DUBAI: Al Rajhi Bank reported a slump in net profit for the first three months of 2014 yesterday, marking the second quarter in a row that Saudi Arabia’s largest listed lender has posted a big decline in earnings.
The bank made SR1.71bn in the three months to March 31, down 16.9 percent from SR2.05bn in the same period a year earlier, it said in a bourse filing. Analysts had expected the bank to post an average net profit of SR2.05bn for the quarter.
Al Rajhi said in the statement that the profit drop was due to an increase in operating expenses; it did not elaborate. Saudi companies issue brief earnings statements early in the reporting period before publishing more detailed results later.
An increase in operating expenses is usually interpreted by analysts to mean higher provisioning for bad loans. Naveed Ahmed, senior manager at Global Investment House, estimated Al Rajhi had posted a roughly 50 percent year-on-year increase in provisions. “We believe that the results were disappointing and that the bank’s asset quality requires more reading into,” he said in a research note.
Labour market reforms in Saudi Arabia, making it more expensive to hire foreign workers and therefore pushing up companies’ costs, have hurt the profits of construction firms and prompted some banks to increase their provisions for exposure to the construction sector. It was not clear whether this was a factor in Al Rajhi’s latest earnings decline.
The fourth-quarter net profit dropped 19.1 percent, which was also due to increased impairment allowances. The bank reported a drop in profits for the third quarter of last year, albeit a marginal one. The decline in first-quarter earnings at Al Rajhi contrasts with positive results reported by some other Saudi banks. Reuters
