Creating a summary using artificial intelligence. Summary: The combined profits of nine Saudi banks for the second quarter rose by more than 8%, exceeding 24 billion riyals, enabling most of them to surpass analysts' expectations, with varying sources of profit. A summary of the article is being created...

The combined profits of nine Saudi banks that announced their financial results for the second quarter rose by more than 8% year-on-year, exceeding 24 billion riyals, enabling most of them to surpass analysts' expectations, with varying sources of profit and their efficiency.

The strong performance of banks listed on the Saudi Stock Exchange (Tadawul) was not driven by a single factor. It was based on the continued growth of their financing portfolios, albeit at a slower pace for some banks, and an increase in financing income, in addition to the contribution of other revenue streams. A decline in provisions across the sector also provided additional support for profits, despite their increase at a number of banks.

Consolidated operating income rose by 8% to SAR 40.2 billion, driven by a 9% increase in financing and investment income, along with a 6% rise in non-financing income. Provisions also decreased by 7%, further supporting profit growth.

Al Rajhi Bank and the National Commercial Bank (NCB) led the sector's results, recording combined profits of SAR 13.61 billion, representing more than half of the total profits reported by banks up to Tuesday, thus maintaining their dominance in the banking sector's profitability.

Despite the results, the banking sector index on the Tadawul stock exchange declined by approximately 1.1% on Tuesday, pressured by the shares of Al Rajhi Bank and Alinma Bank, whose profits fell short of expectations.

This article examines the key factors in each bank's performance, along with an overview of the sector as a whole:

Al Rajhi leads growth... and shares decline. Despite the similar business structures of the Kingdom's two largest banks, Al Ahli and Al Rajhi, both relying on a broad base of low-cost deposits and investment portfolios predominantly focused on fixed returns, Al Rajhi achieved the highest quarterly profits among Saudi banks, recording SAR 7.01 billion, a year-on-year increase of nearly 14%, exceeding the average analyst forecast of SAR 6.84 billion compiled by Bloomberg.

This performance was supported by continued growth in net financing and investment income, despite a slowdown in financing portfolio growth to its lowest pace since the fourth quarter of 2018 and an increase in credit loss provisions. Growth in non-financing revenues, primarily banking service fees, offset the impact of higher operating expenses and provisions, allowing the bank to maintain a strong pace of profit growth.

Demand deposits constitute approximately 66% of the bank's total deposits, and these do not pay interest, thus mitigating the impact of higher savings deposit costs. Fixed-income instruments represent about 74% of its total investment portfolio, supporting the stability of financing and investment revenues.

Despite this, the bank's stock fell by approximately 1.8% at the close of trading, its largest decline since April 23, according to Bloomberg data, closing at SAR 64 per share.

Analysts at investment bank EFG Hermes described Al Rajhi's results as "mixed," pointing to a slowdown in loan growth and a decline in net interest margin on a quarterly basis, contrasted with the "main positive factor" of cost containment.

Hussein Al-Raqeeb, founder and director of "Zad Consulting Center," believes that the stock's decline is due to the fact that "investors are not only looking at current profits, but are also focusing on the bank's ability to continue growing in the future. Deposits and loans are the main drivers of bank profit growth; therefore, any slowdown in their growth may negatively affect revenues and profits in the coming periods."

Al Ahli Capital analysts noted in their initial review of the results the strong growth in banking services items, which offset the increase in provisions that exceeded expectations.

Al Ahli Bank Boosts Profits Despite Provision Pressure: Al Ahli Bank's profit growth in the second quarter was slower than Al Rajhi Bank's, as higher provisions for credit losses limited its ability to fully capitalize on growth in operating income.

Net profit at Al Ahli Bank rose 7.6% to approximately SAR 6.6 billion, compared to SAR 6.14 billion during the same period last year. This profit growth was supported by an 11.3% increase in operating income, driven by growth in net special commission income and higher investment gains and income, which offset the significant increase in expected credit loss provisions.

Demand deposits constitute about two-thirds of the bank's total deposits. These deposits do not pay interest, thus mitigating the impact of higher costs for time and savings deposits on profit margins. Fixed-income instruments represent approximately 78% of the bank's total investment portfolio, supporting the stability of financing and investment income.

Commenting on the results, analysts at investment bank CI Capital said that the National Commercial Bank (NCB) offers "high-quality exposure to both the corporate and retail sectors, while maintaining its second-place ranking in SME lending." They also described the bank as one of the most "defensive names in the sector given the current dynamics."

The bank's stock rose 0.6% at the close of trading to SAR 38.8, its highest level since July 7.