#1& M Saudi Arabia Banking Pulse Quarter 3, 2021 ALVAREZ & MARSAL BEC 6686E WILD YAR na AND 138 817 140 ADH WE 211 842 20% Fm WITH FAR TO TO 221 9 IN ST FA BUT 止 1134 SEY SAY VIE#2FOREWORD Alvarez & Marsal Middle East Limited (A&M) is delighted to publish the Q3'21 edition of the Kingdom of Saudi Arabia (KSA) Banking Pulse ("The Pulse"). In this quarterly series, we share results from our research examining the top ten largest listed KSA banks by assets, and highlight key performance indicators of the KSA banking industry. The Pulse aims to help banking executives and board members stay current on industry trends. L&A and deposits of top KSA banks increased by 2.8% and 1.2% QoQ, respectively. Operating income increased by 2.9% QoQ while the overall efficiency for the banking sector remained stable during the quarter, as witnessed by a marginal increase in cost-to-income ratio by ~6bps in Q3'21. Cost of risk decreased by ~50bps, largely due to lower provisioning by banks. Asset quality improved as NPL/Net Loan ratio decreased from 1.8% in Q2'21 to 1.7% in Q3'21, whereas coverage ratio increased to 158%. The Saudi Arabian economy is expected to recover strongly in 2021-2022 with IMF forecasting GDP growth of 2.8% (2021) and 4.8% (2022), driven by recovery in global demand for oil, easing of pandemic curbs and oil producers' agreement to boost output. Digitalization of the banking sector along with government reforms is expected to provide growth opportunities for the banks. We hope that you will find our latest edition of the KSA Banking Pulse useful and informative. 2 M Disclaimer: The information contained in this document is of a general nature and has been obtained from publicly available information plus market insights. The information is not intended to address the specific circumstances of an individual or institution. There is no guarantee that the information is accurate at the date received by the recipient or that it will be accurate in the future. All parties should seek appropriate professional advice to analyze their particular situation before acting on any of the information contained herein#3Co-authors Asad Ahmed Co-Author, Managing Director Head of ME Financial Services 30+ years of experience in banking Focuses on performance improvement, turn-around, credit management, and formulating and managing strategic and operational changes in financial institutions Former CEO of banks in the UAE & Kenya • Tariq Hameed Co-Author, Senior Director EMEA Financial Services 25+ years experience in financial services, consulting and real estate sectors across multiple markets Key focus and current experience is in developing and implementing transformation and performance improvement programs for financial services sector, particularly in digital transformation, real estate finance, retail banking, development finance and transaction banking CONTACT DETAILS [email protected] Phone: +971 4 567 1065 3 ALVAREZ & MARSAL#4Saudi Arabia macro & sector overview KSA GDP Growth Rate¹, % 2.4 0.3 2018 2019 (4.1) 2020 4.8 2.8 2.8 2021F 2022F 2023F US Fed Funds Rate², SAIBOR % 0.6 0.6 0.5 0.5 0.6 0.3 0.3 0.3 0.3 0.3 Q1'21 Q2'21 Q3'21 ■US Fed rate movement Overnight SAIBOR KSA Money Supply³. (%, Quarterly) Q3'20 Q4'20 2.1 Q1'21 0.5 1.8 Q2'21 0.8 -0.7 0.2 Q3'21 1.1 Macro overview • • In October'21, IMF increased its 2021 growth projections for the nation's GDP to 2.8% from the June'21 