bn) in Q3’20. Hence, we have changed our universe of top ten banks to include BALB and exclude BAJ, as the Pulse tracks the performance of the top ten banks by asset size. Hence, for consistency of comparison, all historical data has been adjusted to include BALB instead of BAJ. All the data used in this report has been obtained from publicly available sources and the methodology for the calculations is discussed in the glossary. Calculation of several metrics will be subject to change based on available information. The IMF has predicted that the Saudi Arabian GDP is expected to contract at slower rate (-5.4%), compared to its previous estimate (-6.8%) during FY’20. However, persistently low oil price environment is expected weigh on the economy in the near term. The government in September’20 announced that the budget spending for 2021 would be 7.5% lower in light of current economic environment. Thus, economic environment is likely to remain challenging in the near term. We hope that you will find our third edition of the KSA Banking Pulse useful and informative.
Disclaimer: The information contained in this document is of a general nature and has been obtained from publicly available information plus market insights. The information is not intended to address the specific circumstances of an individual or institution. There is no guarantee that the information is accurate at the date received by the recipient or that it will be accurate in the future. All parties should seek appropriate professional advice to analyze their particular situation before acting on any of the information 2 contained herein Co-Authors
Dr. Saeeda Jaffar Asad Ahmed Co-Author, Managing Director Co-Author, Managing Director Head of Middle East Head of ME Financial Services
18+ years of international experience in management 30+ years of experience in banking consulting and industry Focuses on performance improvement, Focuses on strategic and performance-related matters in turn-around, credit management, and formulating and financial institutions, sovereign wealth funds, family managing strategic and operational changes in financial businesses, real estate, private equity and private investments institutions Emirati National, frequent speaker and moderator in Banking Former CEO of banks in the UAE & Kenya & Finance events
CONTACT [email protected] DETAILS Phone: +97145671065
3 Saudi Arabia Macro & Sector Overview
Macro overview Banking overview Q3’20
KSA GDP Growth Rate1, % KSA Banks L&A and Deposits4, %* 3.1 3.4 5.1 2.4 In Q2’20 KSA’s GDP contracted 7.0%, on the back of 4.7 Total loans & Advances (L&A) of top ten KSA banks grew at a 0.3 contraction in oil (5.3%) and non-oil (-8.2%) sectors faster pace in Q3’20 (3.0% QoQ), compared to Q2’20 (1.9% 3.2 3.0 In Q3’20, the average PMI reading increased to 49.8 from 2.8 QoQ) 1.7 1.9 (0.7) 46.7 in Q2’20, showing that the private non-oil economy 1.5 1.5 Similarly, deposit growth improved to 2.8% QoQ, compared to (5.4) continued to contract during the last quarter 0.3 1.5% QoQ in the preceding quarter In Oct’20, the IMF forecasted the nation’s GDP to contract The improvement in the L&A and deposits growth could be by 5.4% for FY’20, compared to its previous estimate to partially attributable to the unlocking of certain sections of the Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 2017 2018 2020F 2021F 2022F 2019E contract by 6.8% economy post Q2’20 L&A % QoQ Deposits % QoQ
