Brokerage FAB Securities has reaffirmed its bullish stance on Al Rajhi Bank, keeping a "buy" rating and a target price of SAR 78.00 after the Saudi lender reported a strong second-quarter performance. The bank posted a net profit of SAR 7.01 billion for the three months ended June 30, 2026, up 14% from the same period last year and slightly above FAB's own estimate.
Al Rajhi Bank, Saudi Arabia's largest Islamic lender by assets, continues to benefit from robust demand in both its core lending business and fee-based services. Net operating income rose 13.3% year on year to SAR 10.88 billion, roughly in line with the brokerage's forecast. The results come amid a backdrop of steady economic growth in the kingdom, supported by government spending and non-oil sector expansion.
Key Drivers Behind the Quarter
The profit growth was driven by higher net financing and investment income, as well as increased fees from banking services. Al Rajhi's Islamic financing model, which avoids interest-based transactions, has helped it maintain strong margins even as global interest rates fluctuate. The bank also saw growth in its retail and corporate lending portfolios, reflecting broader consumer and business confidence in Saudi Arabia.
Operating expenses rose, but at a slower pace than revenue, helping to protect profitability. Loan-loss provisions and profit shares paid to non-controlling interests were also manageable, according to FAB Securities. The brokerage noted that the bank's asset quality remains solid, with non-performing loans staying at low levels.
For context, Al Rajhi Bank is a key player in the Saudi banking sector, which has been consolidating and modernizing in recent years. The bank's performance is closely watched by investors as a bellwether for the broader economy, given its large retail and corporate customer base. Other Saudi firms have faced headwinds from rising costs, but Al Rajhi has managed to keep expenses in check.
What It Means for Investors
For everyday investors, FAB Securities' decision to stick with its buy rating signals confidence in Al Rajhi Bank's ability to sustain its growth trajectory. The SAR 78 target price implies potential upside from current levels, though investors should always consider their own risk tolerance and portfolio diversification.
The bank's strong quarter also highlights the resilience of Saudi Arabia's financial sector, which has benefited from government initiatives like Vision 2030 to diversify the economy away from oil. Higher oil prices in recent years have boosted government revenues, leading to increased spending on infrastructure and social programs, which in turn supports bank lending and fee income.
However, investors should be aware of risks. A slowdown in global economic growth could weigh on oil demand and prices, potentially affecting Saudi government spending and, by extension, bank profitability. Additionally, competition in the Saudi banking sector is intensifying, with new digital banks and fintech players entering the market. Similar dynamics have led to rating adjustments for other regional banks, though Al Rajhi's strong brand and customer base give it a competitive edge.
Broader Market Context
Al Rajhi's results come at a time when Gulf banks are generally reporting solid earnings, supported by higher interest rates and economic activity. The Saudi stock market, the Tadawul All Share Index, has been relatively stable, with banking stocks accounting for a significant portion of its weight. Investors are also watching for any changes in Saudi monetary policy, which is tied to the US Federal Reserve's rate decisions due to the riyal's peg to the dollar.
FAB Securities, based in the United Arab Emirates, is a well-known brokerage in the region, and its ratings carry weight among institutional and retail investors. The firm's decision to maintain its target price suggests it sees limited downside risk in Al Rajhi's shares, even after the stock's recent run-up.
For those looking to understand the broader investing landscape, Al Rajhi's performance also contrasts with some other regional companies that have struggled. For instance, Adani's ACC recently reported a sharp profit decline due to higher costs, highlighting the importance of sector-specific factors. In banking, however, Al Rajhi's results show that well-managed lenders can still deliver strong returns.
In summary, FAB Securities' reaffirmation of its buy rating on Al Rajhi Bank reflects a positive view on the bank's fundamentals and the broader Saudi economy. Investors should monitor upcoming quarters for any signs of slowing growth or rising costs, but for now, the outlook remains favorable.
