We remain Neutral on Bank Albilad with a revised PT of SAR47.7. Strong retail franchise and asset quality are the bank’s key strengths, in our view. Moreover, the focus on the corporate segment, along with rationalization of cost base, is expected to support earnings growth going forward. We project the bank’s net income to deliver 2021-2024f CAGR of 24.0%, increasing ROE to 18.8% by 2024f (14.9% in 2021). However, we believe these positives are priced-in. The stock is trading at 2022f P/B of 3.5x, substantially higher than peer group average of 2.4x.
Strong loan growth to continue – corporate to become the main driver: The bank recorded an 18% loan growth for two consecutive years (2020-21) as it benefited from the mortgage boom. It managed to its increase market share marginally from 3.8% in 2019 to 4.0% in 2021 despite the strong competition in the market. More recently, the bank have increased its focus on corporate lending (up 22% yoy in 2021). We believe this will mitigate the impact of the deceleration in the new mortgage initiation. Therefore, we project the bank’s loan book to grow by 17.5% yoy in 2022f. The bank’s market share is expected to expand to 4.1% in 2022f and to improve further to 4.3% by 2024f. Higher exposure to corporate lending will also improve earning yields’ sensitivity to the foreseen interest rate hikes. However, we remain mindful of lower credit spreads due to increased market competition and fixed pricing of mortgage loans.
Increased focus on saving accounts to make NIMs resilient: Despite tight liquidity (LDR of +100%), the bank has been able to maintain its cost of funds, which we believe is another key strength. The focus on attracting demand deposit is there (52% of deposit mix in 2021), but more importantly, the bank has been proactive in attracting saving deposits. In 2021, the bank launched a new digital savings accounts that offer different yield across various channels. Subsequently, saving account contribution increased from c13% in 2020 to +17% in 2021. We believe this has increased the resilience of the bank’s NIMs and we expect NIMs to expand from 3.7% in 2021 to 3.9% in 2022f (contrary to our earlier expectation). We expect NIMs to further expand to 4.0% in 2024f.
Asset quality remains superior compared to the sector: Albilad asset quality is one the best in the sector. Gross NPL ratio stood at 1.1% in 2021 and we expect it to remain at similar levels throughout our forecast period. The bank’s coverage ratio reached 280% vs 143% for the sector in 2021. Moreover, Albilad’s 2021 stage III coverage ratio of 93% is the highest in the sector and significantly above the sector average of 62%. Similarly, stage II coverage ratio of 16% was higher than sector average of 14% and while stage I coverage ratio was in-line with sector at less than 1%.
Remain Neutral with a PT of SAR47.7: We remain Neutral on Albilad with a revised PT of SAR47.7. Strong loan growth, solid asset quality and the rationalization of C-I ratios are the key positives (from c46% in 2021 to c40% in 2024f). However, we believe all the positives are priced-in at the current levels. The stock is trading at 2022f P/B of 3.5x vs peer group average of 2.4x.