US Fed Funds Rate2, SAIBOR % KSA Banks’ Profitability4, %* 3.5 24.0 27.5 Interest income of top ten banks declined by 1.1% QoQ, amid 3.0 The US Fed has committed to keep its lending rates at persistently low interest rates 2.5 2.1 2.0 1.8 current levels until the US economy is fully recovered 10.7 2.0 1.8 4.2 0.6 Net income rose by 27.5% QoQ, facilitated by an increase in 1.5 Overnight SAIBOR has also remained at its record low operating income (+6.5% QoQ) and decrease in provisions 1.0 0.6 0.6 0.6 (1.1) 0.3 (5.1) 0.5 0.3 0.3 levels and has settled at 0.56% at the end of Q3’20 (6.5) (-36.7% QoQ)
0.0 Consequently, the Saudi Arabian central bank is also (18.2) (17.0) While there has been an improvement in profitability, the near expected to hold its interest rates at current levels in the term outlook remains bearish in light of sluggish economic Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
foreseeable future, to offset the headwinds from COVID-19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 environment US Fed rate movement Overnight SAIBOR Interest Income % QoQ Net Income % QoQ
KSA Money Supply3, (%, Quarterly) KSA Banks’ Profitability4, %* 16.0
9.0 14.3 13.2 14.0 8.0 11.4 12.6 12.0 7.0 In Q3’20, M2 money supply growth stood at 0.8% QoQ, and 10.6 The return ratios improved during the quarter primarily driven 6.0 6.0
6.0 5.2 10.0 4.6 4.6
5.0 10.0% YoY to reach SAR 1.9tn by increased net income 4.4 4.4 8.0
4.0 3.4 2.9 2.9 3.0 3.0 6.0 2.4 2.4 3.0 2.1 2.0 2.0 1.8 1.8 M2 money supply increased primarily driven by 1.7% QoQ Return on Equity (RoE – Q3’20 annualized) reached 13.2%,
4.0 1.2 1.2
2.0 1.4
0.8 0.8 1.8 0.5 0.5 0.7 0.7 0.6 0.6 2.2 0.3 0.3 1.0 1.7 increase in time & savings deposits to SAR 0.5tn 2.0 1.8 1.5 highest level in last three quarters
0.0 M1 increased by 0.5% QoQ in Q3’20 to SAR 1.4tn, while M3 - Similarly, return on asset (RoA – Q3’20 annualized) increased money supply grew 1.8% QoQ to SAR 2.1tn from 1.5% in Q2’20 to 1.8% in Q3’20 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q2'20
M1 M2 M3 RoE % RoA %
1 IMF forecast, 2 US Board of Federal Reserve, 3 KSA Central Bank,, 4 Company Financials, * Data for top ten KSA banks by asset size as of September 30th 2020, QoQ stands for quarter over quarter, net income excludes the one-off impairment charge reported by Saudi British Bank in Q2’20 4 Pulse: KSA Banks Reported a Surprising Recovery in Profitability, Driven by Unlocking of Certain Sections of Economy
Improved Stable Worsened
Metric Q2’20 Q3’20 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 Key Trends of Q3’20
Growth in L&A stood at 3.0% QoQ, while deposits L&A Growth (QoQ) 1.9% 3.0% 1 Size increased by 2.8% QoQ Deposits Growth (QoQ) 1.5% 2.8% 2 LDR increased for the third consecutive quarter to Liquidity Loan-to-Deposit Ratio (LDR) 86.7% 86.9% 86.9%, as L&A growth outpaced deposits growth Operating Income Growth (QoQ) -3.9% 6.5% Operating income growth (+6.5% QoQ) saw a 3 sizeable recovery, as net interest income and net fee Operating Income / Assets 3.7% 3.9% income increased 2.0% and 20.0%, respectively Non-Interest Income (NII) / Operating Income 21.6% 24.9% NIM compressed further by 3 bps to reach near the Income & 3% threshold Operating Yield on Credit (YoC) 5.5% 5.3% 4 Efficiency Banks continued to improve their