Saudi Arabia's largest Islamic bank, Al Rajhi Bank, delivered a solid set of second-quarter numbers, with net profit climbing 14% from a year earlier. But beneath the headline growth, the lender quietly signaled a more cautious stance on both loan expansion and credit quality, a nuance that investors and analysts were quick to note.
United Securities, a Saudi brokerage, kept its buy rating and SAR 75-per-share price target on the stock after reviewing the results. The firm said Al Rajhi's operating income came in broadly in line with expectations, while net profit slightly beat its own forecast.
What the numbers show
For the three months ended June 30, Al Rajhi reported operating income of 10.88 billion Saudi riyals, up 13.3% year on year. That helped drive attributable net profit to 7.01 billion riyals, a 14% increase from the same period last year.
The profit growth was largely driven by higher income from financing and investing activities, reflecting the bank's strong franchise in retail and corporate banking. However, the balance-sheet momentum looked more modest. On a year-to-date basis, net loans rose just 1.2% and deposits increased 3.2%.
That slower loan growth is partly why management trimmed its full-year loan growth guidance. The bank also nudged up its cost of risk range to 0.35%-0.45%, from a previous range that was slightly lower. Cost of risk is a measure of how much a bank expects to lose on its loans as a percentage of its total loan book. A higher range suggests the bank is bracing for slightly more credit losses, possibly due to a softer economic environment or a more cautious view on certain sectors.
Why the outlook tweak matters
For everyday investors, the key takeaway is that Al Rajhi is still highly profitable and growing, but it is not immune to the broader economic backdrop. Saudi Arabia's economy has been navigating lower oil prices and government spending adjustments, which can affect both consumer and corporate borrowing.
By trimming loan growth guidance, the bank is signaling that it does not expect demand for credit to accelerate sharply in the coming months. At the same time, raising the cost of risk range indicates that it wants to be prepared for a potential uptick in defaults, even if that does not materialize.
United Securities' decision to stick with its buy rating suggests the brokerage sees these moves as prudent rather than alarming. The bank's profitability remains strong, and its capital position is solid, which gives it room to weather any deterioration in asset quality.
What it means for investors
For holders of Al Rajhi shares, the steady earnings and maintained price target offer some reassurance. The stock has been a favorite among dividend-focused investors in the Gulf, and the bank's consistent profit growth supports that reputation.
However, the cautious outlook is a reminder that even the strongest banks face headwinds. Investors should watch whether loan growth picks up in the second half of the year and whether the cost of risk actually moves toward the higher end of the new range. A stable cost of risk would be a positive sign, while a rise could pressure margins.
Al Rajhi's results also come at a time when regional banks are navigating similar dynamics. The broader Gulf banking sector has been supported by high interest rates, but those rates are expected to start falling later this year or in 2025, which could squeeze net interest margins. Banks that can grow non-interest income and manage costs will be better positioned.
For now, United Securities' buy rating and SAR 75 target imply that the stock still has upside from current levels. But investors should weigh that against the bank's own more cautious tone on growth and credit.
As always, it is worth remembering that analyst ratings are just one input. Doing your own research and considering how the bank's outlook fits with your investment goals is essential.
