Al Rajhi Bank - Q1 2026 Earnings Analysis

Performance Highlights

Al Rajhi Bank reported Q1 2026 net income after Zakat of SAR 6.752 billion, a 14.3% year-on-year increase that surpassed consensus expectations, with total operating income rising 14.4% to SAR 10.5 billion on the back of an 18.4% expansion in net yield income and a 16.8% increase in fee income. Net financing and investment margin widened 38 basis points year-on-year to 3.54%, the highest level in recent history, while earnings per share reached SAR 1.59 for the period.

The primary operating driver was disciplined asset-liability management, which contributed 22 of the 38 basis points of NIM expansion through asset repricing, improved funding mix, and a 300 basis point sequential rise in CASA to 67.8% of deposits. SME lending surged 51.2% year-on-year to SAR 66 billion, corporate financing grew 15%, and the digital-to-manual transaction ratio reached 96:4, all reinforcing the bank's Harmonize the Group strategy execution.

Management Outlook and Forward Catalysts

Management upgraded its full-year NIM guidance to 30–40 basis points of expansion, raised its Tier 1 capital target to above 21%, and maintained cost-of-risk guidance at 30–40 basis points, signalling confidence in the bank's earnings trajectory despite an assumed no-rate-cut environment for the remainder of 2026. The board also approved a capital increase to SAR 60 billion through capitalisation of SAR 20 billion in retained earnings, reflecting management's conviction in sustained structural growth.

The central investor debate heading into Q2 centres on whether the CASA-driven NIM upgrade is durable or partly transitory, given that a significant portion of non-retail deposit inflows may normalise, while regulatory fee caps introduced in February and the mark-to-market drag on the SAR 173 billion investment book remain near-term headwinds bulls and bears will scrutinise closely.