Bank Aljazira’s Q2 beats estimates on improved margins, says Albilad Cap

Bank Aljazira’s Q2 2017 bottom line (SAR 220 million, up 23.6 percent YoY and 1.9 percent QoQ) beat Albilad Capital’s estimate of SAR 197 million and consensus forecasts of SAR 185 million, the brokerage said in a review.

The earnings growth was driven by margins improvement, the report added. Net special commission income surged by 17.7 percent YoY (4.4 percent QoQ), benefiting from higher interest rates.

The bank’s loans portfolio shrank at faster rate of 7.3 percent YoY. As a result, the loans-to-deposits ratio declined 3.8 percent to 80.0 percent.

“Looking ahead, the growth in loans will be limited if the bank has not witnessed an expansion of deposits”, Albilad Cap said, adding that “We believe that the bank focused on raising the lending profitability by taking advantage of higher interest rates, instead of raising loan volumes, given the current climate as well as the expectation of issuing new local bonds by government, which will lead to pressure on deposits and loans growth”.

Albilad Capital has reiterated the stock’s target price at SAR 12.45, and recommended a “Neutral” rating.