NCB reported 4Q18 net income of SAR2.6bn (EPS: SAR0.88), +8% Q-o-Q and +4% Y-o-Y. Sequential earnings growth was driven by lower provisioning, while Y-o-Y growth was boosted by net interest income and cost discipline. There is no consensus estimate available for NCB for 4Q18. For FY18, NCB reported profit of SAR10.7bn (EPS: 3.44), up 9% Y-o-Y on lower provisioning charges.
 
Key highlights:
        Spreads widen sequentially (+11bps Q-o-Q to 3.29%)
        Loan book contracts (-1% Q-o-Q vs. +1% in 3Q18)
        Deposits decline (-2% Q-o-Q)
        Cost of risk estimated at 62bps vs. 89bps in 3Q18 and 42bps in 4Q17
 
Our take on the results: Overall a decent set of results. NCB’s spreads rose 11bps Q-o-Q after a weak 3Q18, driven by a combination of higher asset yield and lower cost of funds. The benefit of rising interest rates typically flows through NCB’s spreads with a two quarter lag; hence, we see its spreads continuing to trend upwards in 2019 to reflect the two rate increases in 2H18. Loan book contracted sequentially this quarter, down 1.1% Q-o-Q; however, on a Y-o-Y basis, loan growth has been quite strong at 6.5% (likely to be well above the sector). Deposits also declined Q-o-Q, with LDR rising to 83% from 82% in 3Q18. While details are not available, the bank may have shed some term deposits this quarter, which has helped reduce its cost of funds. Non-interest income was weak, -7% Q-o-Q, and we believe fee income, which is sensitive to loan growth and trade, was likely weak sequentially. We estimate cost of risk in 4Q18 at 62bps, compared to 89bps in 3Q18 (3Q is a seasonally high quarter for provisioning at NCB) and 42bps in 4Q17. NCB’s credit quality metrics at end-3Q18 were satisfactory, with NPL ratio at 1.8% and NPL coverage at 154%. 

Shabbir Malik
 
National Commercial Bank: SAR52.00 as of 21 Jan. 2019, Rating: N/R, MCap: USD41,600mn, NCB AB/1180.SE