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17-Apr-2016

SHB 1Q2016 first glance: Strong non-interest income drives earnings surprise

Saudi Hollandi Bank (SHB) reported 1Q2016 net income of SAR512 million, 13% higher Q-o-Q, and 7% ahead of our forecast of SAR479 million.   Main positives: i) Loan growth (+2.9% Q-o-Q); ii) Non-interest income growth (+17% Q-o-Q)   Main negatives: i) Decline in net interest spreads (-4bps Q-o-Q); ii) Decline in deposits (-3.7% Q-o-Q)   Our take on the results: A decent set of result, in our view. Earnings surprise was mainly on stronger-than-expected non-interest income, which rose 17% Q-o-Q. According to the company disclosure, forex and trading income improved Q-o-Q. We estimate that net interest spreads weakened 4bps Q-o-Q, likely dented by higher funding costs. While net loans grew 3% Q-o-Q, deposits declined 4% Q-o-Q, putting pressure on the bank’s loans-to-deposit ratio. Adjusted for the LT loans, LDR stood at 87.6%, which could drive further pressure on spreads over the next quarter, in our view. Provisioning trends remained benign. (Earnings release, Murad Ansari)   Saudi Hollandi Bank: SAR26.01 as of 14 April 2016, Rating: Buy, FV: SAR33.50 per share, MCap: USD3,964 million, AAAL AB / 1040.SE

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