Alawwal Bank’s Q2 meets estimates on lower NSCI, says Riyad Capital

Alawwal Bank in Q2 2018 reported a net profit of SAR 254 million, in-line with Riyad Capital’s SAR 242 million estimate but below the market consensus of SAR 292 million, the research firm said in an earnings report.

“This mainly resulted from lower net special commission income (NSCI) and higher operating expenses as provisions mounted to SAR 320 million,” the report said.

Loans continued its downtrend since Q2 2016, dropping by SAR 1.6 million quarter-on-quarter (QoQ) to SAR 59 billion.

Deposits also fell, as time and demand deposits dropped by SAR 2 billion each.

The loan-to-deposit ratio (LDR) rose to 86 percent for the quarter compared to 83 percent in Q1.

Investments slid by only SAR 75 million in Q2 to remain at SAR 16.6 billion, despite the increase in banks holdings of government bonds.

“Alawwal’s balance sheets contraction comes in light of its potential upcoming merger with SABB,” Riyad Capital said.

NSCI fell 5 percent year-on-year (YoY) in Q2 but remained flat at SAR 668 million compared to the previous quarter, in-line with the estimates.

Non-core income grew by 10 percent QoQ to SAR 209 million, due to an increase in fee-based income and unrealized gain on Fair Value Through Profit or Loss (FVTPL) financial instruments.

Consequently, total income declined 5 percent YoY but rose 2 percent QoQ to SAR 877 million.

Operating expenses came up 3 percent YoY and 8 percent QoQ to SAR 626 million, mainly on higher provisions for credit losses.

Riyad Capital maintained a “Neutral” rating on the stock with a target price of SAR 14 per share.