Key highlights:
      Modest loan growth (+0.8% Q-o-Q on a gross basis)
      Strong growth in investments (18% Q-o-Q, 33% Y-o-Y)
      Reduction in deposits (-4% Q-o-Q)
      Spreads widened 3bps Q-o-Q to 2.79%
      Higher-than-expected provisioning costs (cost of risk 95bps vs. our estimate of 83bps)
      OPEX down 10% Y-o-Y
 
Saudi British Bank (SABB) reported 1Q18 net profit of SAR1,039mn (EPS: SAR0.69), +47% Q-o-Q and +0.3% Y-o-Y. Earnings came in line with our estimate of SAR1,075mn and consensus of SAR995mn.
 
Our take on the results: Earnings were in line with our estimate as lower operating costs (OPEX) compensated for higher-than-expected provisioning and weaker non-interest income. Revenues rose 2% Q-o-Q, driven by a 4% Q-o-Q increase in non-interest income. Loan growth was modest, which we estimate 0.8% Q-o-Q on a gross basis, while deposits declined 4% Q-o-Q. As a result, the bank’s liquidity tightened, with LDR rising to 86% from 83% at end-4Q17. Spreads widened by a marginal 3bps Q-o-Q to 2.79% (up sequentially two quarters in a row). Non-interest income rose 4% Q-o-Q, and mgmt. comments suggest the improvement was driven by fee income. Provisioning declined Q-o-Q from a high base, which we believe, however, is still elevated. SABB’s cost of risk was 95bps in 1Q18 vs. 147bps in 4Q17 (EFGe: 83bps). The bank’s credit quality metrics at end-4Q17 were decent, with NPL ratio at 1.6% (+20bps Q-o-Q) and NPL coverage at 188% (vs. 196% in 3Q17). (Company disclosure, Shabbir Malik)
 
Saudi British Bank: SAR32.85 as of 7 May. 2018, Rating: Neutral, TP: SAR30.00/share, MCap: USD13,140mn, SABB AB/1060.SE