Earnings call transcript

4Q 2024 Earnings Call Transcript

4Q24 FINANCIAL RESULTS

EARNINGS CALL TRANSCRIPT

February 5, 2025

4Q 2024 Earnings Call Transcript

Sultan Altowaim

Head of Research, Al-Rajhi Capital

Good afternoon, everyone. This is Sultan Altowaim, from Al Rajhi Capital. We are pleased to host Al Rajhi Bank's Q4 2024 Earnings Call. Welcome, everyone, to this event. Without further ado, I will hand it to Mr Sulaiman Alquraishi, the Head of Investor Relations, to introduce the management team, please.

Sulaiman Alquraishi

Senior Director Investor Relations, Al-Rajhi Bank

Thank you, Dr Sultan. Good day, everyone, and thank you for joining the call. With us on the call today is our Managing Director and CEO, Mr Waleed Al-Mogbel, CFO, Mr Abdulrahman Al-Fadda, and Corporate Banking General Manager, Mr Hossam Al-Basrawi. As always, our CEO will start with the results highlights and strategy performance. Then, the CFO will cover the financial performance in more detail. Then, finally, we will open the floor for your questions. And, now, I'll hand over to Mr Waleed.

Waleed Almogbel

Managing Director and Chief Executive Officer, Al-Rajhi Bank

Thank you, Sulaiman. Welcome, everyone, and thank you for attending our earnings call for the fourth quarter of 2024. As always, we will start by taking you through our performance highlights and then followed by an overview of our performance on our strategy, Harmonize the Group 2026. Then, I will give the floor to our CFO to cover the details of financial performance. Now, let's take a closer look at our 2024 financial performance.

If we move to slide number three, please. For 2024 financial year, the bank delivered an exceptional performance, supported by our strategic initiatives and improved economic indicators that led to recording the highest annual net income since the bank's establishment. Starting with the balance sheet, we were able to deliver 21% growth year-on- year. The total assets increased to SAR 974 billion. The growth in the assets was mainly driven by the financing portfolio, which has grown by almost 17% year-on-year as well as the investment portfolio growing by above 31% year-on-year. The non-retail book grew by 31% year-on-year, supported by 32% growth in our corporate book and 30% growth in our SME book. In addition, mortgage recorded a growth of 14% year-on-year, and now the mortgage represents around 38% of our total book and 55% of our retail book.

If we look at the liability side, total liabilities stand at SAR 851 billion, an increase of 21% year-on-year, which brings our LDR to around 85.5%. Moving to the profitability side, the net income reached SAR 19.7 billion for 2024 financial year, higher by 19% compared to the last year 2023. Net yield income grew by 17% and non-yield income grew by 15%. This resulted in the total operating income increase of 16% for the 2024 financial year, and standing at SAR 32 billion. Talking about credit quality, we continue to maintain best-in-class asset quality, with the cost of risk standing at 32 bps compared to 25 bps in 2023. Additionally, NPLs stand at 76 bps, with a healthy coverage ratio of around 160%.

Moving on to key ratios, our market-leading cost to income ratio has improved and now standing at below 25% backed by our operating efficiency. Also, the bank maintained a strong financial position, with a healthy total capital ratio of 20% which is well above the regulatory minimum. Lastly, our net profit margin expanded to 3.13%, higher by 14 bps year-on-year, and that is due to continuous efforts to improve the cross-yield and optimise the cost of funding of the bank in the current rate environment.

4Q 2024 Earnings Call Transcript

If we move to slide number four to highlight the progress of our strategy execution. As you all know, 2024 was the first year of our strategy, Harmonize the Group, where the bank has performed across all its KPIs. Now, allow me to give you a highlight on the pillars of our strategy. We will start with the first pillar, which is B2C, business-to-consumer, where we focus on retail cross-selling. The product per customer portfolio has increased to around 42% since we introduced our strategy. Also, our sales growth from the target customers portfolio has witnessed a growth of 184% since 2023, which is a result of our continuous effort to expand our portfolio across existing and new segments. Having a great customer experience is an essential measurement that we assured to maintain, and now our current NPS score has reached 85 from 76 since 2023, making it one of the highest among the sector.

If we move to the second pillar, B2B, our corporate portfolio has continued its growth of 31% year-on-year, reaching more than SAR 218 billion as a result of our continuous effort to expand our corporate portfolio and focus more on the SME, which has grown by 30% since the end of 2023, and now it's representing 18% of our non-retail book and 6% of our financing book. Investment banking continues to be a significant revenue stream that the bank is focusing on, which has grown almost 120% compared to 2023.