efficiency, as C/I Cost of Funds (CoF) 0.6% 0.5% ratio improved for the third consecutive quarter to reach 34.3% Net Interest Margin (NIM) 3.1% 3.0% 5 Cost-to-Income Ratio (C/I) 34.9% 34.3% CoR decreased substantially (-50 bps QoQ), as impairment charges reduced by 36.7% QoQ Coverage Ratio 148.3% 144.1% 6 Risk Cost of Risk (CoR) 1.3% 0.8% RoE and RoA saw improvements after a fall last quarter Return on Equity (RoE) 10.6% 13.2% 7 Profitability Return on Assets (RoA) 1.5% 1.8% RoRWA and CAR improved to 2.2%, and 19.4% Return on Risk-Weighted Assets (RoRWA) 1.8% 2.2% 8 respectively in line with increased net income Capital Capital Adequacy Ratio (CAR) 18.8% 19.4% Note 1: Growth in loans & advances and deposits were presented QoQ instead of YoY Note 2: Quarterly income was used in the calculation of operating income growth Source: Financial statements, Investor presentations, A&M analysis 5 1 NCB Witnessed a Growth in Both L&A, while SAMBA’s Deposits Growth Outperformed its Top Peers
L&A Growth QoQ (%) Q3’20 Av 7.5 Gained Financing MS Gained Deposits & Financing MS KEY TAKEAWAYS 6.5 L&A and deposits of top ten banks 5.5 increased by 3.0% and 2.8%, respectively 4.5 L&A growth of NCB (+6.5%) was the highest among all peers 3.5 The growth was largely driven by 3.0% 2.5 increased credit uptake in consumer & credit card segment 1.5 SAMBA reported the highest increase 0.5 in deposits (+7.4% QoQ), as time deposits increased 20.2% QoQ -0.5 On the other hand, SIBC’s L&A
-1.5 decreased the most (-1.5%)
Lost Depositing & Financing MS Gained Deposits MS SIBC reported the largest decline in -2.5 deposits (-6.9% QoQ), as the bank’s -8.0 -6.0 -4.0 -2.0 0.0 2.0 2.8% 4.0 6.0 8.0 10.0 12.0 demand deposits declined 13.5% QoQ
Deposits Growth QoQ (%)
Note: MS stands for market share Source: Financial statements, Investor presentations, A&M analysis 6 2 Five of the Top Ten Banks Reported an Increase in LDR
Loans to Deposits Ratio (%)
110 Q2’20 Q2’20 Av KEY TAKEAWAYS Q3’20 Q3’20 Av Aggregate LDR increased from 86.7% 105 in Q2’20 to 86.9% in Q3’20 SIBC (+5.2% points) reported the 100 highest increase in LDR, while SAMBA (-2.4% points) reported the highest 95 decline in LDR during the quarter
90
86.9% 85 86.7%
80
75
70 0 100 200 300 400 500 600 700 Total Asset (SAR Bn) Note: The green zone is an area of healthy liquidity Source: Financial statements, A&M analysis 7 3 Easing of Lockdown Measures Facilitated Operating Income Growth
Improved Stable Worsened
Quarterly NII Quarterly Operating Income (SAR Bn) (SAR Bn) KEY TAKEAWAYS 19.4 24.7 24.8 Total operating income increased by 24.3 24.2 6.5% QoQ. Increase in NII (+2.0%) and 18.9 23.2 non-interest income (+22.7%) 18.6 18.6 facilitated operating income growth 18.2 Non-interest income rose, as net fee income increased (~20% QoQ), driven Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 by unlocking of certain sections of economy + Among the individual banks, NCB Quarterly Net Fee commission and other Operating Income (SAR Bn) (+18.3%) reported the biggest jump in
6.5 operating income, as the bank was able 6.2 to increase its NII 6.0 5.6 On the other hand, SABB’s operating 5.5 5.4 5.3 5.0 income decreased -7.6%, as the bank’s 5.0 NII reduced, largely on the back of
4.5 decline in L&A (-0.7% QoQ)
4.0 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 8 4 NIM Compressed for the Third Consecutive quarter
