Chase Bank Deposit Boxes

Saudi banks profits to remain high despite provisioning.

Despite high provisioning,
NBK

NBK Natural Born Killer
NBK Never Been Kissed
NBK Nabeya Bi-Tech Kaisha
NBK Norsk Brettseiler Klubb  
 Capital says Saudi banks have
maintained relatively high profitability for 2012E.

“We revise our profit
CAGR

 for 2011-16E down from 14.5 per
cent to 12.1 per cent due to our expectations of tighter margins, lower
fee income and increased provisions. This has reduced our PT’s
slightly. We continue to be positive on the sector which is trading at
compelling valuations; our preference continues to be the large-cap
banks such as AlRajhi, Riyad and Samba.

Downward revision: slight declines in PT but ratings unchanged:
Given our downward revision in fee income and margins, coupled with
higher-than-expected provisioning in 3Q12 we revise our PT’s down
by an average of 1.8 per cent with
SABB
 
 and
BSF
 B lymphocyte stimulatory factor.
 seeing the biggest
declines at 7.5 per cent and 4.5 per cent respectively. Nonetheless, we
continue to believe that banks are trading at compelling valuations. Our
ratings for all banks remain the same with Al Rajhi, Riyad and Samba our
top picks due to their attractive valuations, good growth potential and
ability to absorb potential credit losses.

Asset quality intact despite increased provisions: Despite the Al
Mojil Group (
MMG

) exposure, which was less than 0.15 per cent of the
total loan book of the exposed banks, Saudi banks post relatively low
NPL ratios. Management feedback indicates that concerns over cash flow
problems were limited to a small number of contracting companies with
this easing recently. Therefore, the provisioning charges reflect
conservative banking regulations rather than expectations of
deterioration in asset quality.

Medium and long-term lending to partially offset margin
contraction: Saudi banks have increased their time deposit base and LT
debt issues in 2012 and we believe that this is to support the
‘chase’ for higher yielding medium and long term loans. We
expect NIMs in 2013E to remain at 2.77 per cent, in line with the 2012E
level.

Continue to be counter-consensus with preference for large-caps:
Despite the recent declines in banking sector stocks, we believe the
market is underestimating the growth potential and overestimating the
impact of provisioning. We believe 4Q12E earnings will be a catalyst for
upside returns.”

2012 CPI Financial. All rights reserved.

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