forecast of 2.4%, due to faster recovery from the COVID-19 crisis Saudi Arabia's average PMI for Q3'21 increased to 56.2 compared to 56.0 for Q2'21, due to a sharp rise in business activity and new work The Saudi Central Bank has extended their Deferred Payment Program for SMEs for an additional three months, until the end of 2021 In October'21 the US Fed officials stated plans to start reducing the pace of its monthly asset purchases as soon as mid-November'21. In Sep'21, the US Fed held interest rates steady • Overnight SAIBOR rose by 0.57 bps QoQ to 0.55% at the end of Q3'21 • • . Fitch retained the outlook on all Saudi banks' long-term issuer default ratings to "stable" in Q3'21, to reflect reduced pressure on the operating environment and a stable outlook on the sovereign rating In Q3'21, M2 money supply growth stood at 0.2% QoQ, and 5.7% YoY to reach SAR 2.0tn Growth in M2 money supply was primarily driven by 3.3% QoQ increase in Time & Savings deposits to SAR 0.5tn which was partially offset by 0.5% decrease in Demand deposits to SAR 1.3tn M1 decreased by 0.7% QoQ to SAR 1.5tn, while M3 money supply grew 1.1% QoQ to SAR 2.3tn Banking overview Q3'21 KSA Banks L&A and Deposits4, %* 2.8 3.3 2.1 2.3 Q3'20 Q4'20 ■L&A % QoQ 5.0 Q1'21 13.12.6 2.8 2.2 1.2 Q2'21 Q3'21 ■Deposits % QoQ KSA Banks' Profitability4, %* 33.5 27.1 11.2 3.2 (0.9) (0.4) (0.2) (8.2) (15.6) Q3'20 Q4'20 20.2 Total loans & advances (L&A) of top ten KSA banks grew by 2.8% QoQ in Q3'21, and deposits grew by 1.2% QoQ in Q3'21 L&A (ex-SNB) grew by 3.8% (-1.4 % points QoQ) in Q3'21 while the deposits (ex-SNB) grew by 1.6% (-2.7 % points QoQ) The growth in aggregate L&A is supported by momentum in retail mortgages and growth in lending in manufacturing and commerce sectors, as the economy opens up post-pandemic Total interest income increased by 3.2% QoQ in Q3'21 after increasing by 11.2% in previous quarter Aggregate profitability increased by 20.2% QoQ in Q3'21, as compared to a decline of 8.2% QoQ in Q2'21 Interest Income % QoQ ■Net Income % QoQ KSA Banks' Profitability4, %* 13.5 LLLLL Return ratios have increased with economic activity returning back to normal after the pandemic Return on equity (ROE - Q3'21 annualized) increased by ~86bps QoQ to 12.0% Similarly, return on assets (RoA - Q3'21 annualized) increased by 19bps to 1.8% in Q3'21 from 1.6% in Q2'21 1.8 ■M1 M2 ■M3 3 1 IMF forecast, 2 US Board of Federal Reserve, ³ Saudi Central Bank,, 4 Company Financials, "Data for top ten KSA banks by asset size as of September 30th 2021, QoQ stands for quarter over quarter, net income excludes the gains on deemed disposal of asset reported by Bank Aljazira in Q2'21 4 ■ROE % ■ROA % ALVAREZ & MARSAL#5Pulse: Muted growth in L&A and deposits as the merger effects wear off; Higher profitability due to lower impairments support return ratios Improved Stable Worsened Metric Q2'21 Q3'21 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Key Trends of Q3'21 L&A Growth (QoQ) 13.1% 2.8% Size Deposits Growth (QoQ) 12.6% 1.2% Liquidity Loan-to-Deposit Ratio (LDR) 90.0% 91.5% Operating Income Growth (QoQ) 8.4% 2.9% Operating Income / Assets 3.9% 3.7% 1 2 LDR increased to 91.5%, driven by higher growth in loan book relative to deposits 3 Growth in operating income increased to 2.9%, supported by 3.5% QoQ rise in net interest income With the economic activity in recovery phase, L&A and deposits grew marginally by 2.8% and 