Samba Financial Group (Samba) reported 4% Q-o-Q growth in 2Q16 net income to SAR1,314mn. Earnings were 4% ahead of our estimates of SAR1,274mn.   Main positives: i) Improvement in net interest spreads (+14bps Q-o-Q); ii) Provisioning costs remain low (est. cost of risk of 7bps)   Main negatives: i) Decline in loans (-1.2% Q-o-Q); ii) Decline in deposits (-3.5% Q-o-Q); iii) Weaker non-interest income (-6% Q-o-Q)   Our take on the results: We estimate net interest spreads had improved 14bps Q-o-Q, the second successive quarter of improvement. The bank shed excess liquidity – deposits declined 3.5% Q-o-Q – which, along with loan re-pricing, supported spreads, in our view. Pre-provision profits were in line with our estimates; however, Samba’s provisioning costs continue to remain low – est. cost of risk of only 7bps in 2Q16 – which drove the earnings beat. We view the bank’s current provisioning level as unsustainable and expect a gradual pick-up over 2H16. Balance sheet contracted, with both net loans and deposits declining Q-o-Q. Non-interest income weakened sequentially, which -according to disclosures- was due to lower fee, forex and investment income. Samba remains our top pick amongst Saudi banks. Our preference is driven by the bank’s strong balance sheet liquidity levels, which allow the bank to manage funding cost pressures, leverage to higher interest rates, and strong credit quality management track record. (Earnings release, Murad Ansari)   Samba Financial Group: SAR20.43 as of 17 July 2016, Rating: Buy, FV: SAR25.00 per share, MCap: USD10,896mn, SAMBA AB / 1090.SE