Yield On Credit Net Interest Margin (Quarterly Annualized) (%,Quarterly Annualized) KEY TAKEAWAYS
6.8% 6.7% 6.1% 5.5% 5.3% NIM fell by 3 bps to reach 3.02%, the 3.48 3.49 lowest level in past several quarters Persistent decline in yield on credit (-19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 bps QoQ in Q3’20) has been the major factor impacting NIM during this year Loan-to-Deposit Ratio (LDR) x 86.3% 86.7% 86.9% 3.23 84.6% 83.4% –
Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 3.05 3.02
Cost of Funds (Quarterly Annualized)
1.1% 1.0% 0.9% 0.6% 0.5%
Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Note: Relation between elements above represents a functionality and not necessarily an exact mathematical formula Source: Financial statements, Investor presentations, A&M analysis 9 4 NIM of Most of the Banks Remained Broadly Unchanged Broadly Remained Banks the of Most of NIM Source: Financial statements, investor presentations, A&M analysis A&M presentations, investor statements, Financial Source: add up might due to numbers Some Note: rounding not 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 - Net Interest Margin (%, Quarterly) (%, Margin Interest Net Improved NCB 3.08 0.03 3.12 RJHI Stable 4.09 0.04 4.13 Worsened RIBL - 2.97 0.2 2.77 SAMBA - 2.08 0.1 1.98 SABB - 2.91 0.3 2.64 BSFR Q2’20 2.65 0.2 2.82 ARNB - 0.01 2.70 Q3’20 2.69 ALN 3.29 0.01 10
3.30 Q2’20 Av SIBC - 2.42 0.1 2.31 BALB 0.02 3.88 Q3’20 Av 3.90 3.1% 3.0% KEY TAKEAWAYS unchanged during Q3’20 unchanged during broadlyremained BALB and ALINMAANB, ALRAJHI, NCB, for NIM increase highest the reported QoQ) bps (+17 other hand, BSF the On respectively bps, 20 and bps 27 of NIM in decline RIBLand SABB reported highest 5 Aggregate Operating Efficiency Improved for the Third Consecutive Quarter
Improved Stable Worsened
Quarterly Operating Expenses Cost to Income Ratio (SAR Bn) (%, Quarterly Annualized) KEY TAKEAWAYS
9.1 38. 0% C/I ratio continued to decline for third consecutive quarter, by 0.6% points 8.5 8.5
37. 0% QoQ to 34.3% 8.3 36.8% 8.1 Though there is an increase in operating expenses (+4.6% QoQ), C/I
36. 0% ratio fell as operating income increased Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 at a quicker pace (+6.5% QoQ) 35.1% The C/I ratio now stands below the ÷ 35. 0% 34.9% average achieved in FY’19 (34.5%) Quarterly Operating Income (SAR Bn) 34.3% 34.3%
24.7 24.8 34. 0% 24.3 24.2 23.2
33. 0%
32. 0% Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 11 5 Deteriorated the Most for SABB for Most the Deteriorated it while NCB, for Most the EfficiencyImproved Operating *Comparison on QoQ on QoQ *Comparison basis analysis A&M presentations, investor statements, Financial Source: and some not add up due might to numbers Scaling rounding Note: Cost to Income Ratio (%, Quarterly) (%, Ratio Income to Cost Improved -
32.1 3.0
29.1 - Stable 34.0 0.5
33.5 Worsened - 31.8 0.2
31.5
31.3 0.6
31.8
41.8 4.9
46.8 Q2’20
31.7 1.3
32.9 - 1.3 35.9 Q3’20
34.5 - 38.3 1.6 12
36.7 Q2’20 Av
40.2 0.1
40.3 - Q3’20 Av
49.5 2.2
47.3 34.9% 34.3% KEY TAKEAWAYS fell ~8%, while costs increased ~3% increased costs while ~8%, fell income operating bank’s the as points, increased 4.9% ratio byC/I SABB’s expenses operating in QoQ 7% increase of points an despite 3.0% of ratio C/I improvement in highest the saw NCB ratio C/I the in decline a reported banks ten top the of Six 6 Coverage Ratio Deteriorated for the Fifth Consecutive Quarter