1.2% QoQ, respectively Non-Interest Income (NII) / Operating Income 23.1% 22.6% Income & Operating Yield on Credit (YoC) 5.2% 5.0% Efficiency Cost of Funds (CoF) 0.4% 0.4% Net Interest Margin (NIM) 3.1% 3.0% Cost-to-Income Ratio (C/I) 35.1% 35.2% LO 5 Coverage Ratio 155.6% 157.7% Risk 6 Cost of Risk (COR) 1.0% 0.5% Return on Equity (ROE) 11.1% 12.0% NIM, yield on credit and cost of funds remained stable on QoQ basis C/I ratio deteriorated marginally by ~6 bps QoQ to 35.2% in Q3'21, as operating expenses rose by 3% QoQ, driven by higher salary and rental expenses Coverage ratio increased 214 bps QoQ, while the cost of risk declined by ~50 bps QoQ RoE and RoA increased marginally as the aggregate profit for the top 10 banks increased 20.3% QoQ Profitability Return on Assets (ROA) 1.6% 1.8% Return on Risk-Weighted Assets (RoRWA) 2.1% 2.4% 7 8 RoRWA increased and in line with higher net income, moreover capital adequacy ratio also rose by 19 bps Capital Capital Adequacy Ratio (CAR) 19.8% 19.8% Note 1: Growth in loans & advances and deposits were presented QoQ instead of YoY Note 2: Quarterly income was used in the calculation of operating income growth Note 3: The growth numbers might not be comparable due to higher growth in Q2'21; given the SNB merger effect Source: Financial statements, Investor presentations, A&M analysis 5 ALVAREZ & MARSAL#6Higher net interest income and lower impairments supported net income growth Net income bridge - SAR Bn 11.04 (2.06) (0.23) 0.71 0.01 0.00 (0.28) 13.28 KEY TAKEAWAYS Aggregate net income increased 20.3% QoQ to SAR 13.3bn • Higher net interest income (+3.5% QoQ) and lower impairments (-44.3% QoQ) boosted net profit • Impairments decreased substantially after it spiked in Q2'21 due to higher reported impairments by SNB (+8.6x QoQ) due to merger ■ SNB reported impairments of SAR 0.7bn in Q3'21 compared to SART 2.4bn in Q2'21 The increase in net profit was partially offset by higher operating expense (+3.0% QoQ) and increase in tax expense (+15.6% QoQ) Q2'21 Net interest income Net fee & commission income Other operating income Operating Impairments Taxes expenses Q3'21 Source: Financial statements, Investor presentations, A&M analysis 6 ALVAREZ & MARSAL#71 ALRAJHI outperformed its peers on L&A and deposits growth performance L&A Growth QoQ (%) 9.0 Gained Financing MS 8.0 7.0 6.0 5.0 4.0 3.0 2.8 2.0 مصرف الإنماء alinma bank 1.0 0.0 -10.0 SABB Lost Deposits & Financing MS -8.0 -6.0 ساب بنك البلاد Bank Albilad العربي anb بنك الرياض riyad bank SNB البنك السعودي الفرنسي Banque Saudi Fransi Gained Deposits & Financing MS مصرف الراجحي - بنك الجزيرة BANK ALJAZIRA Al Rajhi Bank Q2'21 Av Gained Deposits MS KEY TAKEAWAYS L&A of the top ten banks increased by 2.8% QoQ in Q3'21, while deposits grew by 1.2% in Q2'21 ■ L&A (ex-SNB*) grew by 3.8% (-1.4% points) in Q3'21, while deposits (ex- SNB*) grew by 1.6% (-2.7% points) • ALRAJHI reported L&A growth of 7.9%, while deposits grew by 6.9% ■ L&A growth was driven by 9.3% QoQ increase in retail loans, while deposits grew due to 29.4% QoQTT increase in time deposits ALINMA reported 7.3% QoQ decrease in deposits, mainly due to 12.3% QoQ fall in time deposits البنك السعودي للاستثمار The Saudi Investment Bank -4.0 -2.0 0.0 1.2 2.0 4.0 Note: MS stands for market share, (*) Q2/past growth were not comparable Source: Financial statements, Investor presentations, A&M analysis 7 6.0 8.0 Deposits Growth QoQ (%) ALVAREZ & MARSAL#82 All major banks, except SNB and BJAZ, reported an increase in LDR Loans-to-Deposits ratio (%) 110 105 100 95 95 مصرف الإنماء alinma bank البلك السعودي الفرنسي Banque Saudi Fransi بنك البلاد Bank Albilad البنك السعودي للاستثمار 90 The Saudi Investment Bank 85 55 60 80 بنك الجزيرة BANK ALJAZIRA 75 70 70 0 100 العربي anb 200 Note: The green zone is an area of healthy liquidity Source: Financial statements, A&M analysis SABB بنك الرياض riyad bank ساد مصرف الراجحي Q2'21 Q3'21 Q2'21 Av Q3'21 Av Al Rajhi Bank SNB 300 400 500 600 700 800 8 900 1000 Total Asset (SAR Bn) 91.5% 90.0% KEY TAKEAWAYS Aggregate LDR increased from 90.0% in Q2'21 to 91.5% in Q3'21 • ALINMA reported the highest increase in LDR (+9.0% points QoQ) BJAZ (-1.8% QoQ) and SNB were the only banks that reported fall in LDR during Q3'21 (-0.1% points QoQ) ALVAREZ & MARSAL#93 Aggregate operating income increased for the fifth consecutive quarter Improved Quarterly NII (SAR Bn) Stable Worsened 11.1% -0.3% 1.7% 18.2 18.2 17.9 20.9 3.5% 20.2 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 + Quarterly net fee commission and other operating income (SAR Bn) 5.2 11.1% 6.1 6.1 0.7% 6.1 0.2% 5.7 5.6% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Quarterly operating income (SAR Bn) Note: Some numbers might not add up due to rounding, (*) Q2/past growth were not comparable Source: Financial statements, investor presentations, A&M analysis 8.4% 24.2 24.0 1.2%, 23.1 3.7% 27.0 26.3 2.9% Q3'21 KEY TAKEAWAYS • Total operating income increased by 2.9% QoQ ■ Total operating income (ex-SNB)* increased by 2.4% QoQ in Q3'21 compared to 1.6% in Q2'21 BSF's operating income increased the highest (9.1% QoQ), supported by higher net interest income and higher gains from sale of investments RIBL reported a 5.4% QoQ fall in operating income due to 7.7% decrease in net interest income Aggregate interest income recorded 3.2% QoQ rise, while fee income remained stable with 0.4% QoQ increment Q3'20 Q4'20 Q1'21 Q2'21 9 ALVAREZ & MARSAL#104 NIM declined to multi-period lows in Q3'21 Yield on credit (Quarterly annualized) 5.4% 5.3% 5.2% 5.1% 5.0% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Loan-to-Deposit Ratio (LDR) X 91.5% 89.7% 90.0% 88.1% 87.2% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Cost of Funds (Quarterly annualized) 0.5% 0.4% 0.4% 0.4% 0.4% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Net Interest Margin (%, quarterly annualized) 3.15 3.12 3.02 3.12 Ill 3.01 KEY TAKEAWAYS NIM deteriorated by 11 bps QoQ to reach 3.01% after the sector-wide margin bounced back from its multi- period lows last quarter Yield on credit decreased by 22 bps QoQ, while cost of funds remained flat QoQ at 0.4% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Note: Relation between elements above represents a functionality and not necessarily an exact mathematical formula Source: Financial statements, Investor presentations, A&M analysis 10 ALVAREZ & MARSAL#113.35 2.98 3.95 3.82 -0.37 2.77 2.51 Improved Stable Worsened Net Interest Margin (%, Quarterly) 4 Major banks have reported contraction in NIM; Aggregate NIM contract by 11 bps مصرف الراجحي SNB Al Rajhi Bank riyad bank ساب SABB بنك الرياض -0.14 2.28 2.19 Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis Q2'21 Q3'21 - Q2'21 Av Q3'21 Av 0.34 -0.01 0.02 0.11 0.25 0.12 -0.26 -0.09 +3 Banque Franal 2.63 2.75 2.60 2.85 3.10 3.44 بنك البلاد مصرف الإنماء