Alinma Bank is a Saudi Arabian-based financial services company that was formed in 2008. The company is one of the smallest listed companies in the stock exchange market when it comes to asset base. Alinma Bank (AB) has approximately 1,500 million shares being traded and they have a market capitalization of approximately fifteen billion Saudi Arabian Riyal (SAR). The Saudi Kingdom owns a 30.7 percent stake in AB while the remaining stake is held by the public through a recent IPO offering. The bank’s main area of business is in investment and banking services that are compliant with Shariah law. The company is also involved in securities trading through another subsidiary, Alinma Investment. Most of the bank’s services are offered through electronic services that include “104 branches (59 branches for men and 45 for women) in addition to 1022 ATMs in all regions of the Saudi Kingdom” (Google Finance 2016 par 1). The bank operates through different investments including the treasury, retail, corporate, brokerage, and investment. This paper is a report on AB and it includes the bank’s economic outlook, overall industry position, and its future prospects.
In the course of the last quarter of 2015, AB had indicated a significant increase in profitability. The company’s profits increased by 17.4 percent in the first quarter of 2015 an overall increase of about 3 percentage points. The bank’s growth rate managed to maintain positive growth in the midst of bleak forecasts occasioned by lower oil costs and diminished Gross Domestic Product (GDP). The bank’s “total operating income skyrocketed 21.7% compared to the same period last year and 1.25% compared to the fourth quarter of 2014 standing at SAR 730 mil-lion, while net investment and financing income rose by 7.21% YoY and 3.58% QoQ registering SAR 550 million” (Albilad Capital 2015 par 1).
The bank achieved an average growth in assets of approximately 25 percent in the year 2015 compared to the previous year. Customer deposits also grew to about SAR 90,203 million over the last year. The bank’s capacity for investment grew by 52.8 percent and it was mainly driven by growth in customers’ deposits. AB also managed to increase its loan portfolio to about SAR 55, 000 million in 2015 and this represents a growth of about 20 percent.
The main concern in the bank’s economic outlook is the falling share prices and the subsequent drop in GDP. Nevertheless, the last two quarters of 2015 indicated relative resilience in the bank’s performance in the low-oil prices’ environment. In 2014, the bank was facing uncertainty as a result of newly instituted consumer regulations. However, the bank was able to sustain growth amidst the new banking environment. AB is expected to maintain sustainable growth in the first quarter of 2016 due to its increased loan portfolio. On the other hand, the bank’s loan portfolio is expected to grow by about 18 percent by the end of 2016 due to increase in the rate of retail-operations and slowed growth in corporate loan. Overall, the bank is expected to grow by “30% in 2016, then growth will accelerate to 33% and 29% in 2017 and 2018 owing to the anticipated increase in interest rates and an eventual slowdown in total loans” (Lone 87).
In the course of 2014 and 2015, the Saudi banking industry managed to maintain profitability. Overall, the profits in the banking industry rose by 10.9 percent between 2014 and 2015. The increase in profits was mainly motivated by special commissions and bank charges and fees. For example, special commissions contributed to a 65 percent increase in the banking industry’s total operating income. By the end of 2015, the Saudi banking industry had achieved profits of approximately SAR 41.2 billion. In terms of assets, banks managed to drive up their total assets by 12 percent in 2015 to reach an asset-base of SAR 3,102 billion as compared to about SAR 1,988 billion in the previous period. Customer deposits also grew by a factor of 14 percent in the course of 2015. The growth in deposits exceeded the growth of the loan rates leading to a “slight decrease in loans to deposits ratio by 7 basis points to 78.97% compared with 79.04% in the previous year” (Albilad Capital 2015 par 4). Nevertheless, share capitalization within the banking industry rose by 11.8 percent.
Interest margins within the Saudi banking industry have continued to decrease. By the end of 2015, the industry had witnessed a reduction of 8 percentage points in interest rates in comparison with the rates in the previous year. The focus of most banks has been to increase the quality of their asset qualities thereby improving their loan portfolios (Tabash and Dhankar 369). The percentage of non-performing loans across the Saudi banking industry has reduced by 4 percent across the industry. There has been a slight decrease in the amounts of corporate loans that were issued by AB in the last twelve months. Nevertheless, the reduction in corporate loans has been automatically corrected by an increase in both customer deposits and retail loans. Overall, “savings deposits and other deposits increased by 5% and 8%, respectively” (Google Finance 2016 par 1).
Within the Saudi banking industry, the major shareholders were the National Commercial Bank (NCB), Riyadh Bank, Al-Rajhi, and Samba Bank. These banks currently hold “a 56 percent of the total assets of the sector, and 56% of total deposits, as well as 54% of the net bank loans” (Mahran 626). In 2015, the bank embarked on a path of profitability by posting a 17.4 percent increase in profits as compared with the previous trading period. The bank also managed to increase its operating income by a factor of 2 percent from 2014 to 2015. AB’s total asset base in 2015 stood at approximately SAR 84.5 billion up from 26.5 billion in the year 2010. This scenario makes AB the third smallest bank in Saudi Kingdom when it comes to asset-base.
Income Statement for Alinma Bank between 2014 and 2015. Table Source: (Albilad Capital online 2015).
|Income Statement (SAR mn)||Q1 2014||Q1 2015 *||Growth|
|Income from investing and financing||013||–||–|
|Return on time investment||,,||–||–|
|Income from investment and financing activities, net||315||335||2.7 %|
|Fees from banking services||0,||–||–|
|Currency Exchange income||,||–||–|
|Other operating income||80||–||–|
|Net operating income||055||255||71.2 %|
|Salaries and Employees Expenses||600||–||–|
|Rent and Premises Expenses||8,||–||–|
|Depreciation and amortization||0,||–||–|
|Other general and administrative expenses||10||–||–|
|Total Operating expenses||785||–||–|
|Charge for impairment of assets||80||–||–|
|Share of gain (loss) of an associate||( )8||–||–|
|Net income||795||533||12.3 %|
AB is one of the fastest growing banks in Saudi and its position has been solidified in terms of both industry and stock performance. its performance since 2010 has indicated that the bank is on a good growth trajectory (Al-Hassan, Oulidi, and Khamis 21). In future, the bank faces potential hurdles in form of low oil prices and the resulting low Saudi GDP.
Albilad Capital 2015. “Alinma banking and financial services”. Albilad Capital Online. Web.
Al-Hassan, Abdullah, Nada Oulidi, and May Khamis. “The GCC Banking Sector: Topography and Analysis.” IMF Working Papers 1.1 (2010): 1-45. Print.
Google Finance 2016. “Alinma Bank”. Google Finance Services. Web.
Lone, Fayaz. Islamic Banks and Financial Institutions: A Study of Their Objectives and Achievements, New York: Palgrave Macmillan, 2015. Print.
Mahran, Hatim. “Financial Intermediation and Economic Growth in Saudi Arabia: An Empirical Analysis 1968-2010.” Modern Economy 3.05 (2012): 626. Print.
Tabash, Mosab, and Raj Dhankar. “The Impact of Global Financial Crisis on the Stability of Islamic Banks: An Empirical Evidence.” Journal of Islamic Banking and Finance 2.1 (2015): 367-388. Print.