Strategy Note /
Saudi Arabia

SABB Q3 22 result analysis: Very strong start

  • SABB reported a strong set of Q3 22 results.

  • Fee and other income increased by 9.7% yoy.

  • Deposits increased by 12.6% yoy to SAR203bn.

SNB Capital
20 October 2022
Published bySNB Capital

SABB reported a strong set of Q3 22 results, with net profit increasing by 57.8% yoy (+29.2% qoq) to SAR1.40bn. This is substantially higher than the consensus estimates of SAR1.12bn. Margin expansion coupled with strong loan growth are the key positives of the results, while the ongoing tightening of liquidity is the only negative. As a read across sector, we believe the impact of higher interest rates is finally becoming visible on NIMs and we believe this will particularly bode well for the banks with corporate tilt. On the other hand, the increase in the cost of funds is a concern for banks that have higher LDR ratios. Based on the results, we believe that corporate banks with relatively better LDR ratios are well positioned to record strong earnings in Q3 22.

  • We believe the growth is due to a combination of 1) strong growth in net special commission income (NSCI), 2) lower pre-provisioning expenses and 3) curtailed provisioning expenses.

  • NSCI increased by 41.1% yoy (+15.5% qoq) to SAR1.96bn, given strong loan growth and expansion in core margins. Based on our initial estimates, NIMs (Net interest margins) expanded by 56bps yoy (+29bps qoq) to 2.6% in Q3 22, which we believe is a key positive of the result. We believe the impact of higher interest rates has now finally started becoming visible on corporate banks.

  • Fee and other income increased by 9.7% yoy (-2.5% qoq) to SAR579mn. Total operating income increased by 32.5% yoy (+10.9% qoq) to SAR2.56bn.

  • Operating expense (before provisioning) declined by 17.5% yoy (-11.1% qoq) to SAR891mn and is another key positive of the results. Cost to income ratio (C-I ratio) declined to 35% in Q3 22 vs 39% in Q3 21 and 43% in Q2 21.

  • Provisioning expense remained muted at SAR38mn in Q3 22 vs SAR136mn in Q3 21 and SAR13mn in Q2 22. Based on our initial estimates, cost of risk stood at 0.1% vs 0.3% in the same period last year.

  • Loan book growth was strong at 12.0% yoy (+3.9% qoq) to SAR184bn. Given its corporate tilt, we believe this indicate growing demands from corporates and should reflect positively on other corporate banks.

  • Deposits increased by 12.6% yoy to SAR203bn, but declined by 2.2% qoq. Subsequently, the banks LDR ratio increased to 90% in Q3 22 vs 85% in Q2 22. We believe this is the only negative of the results, which has significantly increased cost of funds. We estimate that cost of funds increased to 1.0% in Q3 22 vs 0.6% in Q2 22 and Q3 21.