BSFR reported a net income of SAR961mn, up 6.0% yoy (+14.8% qoq). This is broadly in-line with the SNB Capital and consensus estimates of SAR912mn and SAR915mn, respectively. The growth in the net income is attributed to higher NSCI, which increased by 15.6% yoy (+13.6% qoq) to SAR1.64bn. However, it was in-line with our estimates of SAR1.61bn. It was partially offset by higher provisioning expense, which increased by 38.4% yoy (+25.4% qoq) to SAR400mn. The earning deviation was primarily on account of lower operating expense and effective zakat rate. The negative of the result was constrained loan growth (+9.8% yoy, -0.7% qoq), which was one of the lowest in the sector in Q3 22. Adj for Tier 1 sukuk, net income was SAR908mn, up 6.0% yoy (+16.0% qoq).
Revenues increased by 11.5% yoy (+12.6% qoq) to SAR2.13bn, in-line with our estimates of SAR2.05bn. NSCI increased 15.6% yoy (+13.6% qoq) to SAR1.65bn and was also in-line with our estimates of SAR1.61bn. Fee and other income declined marginally by 0.2% yoy (+9.4% qoq) to SAR489mn, but was ahead of our estimate of SAR443mn.
NIMs expanded c16bps yoy to 2.8%, in-line with our estimates. Asset yields increased sharply by c100bps yoy, c80bps qoq to 4.3% versus our estimate of 3.9%. Cost of funds also increased by c104bps yoy, c50bps qoq to 1.4%. The banking sector is witnessing a rise in yields and cost of funds due to interest rate hikes, BSFR witnessed an expansion in NIMs given its corporate tilt (corporate loans get re-priced faster).
Operating expenses (ex-provisioning) increased by 12.8% yoy (+4.6% qoq) to SAR678mn but were in line with our estimate of SAR691mn. Consequently, the cost-to-income ratio increased to 31.8% in Q3 22 vis-à-vis 31.4% in Q3 21. However, it was lower than our estimate of 33.7%.
Provisioning expenses increased by 38.4% yoy (+25.4% qoq) to SAR400mn, higher than our estimate of SAR335mn. Subsequently, the cost of risk increased c19bps yoy to 1.0% in Q3 22, higher than our estimate of 0.8%.
BSFR’s loan book expanded 9.8% yoy (-0.7% qoq) to SAR158bn, which was in line with our estimate of SAR164bn. Deposits grew 10.2% yoy (-0.1% qoq) to SAR158bn, in-line with our estimate of SAR161bn. Subsequently, the liquidity position of the bank improved slightly with an L/D ratio of 100.4% vs 100.8% in Q3 21 (101.1% in Q2 22); better than our estimate of 102.0%.
We are Neutral on BSFR with a PT of SAR49.9. BSFR currently trades at 2023f PB of 1.3x versus the peer average of 2.0x. The rate hikes are expected to bode well for the bank given its corporate tilt. NIM expansion and improvement in the liquidity position were the key highlights of the result.