Alinma Bank Soars on Loan Growth and Rate Sensitivity – Here's Why the Saudi Banking Sector is a Must-Buy

The Saudi banking sector is on fire, and Alinma Bank (SAU:1150) is leading the charge. With revised earnings forecasts reflecting robust loan growth, stellar credit metrics, and strategic moves like its Alinma Tower project, this institution is primed to capitalize on rising interest rates and the kingdom's economic transformation. Let's dive into why this could be a goldmine for investors.

Loan Growth at 13-15% YoY: Fueling Profitability

Alinma's first-quarter results are a masterclass in leveraging macro tailwinds. Net profit surged 14.7% year-on-year to SAR 1.508 billion, driven by a 15.9% jump in its financing portfolio to SAR 209.4 billion. This growth isn't just about volume—it's about quality. The bank is targeting high-margin segments like mid-corporate and SME lending, which grew faster due to their smaller base, while maintaining discipline on pricing.

The magic here lies in interest rate sensitivity. As Saudi Arabia's central bank keeps rates elevated to combat inflation, banks like Alinma benefit from a net interest margin (NIM) boost. Even after revising its NIM guidance downward due to funding cost pressures, Alinma's core lending engine remains intact. A would show this resilience, proving that disciplined pricing and diversification into faster-growing sectors can offset near-term cost headwinds.

Credit Quality Holds Steady Amid Rising NPLs

Bulls take note: Alinma's non-performing loan (NPL) ratio inched up to 1.27%, but its NPL coverage ratio remains a fortress at 156.4%—far above the 100% threshold signaling safety. This is critical because it means the bank can absorb potential defaults without hurting capital. While the slight NPL increase is worth monitoring, CEO Abdullah Alkhalifa attributes it to “normal account migration,” not systemic risks.

The sector's creditworthiness is further underpinned by Saudi Arabia's economic boom. With Vision 2030 driving infrastructure spending and private sector growth, demand for loans—from real estate to SMEs—is surging. Alinma's focus on retail and corporate lending positions it to capture this upside.

Strategic Moves: Buybacks, Tech, and the Alinma Tower

Alinma isn't just sitting on its laurels. The bank's share buyback of 5 million shares—funded internally—sends a strong signal about its confidence in its balance sheet. With shares repurchased at SAR 33.27, this move boosts earnings per share and aligns employee incentives with long-term value.

Meanwhile, the Alinma Tower project (details sparse, but likely a flagship office or mixed-use development) and investments in GenAI-powered platforms are part of a broader tech-driven growth strategy. The bank's new digital trade finance system, for instance, aims to streamline operations and attract corporate clients—a move that could future-proof its revenue streams.

Why the Saudi Banking Sector is a Buy

The kingdom's macro backdrop is investor heaven. With oil prices stable, GDP growth projected at 3-4%, and massive infrastructure projects underway, Saudi banks are the primary beneficiaries. Alinma's strong retail and corporate lending exposure—plus its ESG initiatives like the Sustainable Saving Account—position it to dominate in this environment.

A would underscore how its credit metrics stack up favorably. Meanwhile, Alinma's capital adequacy ratio of 18.3% gives it ample room to grow without dilution.

Risks? Sure, But the Upside Outweighs Them

Critics might point to rising funding costs and competition for deposits. Alinma's CFO admitted these pressures, but its 32.2% cost-to-income ratio shows operational efficiency is intact. The Ramadan-driven dip in fee income is a one-off, and GenAI investments should boost margins over time.

Investment Thesis: Go Long on Alinma—and the Sector

Alinma is a buy at current levels. With its loan growth, fortress balance sheet, and strategic initiatives, it's a proxy for Saudi Arabia's economic transformation. Investors should also consider broader exposure to the sector via ETFs like the MSCI Saudi Arabia IMI Index.

For contrarians, the slight NPL uptick is a buying opportunity—not a red flag. This is a bank—and a sector—built to thrive in the kingdom's new economic era.

Final Call: Alinma Bank (SAU:1150) is a top pick for 2025. Pair it with a dose of Saudi real estate or infrastructure ETFs for maximum exposure to Vision 2-0-3-0's next phase.