Samba reported a net profit of SAR767mn in Q4 19, down -37.5% qoq and compared to a loss of SAR578mn in Q4 18. Net profit was significantly lower than the NCBC and consensus of SAR1bn and SAR1.1bn, respectively. We believe the variance is due to higher than expected provisioning and zakat expense. Strong loan growth of 24.5% yoy (+12.8% qoq) was the major positive of the results.
NCBC view on the results
Samba reported a weak set of results in Q4 19 with a net income of SAR767mn, a decline of -37.5% qoq. On yoy basis, earnings improved from a loss of SAR578mn in Q4 18. However, last year’s earnings included one-off expense of SAR1.8bn related to zakat settlement of prior years. Adjusting for the one-off, earnings are down -37.6% yoy.
We believe the earnings weakness is attributed to higher than expected provisioning and zakat expenses. We estimate provisioning expense to be at cSAR400mn in Q4 19, significantly higher than our estimates of SAR90mn. We estimate the bank’s cost of risk in Q4 19 increased to 120bps vs 30bps in Q3 19. Zakat rate was 22% in Q4 19 vs 11% in Q3 19.
Revenues remained flat yoy at SAR2,038mn, broadly in-line with our estimate. NSCI declined -1.8% yoy (flat qoq) to SAR1,560mn, coming slightly above our estimate of SAR1,495mn. Fee and other income grew 8.6% yoy (-24.2% qoq) to SAR478mn, significantly below our estimate of SAR595mn.
NIMs declined c70bps yoy to 2.9%, coming in-line with our estimates. NIMs compression is attributed to a decline in asset yields and a rise in funding costs. Asset yields declined 60bps yoy to 3.9% while funding costs increased 30bps yoy to 1.3%, both in-line with our estimates. We believe the increase in funding cost is due to an increase in expensive deposits to fund the strong loan growth.
Loans recorded a surprise growth of 24.5% yoy (+12.8% qoq) to SAR142bn exceeding the market average for the second consecutive quarter. This is significantly higher than our estimate of SAR126bn. Deposits grew 5.9% yoy (+8.9% qoq) to SAR180bn vs our estimate of SAR164bn. L/D ratio increased substantially to 78.6% vs 66.8% in Q4 18. Investments grew 28.1% yoy to SAR85bn. Total assets grew 11.2% yoy to SAR256bn.
We are Overweight on Samba with a PT of SAR34.6. The new strategy to prioritise growth is a key driver for the stock. Samba trades at a 2020f P/B of 1.3x, lower than the peer average of 1.8x.