Al Rajhi Bank exceeded analysts' average expectations for Q2 2026 earnings, but the stock decline after the results announcement showed that investors were not content with just looking at the final figure; they turned to examining the sources of growth and their sustainability in the second half of the year.

The bank reported a net profit of 7.01 billion riyals, surpassing the analysts' average estimate according to Bloomberg, which was 6.78 billion riyals, by about 3.4%. Profits rose 3.9% compared to the first quarter and 14% year-on-year.

In contrast, the stock fell about 2%, its biggest daily decline in three months, indicating that the market looked at the quality of the surprise and its future components, not just the beat of expectations.

Annual results showed good growth in core banking income, but the quarterly reading was more cautious, as net financing and investment income declined, while revenue growth came from non-financing income, alongside a sharp rise in provisions and a contribution from lower zakat and tax expenses.

Sun, 19 2026

Decline in zakat and tax supports profitability

Zakat and tax expense decreased from 688 million riyals in Q1 to 597 million riyals in Q2.

Thus, the decline in this burden supported quarterly net profit growth by about 91 million riyals, equivalent to about 35% of the quarterly profit increase of 260 million riyals. This is the highest contribution to supporting profit growth since at least 2018.

Fri, 08 2026

Provisions at highest level since 2013

The increase in credit loss provisions was the most notable cautionary point in the results, reaching 881 million riyals, up 47% year-on-year and 40% compared to the previous quarter, marking the highest level since Q4 2013, according to Bloomberg data.

The cost of risk rose in Q2 to about 46 basis points, compared to roughly 33 basis points in Q1 and about 33 basis points in the same quarter last year.

But reading the quarter in isolation needs to be placed within the context of the first half, as provisions reached 1.51 billion riyals over six months, putting the estimated cost of risk for H1 near 40 basis points, i.e., at the upper end of the bank's annual guidance of 30 to 40 basis points.

The bank explained that the increase in net provisions was due to a 36% annual and 31.7% quarterly rise in new additions, along with an increase in recoveries from written-off financings. This indicates that the increase did not stem from weak recoveries but from higher new provisions, while recoveries helped mitigate part of the impact.

The increase in provisions alone is not enough to judge a structural change in the portfolio, but it raises the importance of monitoring the movement of financings in stages 2 and 3, the non-performing loan ratio and coverage, and whether the additions are precautionary or related to specific credit cases.

Sun, 19 2026

Provisions weaken quarterly growth

Operating profit before provisions rose from about 8.07 billion riyals in Q1 to 8.49 billion riyals in Q2, an increase of approximately 418 million riyals or 5.2%.

But provisions increased in the same period by about 250 million riyals, meaning they absorbed nearly 60% of the quarterly improvement in pre-provision profit.

As a result, pre-zakat and tax profit growth slowed to 2.3% quarter-on-quarter, despite a 3.4% rise in operating income and a 2.5% decline in operating expenses before provisions.

Non-financing income drives growth

Total operating income rose by about 356 million riyals quarter-on-quarter to reach 10.9 billion riyals, but more than all of the growth came from non-financing income, which rose by about 454 million riyals, against a decline in net financing and investment income of 98 million riyals.

According to the bank's explanation, the quarterly revenue increase came from income from other operations, banking service fees, and foreign currency exchange income, while that was offset by a decline in net financing and investment income.

Non-financing income is usually more volatile than financing and investment income; service fees are typically more stable than investment gains or some other operating items. Therefore, the sustainability of the improvement depends on knowing how much of the increase comes from recurring fees compared to more volatile items.

Annual picture better than quarterly

Despite weaknesses in the composition of quarterly growth, the annual comparison shows a stronger picture. Net financing and investment income rose by about 1 billion riyals or 13.7%, while non-financing income increased by 279 million riyals. Thus, about 78% of the annual operating income growth came from net financing and investment income, compared to 22% from non-financing income.

Operating profit before provisions also rose 13.8% year-on-year, while the jump in provisions reduced pre-zakat and tax profit growth to 10.9%.

This means that the quarterly results did not rely annually on non-financing income alone but were primarily based on growth in core banking income, with greater credit pressure compared to last year.