Al Rajhi Bank's 2024 Net Income hits all-time high

By the end of 2024, Al Rajhi Bank achieved a record-breaking annual net income of SAR19.7bn, reflecting an 18.7% YoY growth. This robust performance was primarily fueled by a 16.4% increase in operating income compared to the previous year. The key contributors to this growth were a 16.8% rise in net financing and investment income, alongside a 15.2% increase in non-yield income.

Headquartered in Riyadh, Kingdom of Saudi Arabia, and listed on the Saudi Stock Exchange, Al Rajhi Bank, founded in 1957, operates as the largest Islamic bank in the world. Leveraging its extensive scale, the bank offers expertise across various sectors, including retail banking, corporate banking, SMEs, treasury, and international business. Al Rajhi Bank also boasts the largest distribution network in Saudi Arabia, with 512 branches, 4,420 ATMs, approximately 726,000 POS terminals, and 136 remittance centers.

Macroeconomic tailwinds

Saudi Arabia's economic outlook for FY25 remains optimistic, with GDP projected to grow by 3.3%, up from 1.3% in 2024, primarily driven by non-oil sectors. Consumer spending increased by 7.5% in FY24, indicating robust economic activity. Interest rates are anticipated to remain stable, with a potential reduction in late 2025, which could influence credit demand and deposits. The ongoing transition towards digital payments further bolsters the banking sector's outlook.

For FY25, Al Rajhi Bank anticipates high single-digit growth in financing, driven by corporate and mortgage lending. The net profit margin is expected to expand by 5-15 basis points, while the ROE is projected to exceed 21%. The cost-to-income ratio is forecasted to remain below 24.5%, ensuring operational efficiency, and the Tier 1 capital ratio is expected to stay above 19.5%.

Steady long-term growth

Over the past five years, Al Rajhi Bank has exhibited robust financial growth, solidifying its status as one of Saudi Arabia's premier banking institutions. Net financing and investment income experienced a CAGR of 8.0%, rising from SAR16.9bn in 2020 to SAR24.8bn in 2024, with a notable 16.8% YoY increase in the most recent year. This growth was driven by substantial loan expansion, an optimized funding mix, and enhanced pricing strategies.

The bank's NPM improved from 2.99% in 2023 to 3.13% in 2024, indicating increased profitability on earning assets. In addition to robust net interest income, Al Rajhi Bank experienced significant growth in non-interest income, reaching SAR7.21bn in 2024, with a 13.6% CAGR and a 15.2% YoY increase.

Al Rajhi Bank's net loan portfolio expanded significantly, achieving a 5-year CAGR of 17.0%, growing from SAR316bn in 2020 to SAR693bn in 2024, with a 16.7% YoY increase in 2024. This expansion was primarily fueled by mortgage lending, corporate financing, and SME banking. On the liabilities side, customer deposits increased from SAR393bn in 2020 to SAR802bn in 2024, marking a 19.7% YoY growth in the last year. Strong deposit growth, particularly in demand deposits, provided a stable, low-cost funding base, contributing to margin expansion.

Despite the rapid expansion of its loan book, Al Rajhi Bank maintained high asset quality. The NPL ratio increased slightly from 0.75% in 2020 to 0.76% in 2024, remaining one of the lowest in the market. However, the NPL coverage ratio declined from 203% in 2023 to 159% in 2024, reflecting a more normalized approach to credit risk.

The bank's capital position remained strong, with a Common Equity Tier 1 ratio of 16.0% in 2024, down from 18.0% in 2020 due to increased risk-weighted assets. Nevertheless, the Total Capital Adequacy Ratio remained robust at 20.2%, well above regulatory requirements. Liquidity was solid, with the Loan-to-Deposit Ratio improving from 78.8% in 2020 to 85.5% in 2024, while the Liquidity Coverage Ratio remained above 120%.

Compared to Saudi National Bank (SNB), Al Rajhi Bank outperformed in key profitability metrics in 2024. Al Rajhi's net income rose by 18.7% YoY to SAR19.7bn, while SNB's grew by 5.9% YoY to SAR21.2bn. Al Rajhi's NPM was 3.13%, higher than SNB's NSCI margin of 3.0%-3.2%, due to its retail-focused lending model. Despite SNB's larger asset base, Al Rajhi's growth in loans, deposits, and profitability was superior, with a lower NPL ratio of 0.76% versus SNB's 1.2%-1.5%.

High valuation

Al Rajhi Bank has delivered a robust return of 12% over the past 12 months, outperforming SNB, which recorded a negative return of -17% over the same period. In 2024, Al Rajhi Bank distributed an annual dividend of SAR2.71 per share, resulting in a dividend yield of 2.9%. The bank expects to increase its dividend per share to SAR 3.88 by 2027, raising the dividend yield to 3.9%, though still lower than SNB’s current dividend yield of 5.96%.

Al Rajhi Bank’s ROE has experienced significant fluctuations due to interest rate changes, credit risk, economic conditions, and regulatory shifts. However, ROE improved to 17.2% in 2024, marking a 111 basis points increase from 2023. The bank currently trades at a P/B ratio of 3.6x, slightly below its five-year historical average of 3.7x, while SNB trades at a much lower P/B ratio of 1.16x.

The proactive strategy and outlook along with the improvements in the existing performance portray Al Rajhi Banking and Investment Corporation to be in a strong position for the medium term and long run. The scale of operations along with the diversity in products also posts the bank to be in a stable position overall. However, market risks are inherent with the type of products offered, hence any adverse movement can cause a downward impact on the operational results. Global geopolitical challenges and regional repercussions could also create difficulties on an operational level and impact the positive consensus.