Gen AI And Vision 2030 Will Redefine Saudi Banking

Key Takeaways

• Early and deep adoption of AI, automation, and analytics is driving superior operational efficiency, enabling Alinma to outperform peers in earnings growth and cost management.
  
• Strategic focus on digital onboarding, SME and mid-corporate lending, sustainable finance, and disciplined execution positions Alinma for sustained revenue and loan growth under Vision 2030.
  
• Rising competition, limited diversification, higher funding costs, asset quality risks, and slow digital innovation threaten Alinma Bank's profitability, earnings stability, and long-term growth.

Catalysts

Provides banking and investment services in the Kingdom of Saudi Arabia.

• While analyst consensus recognizes the bank's strong digital expansion, it underestimates the step-change in productivity and cost efficiency driven by Alinma's early, deep integration of Gen AI, advanced analytics, and automation-these could unlock operating leverage and materially lower cost-to-income ratios over the medium term, boosting earnings growth well above peers.
  
• Analysts broadly agree on mid-corporate and SME lending as a tailwind, but current strong growth rates of 21% for SMEs and 30% for mid-corporates, combined with upcoming phases of supply chain finance and sector diversification under Vision 2030, suggest Alinma is poised for sustained double-digit annualized loan growth and superior net interest margin expansion versus market, translating to a higher earnings base.
  
• Positioned at the intersection of Saudi Arabia's population boom and proactive youth-oriented digital onboarding (93% of new accounts now opened online), Alinma is on track to capture outsized share of deposit and fee income growth as financial inclusion accelerates, supporting multi-year revenue compounding.
  
• The newly revealed 2030 strategy and swift execution of 78 out of 86 strategic initiatives imply an organizational culture of discipline and innovation, indicating future earnings surprises as the bank leverages its automation lab, Bank as a Service platform, and AI-powered cross-sell on both retail and corporate sides.
  
• By embedding sustainable finance (e.g., sustainable sukuk issuances, green project lending) and leveraging Shariah-compliant leadership, Alinma is increasingly embedded in government and private sector capital flows-from renewables to infrastructure-positioning it to benefit from outsized loan book and fee growth as Vision 2030 investments accelerate.

Alinma Bank Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Alinma Bank compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Alinma Bank's revenue will grow by 15.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 55.0% today to 54.5% in 3 years time.
• The bullish analysts expect earnings to reach SAR 8.7 billion (and earnings per share of SAR 3.29) by about September 2028, up from SAR 5.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the SA Banks industry at 9.3x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.61%, as per the Simply Wall St company report.

Alinma Bank Future Earnings Per Share Growth

Risks

• Sustained pressure on net interest margins, driven by aggressive competition for deposits and the need to price loans more competitively, has already forced management to downgrade NIM guidance, which could weaken profitability and slow net income growth over the long term.
  
• Alinma Bank's limited diversification beyond core retail and corporate banking leaves its revenues highly exposed to cyclical downturns in these areas, increasing the risk of earnings volatility and undermining long-term revenue stability.
  
• The increasingly elevated cost of funding due to market-wide liquidity tightness, combined with a rising portion of higher-cost time deposits relative to CASA balances, threatens to compress net margins and impact bottom-line profitability, particularly if interest rates remain low or competition ramps up further.
  
• Asset quality risks remain material, as demonstrated by a 28% increase in NPLs over the last three quarters and continued strong loan growth in riskier segments such as SMEs and mid-corporates, raising the likelihood of higher provisioning costs that could erode net margins and net income.
  
• The slower speed of digital innovation compared to regional leaders puts Alinma Bank at risk of losing tech-savvy younger customers to fintechs or digital-first banks, which could limit fee income growth and put sustained downward pressure on medium
• to long-term revenue.

Valuation

• The assumed bullish price target for Alinma Bank is SAR39.46, which represents two standard deviations above the consensus price target of SAR31.72. This valuation is based on what can be assumed as the expectations of Alinma Bank's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SAR41.0, and the most bearish reporting a price target of just SAR26.7.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SAR15.9 billion, earnings will come to SAR8.7 billion, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 20.6%.
• Given the current share price of SAR24.84, the bullish analyst price target of SAR39.46 is 37.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.