alinma bank Bank Albilad العربي anb 11 3.30 3.33 2.47 2.46 البنك السعودي للاستثمار 2.72 2.84 The Saudi Investment Bank BANK ALJAZIRA بنك الجزيرة KEY TAKEAWAYS Major banks have reported contraction 3.12% 3.01% in NIM with aggregate NIM decreasing by 11 bps QoQ SNB (-37 bps QoQ) and RIBL (-25 bps QoQ) reported the highest fall in NIM during the period On the other hand, NIM for ALMINA (+34 bps QoQ) and ANB (+25 bps QoQ) expanded the most in Q3'21 ALVAREZ & MARSAL#125 Operating efficiency of KSA banks remained stable during the quarter Improved Stable Worsened Quarterly operating expenses (SAR Bn) 8.6 -5.1% 8.1 5.2% 8.1 Cost-to-Income ratio (%, quarterly annualized) 9.5 3.0% 9.2 13.7% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Quarterly operating income (SAR Bn) 27.0 26.3 23.1 3.7% 24.0 1.2% 24.2 8.4% 2.9% + 35.2% 35.7% 33.5% 35.1% Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q3'20 Q4'20 Q1'21 Q2'21 Note: Some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 12 KEY TAKEAWAYS 35.2% • C/I ratio remained broadly stable with a marginal increase of 0.2% QoQ to 35.2%, driven by: ■ Higher growth in operating expense (+3.0% QoQ), while the operating income grew by 2.9% QoQ The operating efficiency for SABB (+4.9% points QoQ) and ALINMA (+4.4% points QoQ) deteriorated the most, largely driven by: Increase in the operating expense for SABB (+11.1% QoQ) and ALINMA (+18.7% QoQ) Q3'21 ALVAREZ & MARSAL#1335.7 35.3 -0.4 27.3 26.7 34.0 Improved Stable Worsened 5 Operating efficiency deteriorated substantially for SABB, ALINMA and BJAZ Cost-to-Income ratio (%, Quarterly) 35.8 -0.6 مصرف الراجحي SNB Al Rajhi Bank riyad bank بنك الرياض ساب SABB 42.7 47.6 Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis *Comparison on QoQ basis السعو دين الخر العيدي 1.8 35.8 31.8 4.9 38.6 37.2 Q2'21 Q3'21 - Q2'21 Av Q3'21 Av -4.0 -1.4 4.4 31.5 35.8 بنك البلاد مصرف الإنماء alinma bank Bank Albilad العربي anb 13 46.9 45.2 42.5 44.8 3.1 -1.8 2.3 52.8 49.7 البنك السعودي للاستثمار بنك الجزيرة The Saudi Investment Bank BANK ALJAZIRA 35.2% 35.1% KEY TAKEAWAYS Five of the top ten banks witnessed deterioration in cost-to-income ratio • C/I ratio for SABB deteriorated by 4.9% points QoQ due to higher salaries and rental expenses, along with a fall in net interest income (-4.1% QoQ) C/I ratio for ALINMA deteriorated as well (+4.4% QoQ), driven by higher general and administrative expense BSF's C/I ratio improved the most by 4.0% points, as the operating costs decreased by 3.1% QoQ while operating income rose by 9.1% QoQ ALVAREZ & MARSAL#146 19 Coverage ratio and NPL / net loan ratio improved for most of the banks Coverage ratio, % NPL / net loans, % Coverage ratio¹ and NPL / net loans ratio (%, quarterly) مصرف الراجحي بنك الرياض 143 SNB 143 145 Al Rajhi Bank riyad bank 149 143 134 306 318 318 307 293 ساب SABB 135 130 125 126 133 124 143 132 132 103 3.9 3.5 3.4 3.3 124 124 124 126 3.0 2.8 2.9 2.8 2.7 2.6 2.0 1.8 1.8 1.7 0.8 1.9 1.5 1.6 0.8 0.7 0.7 0.7 1.9 1.5 1.6 العربي مصرف الإنماء anb alinma bank بنك البلاد البنك السعودي للاستثمار بنك الجزيرة Bank Albilad The Saudi Investment Bank BANK ALJAZIRA 172 140 146 178 115 133 299 123 151 160 179 107 124 177 104 99 114 1.3 1.3 1.3 3.9 170 280 121 3.6 3.5 159 1.2 3.1 2.9 260 2.6 2.6 2.3 2.3 2.4 2.1 260 259 1.1 2.1 2.0 2.0 1.9 154 2.3 2.6 2.5 2.4 1.5 Q3'20 Q4'20 Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis, 1 accumulated allowance for