Looking at our third pillar, support businesses, good progress has been made. Due to centralised and standardised capability, that increased by 22% since 2023, and that is coupled with a focus on becoming a cloud-ready bank. Additionally, we continue to enhance our efficiency through strengthening and improving our technology across the group, reflecting on process automation, which has grown by 27% in 2024. On the digital and data side, our best-in- class digital capability and our innovative offering supported us to be the bank of choice across the Kingdom for over 18.5 million customers from all businesses.

The bank continues to explore and improve solutions capturing further opportunities, such as open banking APIs, which have reached 218 by 2024, compared to 119 in 2023. Lastly, AI-driven activities are becoming significant for the bank. Revenue increase from data-driven marketing has risen by 180% in 2024, compared to 2023. By that, if you allow me, I will hand over to our CFO, Mr Abdulrahman, to give you a detailed update of our financial performance, and thank you so much.

Abdulrahman Alfadda

Chief Financial Officer, Al-Rajhi Bank

Thank you, Waleed. Good day, ladies and gentlemen. It is my pleasure to welcome you again to our Q4 earnings call. I'll go over the financial performance very quickly so that we can have further time during the Q&A session. Our total balance sheet reached almost SAR 970 billion in Saudi Arabia, a 21% increase year-on-year and 8% on a sequential basis. To analyse the 21% increase in our total assets year-on-year, as you can see on the bottom left-hand side of the chart, our investment book has increased by 31%, our financing book has increased by 17%. I will cover the details in the following slides. As far as the funding side, part of the management initiative, to continue to diversify funding sources in order to support growth coupled with optimising our cost of funds efficiently, we've increased our interbank borrowing by close to SAR 76 billion, we've increased our customer deposits by almost 10% year-on-year, and we will continue to further diversify our funding sources in order to support the growth plan for Al Rajhi Bank.

Zooming further into the main driver of our balance sheet movement, our total financing book stands at SAR 693 billion, a 17% increase year-on-year and almost 7% on a sequential basis. It is worth to highlight that our retail book represents almost 69% of our financing book. To analyse the 17% growth around the financing book, year to date, we have seen broad-based growth across all line items. Our mortgages have increased by 14%. Ex-mortgage, the retail book has grown

4Q 2024 Earnings Call Transcript

by 8%, which will bring the overall retail book growth to 11%. Corporate and SME have grown by 32% and 30% respectively.

The mortgage book stands at SAR 266 billion, which represents almost 55% of the retail book and almost 38% of our financing book. Our total customer deposits stand at SAR 628 billion, an almost 10% increase year-on-year, whereas CASA represents almost 73.4% as of December 2024. To analyse the movement of the 10% year-on-year on the customers' deposits, as you can see on the bottom right-hand side of the chart, we managed to grow our CASA by a healthy level of SAR 94 billion and, if you recall, we mentioned that some of those deposits are transitory, where we're expecting those to shift over the coming period. Having grown our CASA, coupled with an interbank increase, we managed to shed off close to SAR 41 billion of the time deposits in order to improve our cost of funds efficiently. Our investment book stands at SAR 175 billion, which represents almost 18% of the total assets. 80% of the book is Sukuk and Murabaha held with SAMA, close to 76% are fixed rate and, finally, 83% of the book is domestic.

If we move to the profitability section, our net income for Q4 stands at SAR 5.5 billion, a 32% increase year-on-year and 8% on a sequential basis. To analyse the sequential movement, as you can see on the bottom left-hand side of the chart, our yield income has grown by 8.5%, non-yield income, a drop of 11%, opex was almost flat, which brings the pre- provision profit to be 5% higher. NCLs were lower by almost 20% on a sequential basis. Our net income for the full year was at SAR 19.7 billion, a 19% increase year-on-year. And the drivers, as you can see on the bottom right-hand side of the chart, 17% growth in our yield income, almost 15% in our non-yield income., Opex was higher by 6%, which will bring the pre-provision profit to be 20% higher year-on-year, and Net impairment charges were almost 40% higher year- on-year.

To further zoom in, into the net income drivers, I will start with our operating income. Our operating income for Q4 was almost SAR 8.7 billion, 24% higher year-on-year and 4% on a sequential basis. Our operating income for the full year stands at SAR 32 billion, 16% higher year-on-year. And the drivers, as you can see on the top right-hand side of the chart, yield income was higher by 17%. This is due to the fact that our average earning assets were higher by 11%, coupled with a 14 basis point NIM expansion. Fees have shown a healthy growth of almost 11% year-on-year, exchange income, 4%, and other income by 55% due to the improvement that we've seen in all line items, mark-to-market of the Treasury book, also the contribution from our investment in associates. The NIM for 2024 was 3.13%, an almost 14 basis point expansion. The NIM expansion is driven by a 48 basis point expansion in our gross yield, offset by a 34 basis point increase in our cost of funds. And you can see the details on the bottom right-hand side of the chart that 14 basis point NIM expansion.

