Overview of Q2 22 results
Alinma reported a net income of SAR925mn, up 30.2% yoy (+12.2% qoq) higher than our estimate of SAR847mn. The deviation is primarily due to higher-than-expected fees and other income, which increased by 22.3% yoy (+4.1% qoq) to SAR519mn.
Alinma’s loan book grew 9.7% yoy (+1.7% qoq) to SAR131bn. Deposits grew 3.6% yoy (+1.8% qoq) to SAR130bn.
The key highlight of the results is that the company has downgraded its loan growth guidance for FY 22 to low-teens from mid-teens as guided earlier in Q1 22.
Gross financing increased by 4% ytd from SAR130bn in Q4 21 to SAR135bn in Q2 22.
The growth in H1 22 was driven by Personal and other retail financing (+19%), home financing (+16%), and SME (+10%), which was partly offset by corporate ex-SMEs (-1%).
Corporate (including SMEs) represents 76% of total financing. Corporate financing remained stable, despite a decline of 1.0% decline in large-corporate segment. This was offset by increase in mid-corporate (+88%) and SME financing (+10%) during 1H 22.
The management highlighted that the decline is due to large corporates repaying their loans in order to mitigate the risk of rate hikes.
Retail, which represents c24% of gross financing, increased by 17% ytd driven by strong momentum in home financing (+16%) and personal & other financing growth (+19%).
At the end of Q2 22, NPL ratio declined to 1.90% vs 2.26% in Q2 21 and lower than 2.01% in Q1 22. Moreover, coverage ratio stood at 150.1% in Q2 22, flat compared to Q1 22 but higher than 139.7% in Q2 21. The management plans to keep coverage ratio in-line with the industry average.
Stage 1 coverage remained stable ytd at 0.5%. Stage 3 coverage decreased due to recent movement of some accounts from stage 2 with lower coverage.
Cost of risk for H1 2022 declined by 41bps to 0.74%.
Total customer deposits increased by 8.0% YTD to SAR130bn, as CASA deposits growth of 16% was partly offset by decline in time deposits of 8%.
CASA deposits constituted 70.9% of total deposits at the end of Q2 22, compared to 63.1% in Q2 21. Retail deposits stood at 71% and non-retail at 29% at the end of Q2 22.
The management also highlighted that the bank’s CASA growth is multi-dimensional. The group is focused on retail segment, specifically on government and mid-corporate segments within retail.
The management highlighted that the bank is optimizing the funding mix given the ample liquidity. LCR stood at 161.6% in Q1 21 which have been reduced to 139% in Q2 22 (still higher than regulatory requirement of 100%) and LDR (SAMA) declined to 82.8% in Q2 22 vs 86.0% in Q2 21 (comfortably below regulatory ceiling of 90%).
Net profit margins declined by 5bps yoy to 3.42% in 1H 22 vs 3.37% in H1 21 due to lower financing yields which was partly offset by 9bps increase in both investment and financing yield.
The management highlighted that in 1H 22, gross funded income increased by 15% yoy to SAR3.1bn from a 29% increase in funded investment income and a 13% rise in financing income.
Cost to income
Operating cost (ex-provisioning) increased by 24.5% yoy (+2.5% qoq) to SAR661mn in Q2 22. Subsequently, cost to income ratio (CIR) increased to 34.2% in Q2 22 vs 32.1% in Q2 21.
The management highlighted that the increase in the operating cost in Q2 22 is due to higher salaries, increased commercial expenses from POS terminal deployments, higher SMS communication costs and a decrease in the input VAT recoverability rate.
The management expects loan book to increase by low-teens in 2022f vs 10% growth in H1 22, largely driven by strong growth in the mid-corporate and SME loan book. Retail segment is also expected to show robust growth, but its contribution to overall portfolio remains small.
The loan guidance was downgraded from mid-teens in Q1 22 to low-teens in Q2 22. The downgrade is largely because management expects corporate loan book to remain under pressure, as large corporates were witnessed repaying their loans to avoid higher rates.
Net profit margins are expected to expand by 20bps to 25bps in 2022f. This is an upgrade compared to earlier guidance of 10bps to 15bps. As per the management, this estimate is based on similar number of rate hikes as expected by the market.
Cost-to-income ratio is expected to remain below 35% and cost of risk is the range of 65-75bps in 2022f, both unchanged since last quarter.
Expecting stable credit quality and NPL coverage, leading to COR moderation.
ROE is expected to improve to above 13% in 2022f vs 10.8% in 2021, the guidance remains unchanged compared to Q1 22.
CETI to reduce to 16% to 17% in 2022f vs 18.2% in 2021 due to increase in the RWA. The management remains prudent of their capital profile.