impairment /NPL 14 KEY TAKEAWAYS Asset quality improved further as NPLs/ net loan ratio decreased to 1.7% in Q3'21 compared to 1.8% in Q2'21 Aggregate coverage ratio increased to 157.7% (+2.1% points QoQ) All the banks except SNB and ALRAJHI reported increase in coverage ratio SNB and ALRAJHI's coverage ratio decreased by 14.5% points and 10.6% points, respectively in Q3'21 SNB's coverage ratio declined due to decrease in impairment allowance (- WT T 2.8% QoQ), while the NPL for retail and corporate sector increased On the other hand, SABB reported the highest increase in coverage ratio by 11.3% points to 143.1% SABB's NPL/net loan ratio improved the most (36.6bps) to 3.0%, while ALRAJHI reported the best asset quality with NPL/net loans at 0.7% ALVAREZ & MARSAL#156 Cost of risk improved substantially with a decrease in total provisioning Improved Stable Worsened Quarterly net loan loss provisions (SAR Bn) 2.9 70.6% 5.0 4.6 -49.7% 81.5% -44.3% 2.5 2.6 Cost of risk (%, quarterly annualized) Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 0.77% Average gross loans (SAR Bn) 2.4% 1,551 1,588 5.0% 1,667 12.7% 1,879 2.8% 1,932 IIIII 1.28% 0.62% 1.03% 0.54% KEY TAKEAWAYS Total impairments decreased by ~44% in Q3'21 to SAR 2.6bn ■ The decrease (QoQ) is mainly due to a spurt in impairments of SAR 2.4bn booked by SNB in the previous quarter Current aggregate level of impairments is comparable to Q1'21 (+1.1%) and Q3'20 (-13.4% YoY) Aggregate impairments (ex-SNB) decreased by 16% QoQ in Q3'21 compared to -3.1% QoQ in previous quarter Cost of risk decreased by 50 bps to 0.54%, after it increased substantially in the previous quarter due to SNB merger ☐ Excluding the effect of SNB's higher provisions, the cost of risk improved by 11 bps QoQ Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 15 ALVAREZ & MARSAL#1656.7 ------ 219.6 -3.9 61.2 157.3 Improved Stable Worsened 6 Cost of risk improved for seven banks; SNB reported substantial decrease in cost of risk - Cost of risk (bps) – net of reversals -162.9 46.3 20.3 -3.0 البنك السعودي الشرعية ساب SABB بنك الرياض مصرف الراجحي SNB Al Rajhi Bank riyad bank 6.2 Note: Scaling and some numbers might not add up due to rounding Source: Financial statements, investor presentations, A&M analysis 3.1 74.8 80.0 5.2 ! 60.1 100.4 Dangus Fransl anb مصرف الإنماء العربي alinma bank Q2'21 Q3'21 Q2'21 Av Q3'21 Av -40.2 -22.4 89.6 112.0 بنك البلاد Bank Albilad 16 -1- 68.2 68.6 0.3 34.5 76.1 -41.5 البنك السعودي للاستثمار بنك الجزيرة The Saudi Investment Bank BANK ALJAZIRA 108.2 133.8 53.54 103.3 KEY TAKEAWAYS Cost of risk decreased for seven of the ten banks in Q3'21 • SNB reported the highest fall in cost of risk (162.9 bps QoQ) to 0.57% in Q3'21, driven by: ■ SNB reported impairments of SAR 0.7bn in Q3'21 compared to SAR 2.4bn in Q2'21 Impairments decreased substantially by 70% QoQ after it spiked in Q2'21, due to higher reported impairments by SNB following the merger BJAZ reported the highest increase in the cost of risk by ~26 bps to 1.3%, driven by ■ Significant increase in provisioning by 27.3% QoQ compared to last few quarters ALVAREZ & MARSAL#177 Aggregate RoE improved as major banks reported lower profitability Return on Equity (%) 30 25 20 20 بنك البلاد 15 Bank Albilad 10 5 بنك الجزيرة BANK ALJAZIRA مصرف الإنماء alinma bank البنك السعودد الفرنسي Banque Saudi Franci البنك السعودي للاستثمار The Saudi Investment Bank العربي anb بنك الرياض SABB