Our opex for Q4 was SAR 2 billion, almost 3% higher year-on-year and flat on a sequential basis. Our opex for the full period at SAR 8 billion is 6% higher year-on-year, and the driver of that mainly is on the depreciation line items. This is to support the balance sheet growth and the higher transaction amount where we've seen a 20%-plus increase year- on-year and, finally, the investment that we're making to execute and deliver the "2026 Harmonize the Group" strategy. The healthy delivery of 16% growth in our operating income, coupled with a 6% increase in our opex, that positive jaws helped us to further improve our cost to income ratio from 27.2% to 24.9%, i.e. a 240 basis point improvement in our cost to income ratio. Our impairment charge for Q4 is almost SAR 550 million, a 36% increase year-on-year and 20% lower on a sequential basis. Cost of risk stands at 32 basis point compared to 25 basis points in 2023. Our net impairment charge for the full year period is at SAR 2.1 billion, compared to SAR 1.5 billion. It's worth to highlight that our gross charges have increased by almost SAR 1.2 billion. However, that has been offset by a healthy improvement in our recovery, which we managed to increase by SAR 543 million in 2024.

4Q 2024 Earnings Call Transcript

Our NPL balance stands at SAR 5.3 billion, almost 24% higher year-on-year. And, as you can see on the top left-hand side of the chart, it's mainly coming from the non-retail book. Our NPL ratio stands at 76 basis point as of the year-end, a three basis point improvement compared to Q3, where we have seen an improvement in our corporate NPL that dropped by six basis point and also the retail book by four basis points. NPL coverage stands at a healthy level of 159%. Our ECL stocks stand at SAR 8.5 billion as of 2024. Our gross financing stands at SAR 700 billion-plus, where close to 97% of the book is Stage 1, compared to 96.5% in the same period in 2023, which shows you the healthy origination that we have delivered in 2024. Our stage coverage for Stage 1 is 37 basis points, for Stage 2 at 12%, and finally at Stage 3 at 54.8%, not a material movement compared to Q3 2024.

Our liquidity positions remain healthy and at a comfortable level where, although our headline LDR is at 106%, nevertheless our regulatory LDR is at 85.5%. LCR and NSFR are at a healthy level and above the minimum regulatory requirements. Our total RWA at 611-plus, an almost 18% increase year-on-year, mainly driven by the total asset growth that we have delivered in 2024. It is worth to highlight that our RWA density stands at a very healthy level of 62.8% as of the year-end. Our CET1 ratio, 16%, Tier 1 at 19.3% and, finally, our total capital at 20%-plus. We've seen a 111 basis point movement in our Tier 1 capital, as you can see on the bottom right-hand side of the chart, where the growth and our total balance sheet, coupled with the dividend declared in 2024, contributed to an almost 550 basis point drop in our capital ratio. Nevertheless, that has been offset by close to 360 basis points of internal capital generation, giving a very healthy delivery for 2024. We further improved the return metrics in 2024, where you can see our RWA at 3.50% compared to 3.26% in 2023, our ROE at 21%-plus, compared to 19.35 and, finally, our ROA at to 2.26% versus 2.12%.

Before I provide the guidance for 2025, it's worth to highlight a couple of points. The overall macro outlook for Saudi is still positive. IMF, you guys have seen that they have revised the GDP growth forecast for 2025 to be 3%-plus and 4%- plus in 2026. Consumer spending in 2024 has increased by almost 7.5% year-on-year. Credit demand is still healthy, given the transformation we've seen in the Kingdom. On the rate outlook, we've taken a conservative view where we're expecting one rate cut in the second half of 2025. Having said that, our guidance for 2025 is as follows; financing book to be high single-digit growth, NIM expansion of 5-15 basis points, our cost to income ratio to be below 24.5%, ROE to be above 21%, cost of risk in the range between 30 -40 basis points and, finally, Tier 1 ratio to be above 19.5%. Waleed, back to you.

Waleed Almogbel

Managing Director and Chief Executive Officer, Al-Rajhi Bank

Thank you, Abdulrahman, for the financial performance overview. We are proud of the progress made across all KPIs of our "Harmonize the Group" strategy, which helped us to achieve our strategic goal and exceptional results for 2024. Now, we will open the floor for the Q&A session. Operator, back to you.

QUESTION AND ANSWER SECTION

Operator: Thank you. We will now begin the Q&A session. As a reminder, if you would like to ask a question and you have joined the call via Webex, then please press the raise hand icon on your screen to ask an audio question, or submit a written question in the Q&A box. Alternatively, if you've joined us on the telephone, then please press star followed by one on your telephone keypad. Our first question today comes from Nida Iqbal, from Morgan Stanley. Nida, please go ahead.