Alawwal Bank reported 4Q18 net profit of SAR310mn, up 10% Q-o-Q & 16% Y-o-Y. Earnings beat our estimate of SAR267mn (consensus of SAR296mn ), driven by stronger-than-expected revenue. For the full year 2018, the bank reported a profit of SAR1.13bn, down 15% Y-o-Y due to lower non-interest income.
 
Our take on the results:  Decent results overall. Spreads widened 18bps Q-o-Q to 3.30%, driven by higher yield on assets. This was the fourth consecutive quarter of spread expansion for the bank. Non-interest income rose 11% Q-o-Q but was stable Y-o-Y. Provisioning continues to be high, with cost of risk at 199bps for 4Q18 ( 183bps in 2018). The bank’s credit quality metrics were relatively weak at the end of 3Q18 – NPL ratio of 4% and NPL coverage of 157%. We however expect Alawwal’s clean-up effort in 2018 to set the stage for a stronger 2019, as the bank heads for a merger with SABB, likely by the end of 1H19. Loan book declined 2% Q-o-Q and 9% Y-o-Y, likely due to weak corporate demand and repayments pressure. Deposits broadly tracked loans as they were down 1% Q-o-Q. 
 
Key highlights: Spreads up 18bps Q-o-Q to 3.30%; loan book declines (-2% Q-o-Q / -9% Y-o-Y); provisioning continues to be high (cost of risk 199bps). 

Shabbir Malik
 
Alawwal Bank: SAR16.30 as of 11 Feb. 2019, Rating: Buy, TP: SAR18.00/share, MCap: USD4,969mn, ALAWWAL AB/1040.SE