• Earnings weaken 10% Q-o-Q on lower non-interest income Samba reported headline net income of SAR1,232 million, 10% lower Q-o-Q, but broadly in line with our estimate. As anticipated, earnings were hit by a sharp decline in non-interest income. We believe that investment income, which had contributed strongly (c8% on average) to revenues over the past three quarters, weakened significantly in 4Q2015. Fee income is likely to have recovered on loan book expansion after sluggish growth in the previous quarter. We have a Buy rating on Samba as we believe that the bank’s relatively high balance sheet liquidity compared to peers, positions it strongly in the current environment of liquidity squeeze.
• Spreads recover as bank utilises liquidity cushion Samba’s capitalised on its strong balance sheet liquidity advantage by shedding deposits to protect spreads from funding cost pressures. We estimate that the bank’s net interest spreads rose 5bps Q-o-Q. This was largely helped by the bank likely opting to not roll over deposits at higher rates prevailing in 4Q2015. The bank’s deposit base contracted by c2% Q-o-Q, pushing up the bank’s loans-to-deposit ratio (LDR) by c300bps. However, at 76%, Samba’s LDR is still one of the lowest in the sector, and gives sufficient headroom for the bank to manage liquidity pressure.
• Loan growth recovers after a dip 3Q2015 Samba’s net loans grew 2% Q-o-Q in 4Q2015, recovering from a dip in the previous quarter, which the management attributed to maturities. A slowdown in payments from the government is likely to have driven corporate credit demand due to higher working capital requirements. For FY2015, loans grew 4% Y-o-Y, its slowest pace of growth since 2Q2011. We forecast Samba’s loans to grow at 4% Y-o-Y for 2016, marginally below our 5% Y-o-Y sector-average loan growth estimate.

Murad Ansari