Banque Saudi Fransi (BSF) reported 2Q16 net income of SAR1,048mn, 3% lower Q-o-Q. Earnings were ahead of our forecast of SAR989mn, with the earnings beat driven primarily by lower-than-expected provisioning costs.   Main positives: i) Provisioning trends remain benign (estimated annualized cost of risk of 10bps); ii) Loan growth momentum accelerates (+4% Q-o-Q)   Main negatives: i) Weaker net interest spreads (-7bps Q-o-Q); ii) Lower non-interest income (-7% Q-o-Q); iii) Deposits decline (-3% Q-o-Q)   Our take on the results: Benign provisioning cost trends continue to support earnings as revenue growth remains sluggish. Though loan growth momentum was steady, we estimate that net interest spreads weakened – suggesting that deposit pricing outpaced loan re-pricing. The bank appears to have shed deposits, likely to protect spreads. Non-interest income weakened as investment income eased from a high base in 1Q16. We rate BSF as one of the more defensive plays on credit quality and remains our top pick in the sector. However, we maintain our view that 2016 is likely to be challenging. (Earnings release, Murad Ansari)   Banque Saudi Fransi: SAR22.40 as of 12 July 2016, Rating: Buy, FV: SAR30.00 per share, MCap: USD7,200mn, BSFR AB / 1050.SE