Coverage Ratio, % NPL / Net loans, %
1 Coverage Ratio and NPL / Net Loans Ratio (%, Quarterly) KEY TAKEAWAYS
Aggregate coverage ratio decreased to 145 143 2.5 2.0 250.0 1.8 180.0 2.5 7.0 138 140 141 136 141 350.0 161 166 140.0 133 158 140.0 132 1.8 1.5 306 1.6 160.0 150 150 126 144% (-4.2% points), while NPL / net 303 194 6.0 300.0 293 120.0 2.0 1.6 200.0 2.0 120.0 253 253 177 175 1.4 140.0 5.0 loan ratio increased slightly to 2.0% 1.4 164
250.0 100.0 1.2 120.0 1.5 100.0 1.9 1.0 1.0 1.5 1.4 1.9 1.9 1.5 1.1 1.2 150.0 143 1.4 1.4 1.5 1.1 4.0 1.8 1.8 1.0 100.0 200.0 80.0 1.0 0.9 80.0 0.9 0.8 1.0 3.2 RIBL’s coverage ratio declined at the 0.8 80.0 2.8 2.7 3.9 3.7 3.0 150.0 60.0 1.0 0.8 100.0 1.0 60.0
0.9 0.6 60.0 0.6 highest rate (-50.6% points), as NPLs 2.0 40.0 100.0 40.0
0.4 40.0
0.5 0.4 50.0 0.5
1.0 20.0 50.0 20.0 rose by ~51% 0.2 20.0 0.2 ------ On the other hand, ALRAJHI reported
Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 the highest increase in coverage ratio of 40.1% points 140.0 6.0 200.0 186 6.0 200.0 8.0 180.0 10.0 300.0 4.0 ANB’s NPL / net loan ratio increased 124
180.0 180.0 9.0 160.0 250 251 260 7.0 3.5 120.0 240 109 108 5.0 5.0 152 137 250.0 237 the most (+0.5% points), as the bank’s 160.0 160.0 148 8.0 102 103 143 140.0 136 140 6.0 3.0 100.0 140.0 140.0 121 7.0 4.0 123 4.0 121 125 120.0 110 112 200.0 NPL increased sharply by ~21% 5.0 101 2.5 120.0 120.0 6.0
80.0 2.8 104 100.0 2.7 3.0 100.0 3.0 100.0 4.0 5.0 150.0 2.0 2.8 4.2 80.0 3.9 4.0 3.9 60.0 3.1 80.0 2.1 80.0 4.0 1.4 3.0 2.8 2.5 3.0 1.2 1.3 1.4 1.3 1.5 2.0 2.0 2.1 60.0 100.0 60.0 60.0 2.1 2.5 3.0 40.0 1.4 2.6 1.9 1.9 2.0 1.0
2.1 40.0
40.0 40.0 2.0
1.0 1.0 50.0
20.0 1.0 0.5 20.0 20.0 20.0 1.0
------Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis, 1 accumulated allowance for impairment / NPL 13 6 Cost of Risk Reached Below Q4’19 Levels
Improved Stable Worsened
Quarterly Net Loan Loss Provisions Cost of Risk (SAR Bn) (%, Quarterly Annualized) KEY TAKEAWAYS 5.1 Cost of Risk decreased 49 bps QoQ to 4.1 1.28% 0.79% in Q3’20, due to decrease in 3.2 3.2 provisioning (primarily on account of 2.2 1.12% SABB’s provisions) Total provisioning decreased by 36.7% QoQ to SAR 3.2bn in Q3’20, continuing Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 0.83% its volatile trend 0.79% ÷ Gross L&A increased at a higher pace (+3.0% QoQ), compared to Q2’20 Average Gross Loans 0.62% (SAR Bn) 1,573 1,606 1,653 1,451 1,496
Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 14 6 SABB Reported Highest Decrease in Cost of Decrease Highest SABBRisk Reported Source: Financial statements, investor presentations, A&M analysis A&M presentations, investor statements, Financial Source: and some not add up due might to numbers Scaling rounding Note: Cost of Risk (bps) – (bps) Risk of Cost Improved - 103.9 58.7 45.2 Stable -
66.5 2.3
64.2 Worsened - Net of Reversals Net 129.7 28.3
101.5 - 122.4 56.7
65.8 - 322.7 310.0 12.8 Q2’20 182.0 85.6
267.6 - Q3’20 113.1 46.0
67.1
74.2 13.0 15
87.2 Q2’20 Av - 63.8 26.1
37.7 Q3’20 Av 91.4 2.0
93.6 128.1 79.2 KEY TAKEAWAYS the commercial portfolio commercial the provisioning in increased of back the (+85.6 on QoQ), largely bps risk of cost in increase highest the reported BSF risks of cost their improvementan in SAMBA reported also QoQ) bps (-56.7 Similarly, NCB (-58.7 and QoQ) bps Q2’20 in provisioning in increase strong a reported had bank cost of risk ( in decline highest the reported SABB 310.0 bps QoQ), as the the as QoQ), -310.0 bps 7 Aggregate RoE Increased, as Most Banks Reported Higher Profitability
