Equity Analysis /
Saudi Arabia

Albilad: Volume growth and NIM expansion drive earnings

    SNB Capital
    1 August 2019
    Published by

    Bank Albilad (Albilad) reported an in-line set of Q2 19 results, with net income increasing 14.7% yoy (+6.9% qoq) to SAR305mn. This is the highest net income since Q1 12 and compares with NCBC estimates of SAR305mn (pre-Zakat SAR338mn). We believe the yoy growth is attributed to a strong growth in earning assets and a rise in asset yields.

    NCBC view on the results: 

    Albilad reported an in-line set of Q2 19 results,  with net income increasing 14.7% yoy (+6.9% qoq) to SAR305mn. This is the highest net income since Q1 12. We believe the yoy growth in earnings is attributed to a strong growth in earning assets and a rise in asset yields. 

    Revenues grew 13.8% yoy (+4.1% qoq) to SAR959mn, coming broadly in line with our estimates. The top-line increase was supported by growth of 28.7% yoy in NSCI to SAR671mn vs. our estimate of SAR606mn. NSCI growth was partly offset by a decline in fee and other income by 10.3% yoy to SAR288mn, coming below our estimates of SAR327mn.

    NSCI growth is attributed to: 1) a strong growth in earning assets of +19.2% yoy to SAR63bn and 2) NIM expansion of c40bps yoy to 4.4% vs our estimate of 3.9%. NIM expansion reflects a shift in the mix towards higher retail loans. We believe such NIM expansion reduces sensitivity of Albilad’s balance sheet to changes in interest rates. Gross special commission income grew 26.1% yoy to SAR823mn, higher than our estimates of SAR762mn.

    Operating expenses, including provisions, increased +9.4% yoy to SAR620mn due to an increase in depreciation, staff expenses, G&A expenses and provisions. This is higher than our estimate of SAR594mn.

    Loans and advances grew 13.3% yoy to SAR54bn while deposits grew 13.7% yoy to SAR59bn, both in line with our estimates. This is higher than industry loan and deposit growth of 3.1% and 3.9%, respectively. We believe the outperformance is driven by a strong growth in the mortgage segment given the bank’s retail exposure. L/D ratio remained flattish at 90.5%. Investments grew 70.3% yoy to SAR9bn (+10.5% qoq) while total assets grew 12.5% yoy to SAR77bn (+5.6% qoq).

    We are Neutral on Albilad. However, we may revisit our estimates and ratings subject to the change in interest rates.