SNB Capital expects Saudi banking sector to grow 9% from 2023

Iyad Ghulam, Head of Equity Research at SNB Capital

The Saudi banking sector is expected to achieve a year-on-year (YoY) growth rate of 8-9%, during the first quarter of 2024, buoyed by increased lending activity, enhanced profit margins, and steady deposit costs, Iyad Ghulam, Head of Equity Research at SNB Capital, told Argaam in an interview.

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He highlighted that some banks saw weaker profit in the fourth quarter of the previous year due to higher provisions.

The sector demonstrated robust and stable performance in 2023, particularly with a good growth in lending. The repricing of loans from the previous period started to reflect positively on profit, with noticeable improvements in net profit margins, especially in Q4 2023 and the current quarter.

Talking about the cement sector, Ghulam said SNB Capital anticipates prices to improve to SAR 180-190 per ton, compared to approximately SAR 140-150 per ton in the previous quarter. However, the rise in production costs and the decrease in demand may offset this positive development, he added.

Petrochemical Sector

Ghulam explained that the petrochemical sector faced challenges in the latter half of 2022 as prices and demand declined, resulting in significant hardships for companies. Nonetheless, the first quarter of 2024 saw price improvements of about 2-3% for most products, halting the downtrend.

Certain products benefited from supply chain disruptions in Europe due to the Red Sea crisis, leading to price hikes for products like mono ethylene glycol (MEG), used by Saudi Basic Industries Corp. (SABIC), Yanbu National Petrochemical Co. (Yansab), and Saudi Kayan Petrochemical Co., thus contributing to the better profit of these companies.

Additionally, Ghulam noted that SABIC Agri-Nutrients (SABIC AN), Sahara International Petrochemical Co. (Sipchem), and Advanced Petrochemical Co. will face profit pressures due to rising feedstock prices and periodic maintenance shutdowns.

Telecommunications Sector

Ghulam projected sales growth ranging from 3% to 6% for the Saudi telecommunications sector during the first quarter, driven by Arabian Internet and Communications Services Co. (solutions), which supports stc sales.

He acknowledged potential growth pressures due to the decrease in non-recurring earnings achieved by companies like Mobile Telecommunication Company Saudi Arabia (Zain KSA) and Etihad Etisalat Co. (Mobily), although he expects this impact to diminish.

Furthermore, Ghulam highlighted an increase in administrative expenses, anticipating continued pressure on growth prospects in the first quarte