• Provision spike drives 35% Q-o-Q decline in earnings We estimate that SAIB’s provision costs surged by c5x Q-o-Q driving a 35% Q-o-Q drop in earnings to SAR228 million in 4Q2015, well short of our estimate of SAR344 million. Detailed financials are not yet available, but we believe that earnings were dented by a combination of credit and investment provisions. The sharp decline in stock prices in 1H2015 could have prompted the bank to book impairments on its available-for-sale portfolio, driving a strong provision increase in 4Q2015. We have a Neutral rating on SAIB. The bank has one of the weakest CASA deposit franchises in the sector, which could hurt the bank’s net interest spreads in a tighter liquidity environment.
• Loan growth resumes after four quarters… After remaining broadly unchanged in the past four quarters, SAIB’s loan balance rose 4% Q-o-Q in 4Q2015. This was likely driven by the expansion in the corporate loan book as working capital requirements rose due to the slowdown in government payments. Loan growth of 4.4% for FY2015 marks a sharp slowdown in growth momentum for SAIB from a loan CAGR (2011-14) of 28%.
• …but at the cost of net interest spreads We estimate that SAIB’s net interest spreads weakened 8bps Q-o-Q, giving up most of the gains made over the past three quarters. Funding costs are likely to have moved up as the banks raised deposits to fund loan growth. Deposit pricing pressure is also likely to have been magnified by the tighter liquidity environment in 4Q2015. With a relatively low CASA deposit mix (31% in 3Q2015 versus sector average of 67%), SAIB is relatively more exposed to fluctuations in deposit rates.

Murad Ansari