Q2’20 Q2’20 Av Return on Equity (%) Q3’20 Q3’20 Av 24 KEY TAKEAWAYS
21 Combined RoE increased from 10.6% in Q2’20 to 13.2% in Q3’20
18 RoE for all banks increased except for BSF 15 BSF’s RoE decreased 4.0% in Q3’20,
13.2% compared to 5.2% in Q2’20, as the 12 bank’s net income fell ~24% QoQ
10.6% NCB reported the highest RoE at 9 22.5%
6
3
0 - 100 200 300 400 500 600
Asset Size (SAR Bn)
Source: Financial statements, Investor presentations, A&M analysis 16 7 KSA Banking Sector: Bearish Macroeconomic Outlook Could Impact Profitability KEY TAKEAWAYS
Improved Stable Worsened Aggregate RoE rose to 13.2% to reach its highest level since Q3’19 Op. Income / Assets (%) Non-Interest Income / Yield On Credit (%) Op. Income (%) Profitability was supported by
4.3 4.3 24.9 6.8 4.0 3.7 3.9 6.7 6.1 increased operating income 23.2 5.5 5.3 22.1 21.4 21.6 (+6.5% QoQ) and reduced Assets / Equity (x) provisioning (-36.7% QoQ)
6.8 6.9 6.8 While there has been an Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 6.4 improvement in profitability, the near 6.3 term outlook for domestic banks Cost / Income Ratio (%) Net Interest Margin (%) Cost of Funds (%) remains bearish Return on Equity* (%) 36.8 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 3.5 3.5 3.2 3.1 3.0 The Saudi government is set to cut 1.1 1.0 0.9 14.3 12.6 13.2 35.1 11.4 10.6 34.9 0.6 budget spending by 7.5% in 2021, 34.3 34.3 0.5 Return on Assets (%) which could have a spill-over effect in other sections of economy
2.2 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 1.8 Interest rates are likely to remain at 1.7 1.8 1.5 current record low levels, which Cost of Risk (%) LDR (%) could limit NII growth
1.3 86.9 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 86.7 1.1 86.3 However, strong capitalization levels 0.8 0.8 84.6 0.6 83.4 would provide some cushion against any material deterioration of the fundamental profile of banks Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Note: All the charts above are based on L3M numbers Op Income stands for Operating Income Scaling and some numbers might not add up due to rounding Source: Financial statements, Investor presentations, A&M analysis 17 GCC Banking Consolidation
GCC list of M&A transactions in banking sector since January 2019
Announcement Target % Consideration Target Company Acquirer Company Deal Status* Date Country Sought (SAR Mn) 16-Sep-20 Ahli United Bank Egypt SAE Egypt Ahli United Bank BSC 14.4% 304 Pending 30-Jun-20 Al Khalij Commercial Bank PQSC Qatar Masraf Al Rayan QSC 100% 4,492 Pending 25-Jun-20 Samba Financial Group SJSC Saudi Arabia National Commercial Bank SJSC 100% 58,397 Pending 31-Dec-19 Alizz Islamic Bank SAOG Oman Oman Arab Bank SAOC 81% NA Pending 12-Sep-19 Ahli United Bank BSC Bahrain Kuwait Finance House KSCP 100% 21,860 Pending 15-Aug-19 Cqur Bank LLC Qatar VTB Bank PJSC 19% NA Completed 08-Aug-19 DenizBank AS Turkey Emirates NBD PJSC 0.20% NA Completed 20-Jun-19 Warba Bank KSCP Kuwait Kuwait & Middle East Financial Investment Co KSCP 75.70% NA Proposed 12-May-19 Gulf Bank KSCP Kuwait Alghanim Industries Ltd 16% NA Completed 21-Apr-19 HSBC Saudi Arabia Ltd Saudi Arabia