Equity Analysis /
Saudi Arabia

Banque Saudi Fransi: Weak earnings due to higher provisions

    SNB Capital
    6 February 2020
    Published bySNB Capital

    Saudi Fransi (BSFR) reported a weak set of results in Q4 19 with a net income of SAR515mn. Although it compares favourably with a net loss of SAR1.4bn in Q4 18, it is well below consensus estimates of SAR618mn. We believe the variance is due to higher provisioning of cSAR600mn vs our estimates of SAR253mn. We believe the weakness in the bank’s liquidity position is a concern, as the L/D ratio increased to 94.6% in Q4 19 vs 81.3% in Q4 18 led by a -10.5% yoy (-6.4% qoq) decline in deposits.

    NCBC View on Results: BSFR reported a lower than expected set of Q4 19 results with a net income of SAR515mn vs. a net loss of SAR1.4bn in Q4 18. This is lower than the NCBC and consensus estimates of SAR819mn and SAR618mn, respectively. We believe the variance is attributed to higher than expected provisions of SAR438mn vs. our estimates of SAR253mn. A major concern from the results is the tightening liquidity position with a sharp rise in the L/D ratio to 94.6% vs. 81.3% in Q4 18 and 87.0% in Q3 19 led by a significant decline in deposits. Deposits declined -10.5% yoy (-6.4% qoq) to SAR133bn in Q4 19. 

    BSFR’s balance sheet size shrunk, with total assets declining by -6.4% yoy (down -4.4% qoq) to SAR178bn, which we believe is a key negative and may be attributed to a decline in cash balances. Loans grew by 4.2% yoy (+1.9% qoq) to SAR126bn, in-line with our estimates. However, growth rates remain below the peer average. The sector loan book (based on the announcement so far) increased by 12.3% yoy (+4.5% qoq). 

    Revenues remained flat yoy (-1.8% qoq) at SAR1,706mn, coming lower than our estimate of SAR1,790mn. We believe the variance is attributed to lower than expected NIMs. NSCI increased 3.6% yoy (-3.9% qoq) to SAR1,292mn, coming lower than our estimates of SAR1,385mn. Fee and other income declined 7.0% yoy (+5.2% qoq) to SAR415mn, in-line with our estimates. 

    As per our initial estimates, NIMs remained unchanged yoy at 3.3%, lower than our estimates of 3.5%. We believe the variance is attributed to lower than expected asset yields and higher than expected funding costs. 

    We are Neutral on BSFR with a PT of SAR33.1. BSFR trades at a 2020f PB of 1.3x, lower than peer average of 1.8x. We believe this discount reflects the bank’s asset quality risk in comparison to peers.