• Earnings jump 53% Q-o-Q The Saudi Investment Bank’s (SAIB) 2Q16 earnings jumped 53% Q-o-Q to SAR321mn, which was in line with our forecast of SAR324mn. We estimate provisions almost halved Q-o-Q on lower credit costs and a decline in investment impairments. We estimate that SAIB’s credit costs eased to 46bps in 2Q16 compared to 77bps in 1Q16 after a strong build up in NPL coverage, which had risen to 211% in 1Q16. On the other hand, investment impairments on the bank’s domestic equity portfolio also declined from a high base in 1Q16. We maintain our Neutral rating on SAIB.
• Non-interest income was the key area of surprise SAIB’s non-interest income rose 8% Q-o-Q against our expectation of a slight decline. According to the bank’s results disclosure, fee, forex and dividend income rose Q-o-Q. However, gains on investment eased Q-o-Q, after rising in the previous quarter.
• Spreads were broadly stable Q-o-Q as deposits decline We estimate SAIB’s net interest spreads were 1bps higher Q-o-Q, stabilising after a sharp decline in the previous quarter. The sharp decline in the bank’s deposit base (4% Q-o-Q) suggests that the bank shed some of its expensive deposits to protect spreads.
• Loan book contracts Loan growth momentum continued to ease, with net loans declining 0.6% Q-o-Q in 2Q16. SAIB’s net loans had risen strongly in the previous two quarters, driven mainly by expansion in the retail loan book. While the bank’s loan-to-deposit ratio, adjusted for long-term loans, rose to 85%, it remains comfortably below the regulatory ceiling of 90%.

Murad Ansari