Alawwal Bank’s net profit of SAR 363 million for the third quarter of 2017 exceeded Riyad Capital and consensus estimates of SAR 309 million and SAR 291 million, respectively.
“The deviation versus our estimate stems primarily from lower than expected operating expenses, most likely on the back of a drop in provisioning this quarter,” the brokerage said in an earnings review.
Net income also came in ahead of market consensus due to lower than expected provisions on loans, the report added.
Net special commission income (NSCI) came in line with estimates, edging up 2 percent quarter-on-quarter (QoQ) to SAR 713 million due to a 3 percent drop in special commission expense, as the bank managed to decrease the cost of funds that had peaked in Q4 last year.
Special commission income in Q3 was flat QoQ mirroring SAIBOR movement.
Deposits slightly fell to SAR 81.1 billion for the quarter, pointing towards a strategy of depleting expensive deposits, the report said.
Meanwhile, net loans in Q3 declined by SAR 2 billion QoQ to SAR 68.7 billion.
“While we understand that credit demand has been soft on the back of economic slowdown, there is a need to grow higher-yielding assets,” the brokerage said.
The loan-to-deposit ratio contracted to 80.8 percent by the end of Q3 from 83.2 percent in the previous quarter.
Alawwal Bank is believed to have chosen to grow investments by SAR 1.4 billion QoQ as availability and attractiveness of government paper has improved of late, Riyad Capital said, noting that this is an emerging sector trend.
The brokerage maintained a “Neutral” rating on the stock with a target price of SAR 14 per share.
“Although we see some positive signs, it is too early to change our view on the bank particularly due to the upcoming merger with SABB,” Riyad Capital said.
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