BSFR reported a net income of SAR837mn, up 8.7% yoy (-4.3% qoq). This is lower than the SNB Capital and consensus estimates of SAR944mn and SAR872mn, respectively. The growth of 8.9% yoy (+7.9% qoq) in NSCI supported earnings growth while the deviation from our estimates is mainly due to higher provisioning expense, which increased by 19.9% yoy (+16.4% qoq), and lower fee and other income.
Revenues increased by 8.1% yoy (+2.4% qoq) to SAR1.90bn, in-line with our estimate. NSCI increased 8.9% yoy (+7.9% qoq) to SAR1.45bn and was in-line with our estimate. Fee and other income increased by 5.4% yoy (-12.0% qoq) to SAR447mn but was lower than our estimate of SAR476mn.
Based on our initial estimates, NIMs declined by c6bps yoy to 2.9%, slightly lower than our estimate of 3.0%. Asset yields increased c29bps yoy to 3.5% but were lower than our estimate of 3.6%. Cost of funds also increased by 45bps to 0.8% vs 0.4% in Q2 21. The banking sector is witnessing a rise in earning yields on the back of higher interest rates. However, its impact on NIMs has been diluted due to tight liquidity position that has significantly increased the cost of funds.
Operating expenses (ex-provisioning) increased by 2.7% yoy (+7.8% qoq) to SAR648mn. This resulted in cost-to-income ratio rationalization to 34.2% in Q2 22 from 36.0% in Q2 21, but higher than our estimate of 30.4%.
Provisioning expenses increased by 19.9% yoy (+16.4% qoq) to SAR320mn, higher than our estimate of SAR298mn. Consequently, cost of risk increased c5bps yoy to 0.8% in Q2 22 but was in-line with our estimate. We highlight that amongst all the banks that have reported Q2 22 results so far, BSFR is the only bank to report an increase in provisioning expense.
BSFR’s loan book grew by 12.6% yoy (+4.5% qoq) to SAR160bn, which was slightly ahead of our estimate of SAR154bn. We believe the growth in loan book is the key positive of the result. Deposits increased by 12.2% yoy (+4.7% qoq) to SAR158bn, largely in-line with our estimate. The bank’s liquidity position tightened further with an L/D ratio of 101.1% in Q2 22 vs 100.7% in Q2 21 (101.3% in Q1 22), higher than our estimate of 99.3%.
Based on our last update, we are Neutral on BSFR with a PT of SAR49.9. The stock trades at 2022f P/B of 1.7x, higher than the 5-year average of 1.3x. The rate hikes are expected to be the main earnings driver for the bank while increasing competition and liquidity pressure are the main risks.