Riyad Bank Q2 profit rises 8% as non-interest income offsets NII decline

Riyad Bank reported an 8% increase in Q2 2025 net income, primarily driven by a substantial 47% surge in non-interest income, which successfully offset a 19 basis point contraction in net interest margin due to higher interest expenses and a slight quarter-on-quarter dip in net interest income. The bank's total operating income surpassed market expectations by 3%, supported by robust 5% quarter-on-quarter loan growth and 4% deposit growth, with H1 net interest income aligning with its mid-single-digit full-year guidance. This performance underscores the bank's capacity to enhance profitability through diversified revenue streams and balance sheet expansion despite interest rate pressures.

Analysis

Riyad Bank reported an 8% year-on-year increase in net income for the second quarter of 2025, with total operating income surpassing market expectations by 3%. This performance was primarily driven by a substantial 47% surge in non-interest income, which successfully counteracted headwinds from net interest income (NII). The bank experienced significant net interest margin (NIM) compression, which contracted by 19 basis points quarter-on-quarter and 38 basis points year-on-year due to higher interest expenses. Despite this pressure, the bank demonstrated robust balance sheet expansion, with net loans growing 5% quarter-on-quarter (11% year-to-date) and deposits increasing by 4%. A key point of concern is credit quality; while loan impairments decreased 14% from the previous quarter, they were alarmingly 77% higher year-on-year, resulting in a cost of risk of 36 basis points. Nevertheless, the bank's net interest income for the first half of 2025 rose 5% year-on-year, aligning with its full-year guidance of mid-single-digit growth, suggesting operational stability.

Key Decisions for Investors

• Investors should weigh the bank's strong non-interest income growth and solid balance sheet expansion against the significant pressure on net interest margins.
• The 77% year-on-year increase in loan impairments is a critical risk factor to monitor, as it could signal deteriorating credit quality despite the bank meeting its overall guidance.
• Given that results beat expectations and the bank reaffirmed its full-year NII guidance, investors may consider the stock a hold, pending clarity on margin stabilization and future cost of risk trends.