HSBC Holdings PLC 2% 31 Completed 10-Apr-19 Invest bank PSC UAE Emirate of Sharjah United Arab Emirates 50% 1,009 Completed 07-Apr-19 Noor Bank PJSC UAE Dubai Islamic Bank PJSC 100% NA Completed 03-Apr-19 Oman United Exchange Co Oman Private Investor 25% NA Completed 15-Mar-19 Banque Saudi Fransi Saudi Arabia Olayan Investments, Ripplewood Advisors LLC 5% 1,641 Completed 29-Jan-19 Union National Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% 11,762 Completed 29-Jan-19 Al-Hilal Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% NA Completed Source: Bloomberg *Proposed Status: Board suggests shareholders to consider the acquisition *Pending Status: Acquisition has announced *Completed Status: Acquisition has completed 18 GLOSSARY Glossary
Metric Abbreviation Definition Loans and Advances Growth QoQ growth in EOP net loans and advances for the top 10 Size Deposits Growth QoQ growth in EOP customer deposits for the top 10
Liquidity Loan-to-Deposit Ratio LDR (Net EOP loans and advances / EOP customer deposits) for the top 10 Operating Income Growth QoQ growth in aggregate quarterly operating income generated by the top 10
Operating Income / Assets (Annualized quarterly operating income / quarterly average assets) for the top 10
Non-Interest Income / (Quarterly non-interest income / quarterly operating income) for the top 10 Operating Income Income & (Aggregate annualized quarterly net interest income) / (quarterly average earning assets) for the top 10 Net Interest Margin NIM Operating Earnings assets are defined as total assets excluding goodwill, intangible assets, and property and equipment Efficiency Yield on Credit YoC (Annualized quarterly gross interest income / quarterly average loans & advances) for the top 10
(Annualized quarterly interest expense + annualized quarterly capital notes & tier I sukuk interest) / (quarterly average interest Cost of Funds CoF bearing liabilities + quarterly average capital notes & tier I sukuk interest) for the top 10
Cost-to-Income Ratio C/I (Quarterly operating expenses / quarterly operating income) for the top 10
Coverage Ratio (Loan loss reserves / non-performing loans) for the top 10 Risk Cost of Risk CoR (Annualized quarterly provision expenses net of recoveries / quarterly average gross loans) for the top 10
(Annualized quarterly net profit attributable to the equity holders of the banks – annualized quarterly capital notes & tier I sukuk Return on Equity RoE interest) / (quarterly average equity excluding capital notes) for the top 10 Profitability Return on Assets RoA (Annualized quarterly net profit / quarterly average assets) for the top 10
Return on Risk-Weighted Assets RoRWA (Annualized quarterly net profit generated / quarterly average risk-weighted assets) for the top 10
Capital Capital Adequacy Ratio CAR (EOP tier I capital + tier II capital) / (EOP risk-weighted assets) for the top 10
Note: LTM and EOP stand for last twelve months and end of period respectively 20 Glossary (cont’d.)
Bank Assets (SAR Bn)* Abbreviation Logo
National Commercial Bank 577.1 NCB
Al Rajhi Bank 430.3 ALRAJHI
Riyad Bank 308.6 RIBL
Samba Financial Group 289.6 SAMBA
Saudi British Bank 264.0 SABB
Banque Saudi Fransi 197.4 BSF
Arab National Bank 188.5 ANB
Alinma Bank 147.8 ALINMA
Saudi Investment Bank 98.3 SIB
Bank Albilad 92.3 BALB
Note: Banks are sorted by assets size * As on 30th September 2020 21