Earnings Report /
Saudi Arabia

Bank AlJazira: Weak Q4 19 results on higher provisions

    SNB Capital
    4 February 2020
    Published bySNB Capital

    Bank AlJazira (BJAZ) reported a net income of SAR247mn in Q4 19, coming below the NCBC and consensus estimate of SAR280mn and SAR263mn, respectively. With operating profits coming in line with our expectations at SAR817mn, we believe the earnings deviation was due to higher provisioning. Provisioning expenses increased to SAR78mn in Q4 19 vs our estimates of SAR40mn. Strong loan growth of 21.0% yoy and 11.5% qoq was the major positive of results. 

    NCBC View on the results: 

    BJAZ reported weaker-than-expected Q4 19 results with a net income of SAR247mn, declining -3.7% qoq. This compares with the NCBC and consensus estimates of SAR280mn and SAR263mn, respectively. The variance is attributed to higher provisioning expense. Provisioning expense increased to SAR78mn in Q4 19 vs an average of SAR27mn for the last 4 quarters. We believe higher provisioning may be attributed to improving its NPL coverage ratio, which increased to 157% in Q3 19 vs 143% in Q2 19.

    On a yoy basis, earnings improved from a net loss of SAR350mn in Q4 18. However, last year the bank booked a one-off zakat expense of SAR551mn related to zakat settlement for prior years. Adjusting for the one-off, Q4 18 earnings stood at SAR202mn, reflecting a +22.6% yoy growth in Q4 19. 

    Revenues grew 20.1% yoy (+9.0% qoq) to SAR817mn, coming in line with our estimate. Revenue growth was supported by 1) NSCI growth of 11.3% yoy (+4.9% qoq) to SAR543mn and 2) fee and other income growth of 42.4% yoy (+18.2% qoq) to SAR274mn, both coming in-line with our estimates. 

    NSCI growth is attributed to a 19.0% yoy growth in earning assets to SAR77bn (slightly higher than our estimate), which offset the impact of margin contraction. As per our initial estimates, NIM declined c10bps yoy to 2.9% due to a c10bp drop in asset yields to 4.9%.

    Strong balance sheet growth was the key positive of the result. Loans grew 21.4% yoy (+11.5% qoq) to SAR50bn while deposits grew 21.0% yoy (+6.2% qoq) to SAR63bn. L/D ratio remained broadly unchanged at 79.2% vs 78.9% in Q4 18.

    We are Overweight on BJAZ with a PT of SAR16.2. We believe the bank’s enhanced capitalisation is a key earnings driver going forward.