Key highlights:
        Spreads contract (-15bps Q-o-Q/ -29 bps Y-o-Y to 3.09%)
        Subdued loan growth (+1% Q-o-Q and +6% Y-o-Y) 
        Strong growth in investments (4% Q-o-Q and 22% Y-o-Y)
        Lower provisioning (cost of risk: 69bps vs 105bps in 4Q17) 
 
4Q18 earnings broadly stable Q-o-Q; in line with consensus. Alinma Bank reported 4Q18 net income of SAR661mn, up 1% Q-o-Q and 18% Y-o-Y. Earnings were broadly in line with consensus estimate of SAR639mn (+3%). 
 
Full-year profit up 25%: The bank’s 2018 profit was up 25% Y-o-Y to SAR2,517mn (EPS: SAR1.69), driven by strong non-interest income and lower provisioning charges. 
 
Our take on the results: Net interest income weakened sequentially in 4Q18, as spreads appear to have tightened, and as loan growth was weak. We estimate that spreads were down 15bps Q-o-Q to 3.09%, after two quarter of sequential expansion, due to an increase in cost of funds. Non-interest income typically tends to be strong for Alinma in 4Q: it was up 43% Q-o-Q (down 3% Y-o-Y). Fund management and other banking services have been the driver of the bank’s fee income. Following a strong 2Q18, loan growth has tapered off in 2H18: loans were up a modest 1% Q-o-Q in 4Q18. The bank’s Y-o-Y loan growth has decelerated to 6% in 2018, from 12% in 2017 and 23% in 2016. Investment book growth, however, continues to be robust, at 4% Q-o-Q and 22% Y-o-Y. Credit quality appears to be decent. We estimate that provisioning declined 37% Y-o-Y in 4Q18, with cost of risk at 69bps in 4Q18 vs 105bps in 4Q17. Its credit quality had deteriorated in the previous quarter, with its NPL ratio rising 28bps Q-o-Q to 1.34% in 3Q18.

Shabbir Malik
 
Al Inmaa Bank: SAR24.58 as of 29 Jan 2019, Not Rated, MCap: USD9,832mn, ALINMA AB/1150.SE