Riyad Bank reported 2Q18 net profit of SAR1,062mn (EPS: SAR0.35), -7% Q-o-Q and +25% Y-o-Y. Earnings were ahead of our estimate of SAR990mn but came in line with consensus of SAR1,020mn. Earnings were down 7% Q-o-Q due to higher provisioning; however, we note that Riyad’s provisioning in 1Q typically tends to be low relative to the other quarters of the year.
 
Key positives:
        Strong improvement in spreads (+20bps Q-o-Q to 2.91%)
        Good loan growth (+2% Q-o-Q) 
 
Key negative:
        Higher-than-expected provisioning (cost of risk 84bps vs. our estimate of 76bps)
 
Our take on the results: Overall, a good set of results, driven by strong trends in spreads and loan growth. Earnings came ahead of EFGe on stronger-than-expected revenues. Revenues rose 2.0% Q-o-Q (9.5% Y-o-Y), driven by net interest income, which rose 7% Q-o-Q (11% Y-o-Y). Spreads were the key positive surprise, as they widened 20bps sequentially to 2.91%, after expanding 8bps in 1Q18, against a backdrop of higher rates with SAIBOR up c50bps sequentially. Riyad’s asset yield rose 31bps Q-o-Q, while its CoF was up just 12bps sequentially. Non-interest income was down 11% Q-o-Q (+7% Y-o-Y) from a high base, in our view, and mgmt. comments suggest that the decline was due to lower fees and investment income. Loan growth continues to be strong as loans expanded 2% Q-o-Q in 2Q18 after growing 3% Q-o-Q in 1Q18. Mgmt. has been upbeat on loan growth, eyeing 6% in 2018, backed by an improving macro, demand from strategic projects and REITs. Deposits rose 1% Q-o-Q, which drove up the LDR to 94% from 93% in 1Q18. Provisioning declined 17% Y-o-Y; however, it was higher than expected. The bank’s cost of risk was 84bps in 2Q18 vs. our estimate of 76bps. 

Riyad Bank: SAR17.42 as of 16 Jul. 2018, Rating: Buy, TP: SAR20.00/share, MCap: USD13,936mn, RIBL AB/1010.SE
Shabbir Malik