Aljazira Bank and Alahli Bank

Introduction:

Two of the most well-known banks in Saudi Arabia are Aljazira bank and Alahli bank. Alahli bank has been operational ever since 1953, by the emergence of Saleh and Abdulaziz Kaki with the Salem bin Mahfouz company. Aljazira bank, on the other hand, has been established in 1976, a much younger bank than Alahli bank. Aljazira and Alahli banks are considered the top in comparison to their other competitors. Both providing high quality services in the banking sector. Even though both banks are considered the top in the banking business, both banks have their own competitive differences. The purpose of this report is to compare between the banks’ performances. The comparison will be between both banks’ financial rations between the year 2013 till 2015, along with comparing their REO decomposition, ratios, and aggregate profitability measures.

ROE Decomposition and Ratios:-

Gaining profit is the essential component to every business. A bank’s management’s ability to gain profit by their resources is measured by the REO decomposition and ratio. Ratios are used to disclose success or failure of a business at specific periods. To reveal Aljazira and Alahli bank’s efficiency to gain profit, both banks’ return on equity, return on assets, interest income, non-interest income, non-interest expense, and expense ratio will be taken into account during the analysis.

Return on Equity:

=(Net Income)/(Average stockholders' equity) 2013 2014 2015

Aljazeera Bank 12.11% 9.61% 18.96%

Alahli Bank 18.78% 18.74% 16.47%

The Return on Equity (ROE) is a ratio that measures overall profitability in the corporation; in addition, is count by dividing the net income after interest and tax over average stockholders’ equity (Management). According to the table of return on equity , Alahli Bank gain more return than Aljazeera Bank in 2013 and 2014 but in 2015, Aljazeera Bank has increased in the return in equity more than Alahli Bank, Because Alahli Bank has little drop in the performance in 2015, but still the return is higher from of the return of Aljazeera bank in the 2013, 2014 years except in 2015. The reason why Aljazeera increased in 2015 is the net income are increase more than the average stockholders’ equity. On the other hand, Alahli Bank in first two years has stability in the return on equity, while they had dropped in growth in 2015. However, because NCB increase their stock in the market which cause drop in 2015, aljazera could exceed NCB and get better performance by invest their equity better than NCB.

=(Net Income)/(Average Total Assets) 2013 2014 2015

Aljazira Bank 1.07% 0.84% 2.04%

Alahli Bank 2.11% 2.02% 2.03%

Return on Assets:

The Return on Assets (ROA) is a ratio that shows how net income of the corporation is relative to average total assets, and it gives an idea of how efficient management is at using its assets to generate earnings. From the table of return on assets, Alahli Bank was managed the return on assets better than Aljazeera Bank, but in 2015, Aljazeera Bank was managed the return on assets better than Alahli. The reason is that the increase of net income could not increase more than the average total Asset in Aljazeera Bank, while alahli Bank could manage the increase in net income to exceed the increase in average total assets. Although, Aljazeera could perform better than alahli bank in 2015. The reason for that aljazera bank starts to invest their money more efficient than other banks by diversification their products and services, which attract more costumer and depositor.

=(Interest Income)/(Average Total Assets) 2013 2014 2015

Aljazira Bank 2.49% 3.10% 3.30%

alahli Bank 3.13% 3.16% 3.41%

Interest Income:

The Interest Income is the different between the revenue that is generated from the assets loans to the total average assets. The interest income is one of the most profitable incomes for a bank, and it is generate most of revenue for banks because the interest income is the core work for banks to take their liabilities and turn it to asset by changing the deposit to loans. Alahli Bank use to generated revenue from interest more higher than Aljazira Bank; however, in 2014 and 2015, Aljazira Bank had increased the ratio of interest income also, alahli Bank had increase in the ratio of interest income. The reason is that alahli Bank and Aljazira Bank are increased in interest income is they start special type of loans to keep and attract more customer; in addition, the ratio of interest income effect the customer to take loans.

Non-interest Income:

=(Non-interest Income)/(Average Total Assets) 2013 2014 2015

Aljazira Bank 1.01% 1.23% 1.12%

alahli Bank 1.26% 1.14% 1.11%

The Non-interest income is bank income derived mainly from fees including deposit and service fees, trading revenue, insurance commission, and inactivity fees (Investopedia). The banks can estimate nearly how much income can generate from the non-interest income because The non-interest income is predictable income. Aljazira Bank ratio in non-interest income is higher than alahli Bank in the last two years. The reason is that Aljazira Bank has focused on getting the income from the fees. Which instead collecting the fees from one type of activity Aljazira bank collect the fees from many types, while Alahli Bank decreased annually in non-interest income because they get less attention in non-interest income over years.

Assets Utilization:

The asset utilization ratio is a ratio that determines how a company is using its assets to generate a profit. From the last two tables about the interest income and non-interest income, alahli bank was more profitable than aljazirah bank. because the average total assets of alahli Bank increased, also their revenue increased that much to maintain their profitability. However Aljazirah bank has increased in the average total assets but they didn’t increase in their revenue that much.

=(Non-interest expense)/(Average Total Assets) 2013 2014 2015

Aljazira Bank 35.36% 25.7% 44.01%

Alahli