riyad bank ساب. مصرف الراجحي Al Rajhi Bank 0 200 400 600 800 Source: Financial statements, Investor presentations, A&M analysis 17 Q2'21 Q3'21 Q2'21 Av Q3'21 Av ↑ SNB SNB 1,000 Asset Size (SAR Bn) 13.5% 11.0% KEY TAKEAWAYS ■ Combined RoE increased by 0.9% points QoQ to 12.0%, compared to decrease in the previous quarter BJAZ recorded the highest fall of 5.3% points QoQ to 2.4% in Q3'21 due to the bank's high impairment charges ■ SNB reported the highest growth among the 10 KSA Banks in RoE to 9.9% (+ 2.5% points QoQ) ALVAREZ & MARSAL#187 KSA banking sector: Extension of loan deferral program to continue providing cushion to banks Improved Stable Worsened Return on Equity* (%) Op. Income / Assets (%) Non-Interest Income / Op. Income (%) Yield On Credit (%) 3.9 3.9 3.9 3.9 3.7 22.3 Q3'20 23.9 24.9 Q4'20 23.1 22.6 Q1'21 Q2'21 Q3'21 5.4 5.3 5.2 5.1 5.0 Q3'20 Q4'20 Q1'21 Q2'21 Assets/Equity (x) 6.9 6.8 6.8 6.4 6.3 Cost / Income Ratio (%) Net Interest Margin (%) Cost of Funds (%) 35.7 35.2 35.1 35.2 3.2 3.1 3.0 3.1 0.5 3.0 12.8 13.5 10.4 11.1 12.0 Return on Assets (%) 1.8 1.9 1.8 1.6 1.5 Q3'20 33.5 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q3'20 Q3'21 0.4 0.4 0.4 0.4 Q4'20 Q1'21 Q2'21 Q3'21 KEY TAKEAWAYS • Aggregate RoE improved in Q3'21 to 12.0% from 11.1% in the previous quarter • SAMA has extended the loan deferral program till the end of 2021 ■ The outlook for cost of risk remains negative despite an extension of the loan deferral program, due to the possibility of increase in bad loans • Saudi Central Bank has already pushed for a move towards digital banking • Saudi Central Bank has announced the launch of the country's open banking framework, a step taken to diversify its financial service sectors, expected to go live in 2022 Note: All the charts above are based on L3M numbers Op Income stands for Operating Income Scaling and some numbers might not add up due to rounding Source: Financial statements, Investor presentations, A&M analysis 0.8 Cost of Risk (%) 1.3 Q3'20 Q4'20 Q1'21 0.6 1.0 0.5 Q2'21 Q3'21 18 88.1 Q3'20 Q4'20 LDR (%) 87.2 89.7 90.0 91.5 Q1'21 Q2'21 Q3'21 ALVAREZ & MARSAL#19GCC banking consolidation GCC list of M&A transactions in banking sector since January 2019 Announcement Date Target Company Target Country Acquirer Company % Sought Consideration (SAR Mn) Deal Status* 20-Jan-21 Bank Audi SAE (Egypt) Egypt First Abu Dhabi Bank PJSC 100% NA Completed 16-Sep-20 Ahli United Bank Egypt SAE Egypt Ahli United Bank BSC 14.4% 304 Pending 30-Jun-20 25-Jun-20 Al Khalij Commercial Bank PQSC Samba Financial Group SJSC Qatar Masraf Al Rayan QSC 100% 4,492 Pending Saudi Arabia National Commercial Bank SJSC 100% 58,397 Completed 31-Dec-19 Alizz Islamic Bank SAOG Oman Oman Arab Bank SAOC 81% NA Completed 12-Sep-19 Ahli United Bank BSC Bahrain Kuwait Finance House KSCP 100% 21,860 Pending 15-Aug-19 Cqur Bank LLC 08-Aug-19 DenizBank AS Qatar Turkey VTB Bank PJSC 19% NA Completed Emirates NBD PJSC 0.20% NA Completed 20-Jun-19 Warba Bank KSCP Kuwait Kuwait & Middle East Financial Investment Co KSCP 75.70% NA Proposed 12-May-19 Gulf Bank KSCP Kuwait Alghanim Industries Ltd 16% NA Completed 21-Apr-19 HSBC Saudi Arabia Ltd Saudi Arabia HSBC Holdings PLC 2% 31 Completed 10-Apr-19 Invest bank PSC UAE Emirate of Sharjah United Arab Emirates 50% 1,009 Completed 07-Apr-19 Noor Bank PJSC UAE Dubai Islamic Bank PJSC 100% NA Completed 03-Apr-19 15-Mar-19 Oman United Exchange