Banque Saudi Fransi (BSF) reported 3Q16 net income of SAR1,010mn, 4% lower Q-o-Q and broadly in line with our and Bloomberg consensus estimates.   Main positives: i) Improvement in spreads (+9bps Q-o-Q); ii) Strong loan growth (+3.3% Q-o-Q); iii) Strong deposit growth (+6% Q-o-Q)   Main negatives: i) Increase in provisioning costs (est. cost of risk of 26bps); ii) Weaker non-interest income (-12% Q-o-Q)   Our take on the results: A strong set of results, in our view. Net interest spreads edged up, as cashflow hedges are likely to have been reset during this quarter, driving an uplift. As expected, non-interest income was weak due to seasonality (Eid and summer holidays). We estimate provisioning costs almost doubled Q-o-Q from a low base, but it remains well below normalised levels. Balance sheet growth surprised positively, with both loans and deposits rising. Deposit growth was ahead of loan growth, driving down the bank’s regulatory LDR to 87%.   We rate BSF as one of the more defensive plays on credit quality, and it 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: SAR19.45 as of 11 October 2016, Rating: Buy, FV: SAR30.00 per share, MCap: USD6,252mn, BSFR AB / 1050.SE