Co Banque Saudi Fransi Oman Private Investor 25% NA Completed Saudi Arabia Olayan Investments, Ripplewood Advisors LLC 5% 1,641 Completed 29-Jan-19 29-Jan-19 Union National Bank PJSC Al-Hilal Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% 11,762 Completed UAE Abu Dhabi Commercial Bank PJSC 100% NA Completed Source: Bloomberg *Proposed Status: Board suggests shareholders to consider the acquisition *Pending Status: Acquisition has announced *Completed Status: Acquisition has completed 19 ALVAREZ & MARSAL#20GLOSSARY#21Glossary Metric Abbreviation Definition Size Loans and Advances Growth Deposits Growth Liquidity Loan-to-Deposit Ratio LDR Operating Income Growth Operating Income & Operating Income / Assets Non-Interest Income / Operating Income Net Interest Margin QoQ growth in EOP net loans and advances for the top 10 QoQ growth in EOP customer deposits for the top 10 (Net EOP loans and advances / EOP customer deposits) for the top 10 QoQ growth in aggregate quarterly operating income generated by the top 10 (Annualized quarterly operating income / quarterly average assets) for the top 10 (Quarterly non-interest income / quarterly operating income) for the top 10 Efficiency Yield on Credit Cost of Funds NIM (Aggregate annualized quarterly net interest income) / (quarterly average earning assets) for the top 10 Earnings assets are defined as total assets excluding goodwill, intangible assets, and property and equipment YOC (Annualized quarterly gross interest income / quarterly average loans & advances) for the top 10 COF (Annualized quarterly interest expense + annualized quarterly capital notes & tier I sukuk interest) / (quarterly average interest bearing liabilities + quarterly average capital notes & tier I sukuk interest) for the top 10 Cost-to-Income Ratio C/I (Quarterly operating expenses / quarterly operating income) for the top 10 Coverage Ratio (Loan loss reserves / non-performing loans) for the top 10 Risk Cost of Risk COR Return on Equity RoE (Annualized quarterly provision expenses net of recoveries / quarterly average gross loans) for the top 10 (Annualized quarterly net profit attributable to the equity holders of the banks - annualized quarterly capital notes & tier I sukuk interest) / (quarterly average equity excluding capital notes) for the top 10 Profitability Return on Assets RoA (Annualized quarterly net profit/quarterly average assets) for the top 10 Capital Return on Risk-Weighted Assets Capital Adequacy Ratio RoRWA (Annualized quarterly net profit generated/quarterly average risk-weighted assets) for the top 10 CAR (EOP tier I capital + tier II capital) / (EOP risk-weighted assets) for the top 10 Note: LTM and EOP stand for last twelve months and end of period respectively 21 ALVAREZ & MARSAL#22Glossary (cont'd.) Bank Assets (SAR Bn)* Abbreviation Saudi National Bank 902.7 SNB Logo SNB Al Rajhi Bank 582.6 ALRAJHI مصرف الراجحي Al Rajhi Bank Riyad Bank 318.6 RIBL بنك الرياض riyad bank Saudi British Bank 269.5 SABB SABB ساب البلك السعودي Banque Saudi Fransi 213.3 BSF الفرنسي Banque Saudi Fransi Arab National Bank 182.2 ANB العربي anb Alinma Bank 166.8 ALINMA مصرف الإنماء alinma bank Bank Albilad 111.6 BALB بنك البلاد Bank Albilad Saudi Investment Bank 99.6 SIB البنك السعودي للاستثمار The Saudi Investment Bank Bank Aljazira 98.6 BJAZ بنك الجزيرة BANK ALJAZIRA Note: Banks are sorted by assets size *As on 30th September 2021 222 ALVAREZ & MARSAL