BUY. Riyad Bank. Investment Update. Target Price SR Global Research - Saudi Arabia

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1 Market Data Bloomberg Code: RIBL AB Reuters Code: 1010.SE CMP (6 th Mar. 2010): SR28.0 O/S (mn): 1,500.0 Market Cap (SRmn): 42,000.0 Market Cap (US$mn): 11,200.0 P/E 2010e (x): 12.1 P/Bv 2010e (x): 1.5 Price Performance 1-Yr High /Low (SR): 30.0/18.6 Average Volume: 624,408 Market Data 1m 3m 12m Absolute -1.1% 4.5% 40.9% Relative -4.1% 2.0% 4.7% Price Index Performance 6,700 6,400 6,100 5,800 5,500 5,200 4,900 4,600 4,300 4,000 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Tadawul -lhs Aug-09 Sep-09 Oct-09 Source: Zawya & Tadawul Nov-09 Dec-09 Jan-10 Feb-10 Mar RIBL (SR) -rhs Global Research - Saudi Arabia Strong corporate relationships (in private & public sectors). Well positioned to capture higher share of infrastructure spending. Net income & assets to post CAGR ( ) of 17.5% & 9.6%. Investment Update BUY Target Price SR 31.2 Well capitalized to harness the growth (RIBL) holds attractive growth potential arising from its various business segments, with list including (i) strong corporate relationships (both in private & public sectors), (ii) under-utilized retail network offering good platform for cross-selling opportunities of various product & services, (iii) robust trade finance and corporate finance & advisory business, (iv) well positioned to capture higher share of increased infrastructure public spending, and (v) significant business of government receipts routed through its branch network. Encouraging performance despite all pressures RIBL with net income increase of 14.8% during the challenging 2009, posted an improved core banking performance (rise of 10.1%) coupled with non-commission income increase of 23.9%. The bank s fee & commission income (FY09) growth of 3.0% was led by trade, corporate finance & advisory business posting a rise of 28.5%. The bank s improved top-line performance was able to comfortably absorb the provisioning increase of 40.8% (driven by rise in credit losses by 77.2%) in FY09. Overall, we believe in improved growth prospects of RIBL and estimate net income increase of 14.2% in FY10 with a 4-year ( ) CAGR of 17.5%. Better equipped for asset quality deterioration The bank with NPL ratio of 1.2% and NPL coverage increasing to 141% (FY09) has an improved position against any possible asset quality deterioration. RIBL with comfortable capital adequacy ratio (18.3%) posted an asset, loan & deposit growth (FY09) of 10.5%, 10.4% & 19.2%, respectively. During 2010, we expect the bank s interest rate spreads to largely hover around the current levels of 3.0%, while estimate it to increase from 2011, reaching 3.3% by We expect assets, loans and deposits to record a 4-year ( ) CAGR of 9.6%, 13.9% & 13.7%, respectively, and gross loans to deposit ratio between 85% to 88% (during ). Attractive both on valuation multiples & fair value Based on the CMP of SR28.0 per share (as on Mar 06, 2010), the bank is traded at 2010E P/E and P/BV multiples of 12.1x and 1.5x, which shows that RIBL is presently offered at a discount of 13% (PE basis) and 29% (PBV basis) to the sector 2010 estimates. According to our fair value of RIBL at SR31.2 per share, the banking scrip offers an upside of 11.3% on the closing price of SR28.0 per share. Therefore, we maintain our recommendation of Buy on the RIBL stock with a medium term perspective. Mohammad Ali Shah Financial Analyst mashah@globalinv.com.sa Phone No: (966) ext. 951 Table 01: Investment indicators Year Net income EPS BVPS ROAE P/E P/BV (SR mn) (SR) (SR) (%) (x) (x) 2013 E 5, E 5, E 4, E 3, A 3, Source: Company Reports & Global research *Historical P/E & P/BV multiples pertain to respective year-end prices, while those for future years are based on closing prices on Tadawul as of Mar 06,

2 Valuation & Recommendation For arriving at the fair value of RIBL share, we have used the two valuations methods (DDM & GGM). Dividend Discounting Model - DDM Our use of DDM valuation is based on a 4-year forecast of dividends as cash flows ( ). We have used following assumptions in order to arrive at the equity value of the bank: - Cost of Equity (COE) derived using Capital Asset Pricing Model (CAPM) is estimated to be 11.6% based on the following assumptions: - Risk free rate of 5.6% - Market risk premium of 6.0%. - Beta of 1.0 (based on 5 years monthly data from Bloomberg). If the actual beta of the bank is less than 1 or if the data available is of less than 5 years, we have taken it as 1. - Terminal growth rate (g) of 3.0%. Table 02: DDM valuation (SR mn) 2010E 2011E 2012E 2013E Dividends Expected 2,403 2,932 3,780 4,593 Terminal Value 55,202 NPV of Dividends Expected 10,694 NPV of Terminal Value 37,363 Estimated Fair Value of Equity 48,057 Outstanding shares (mn) 1,500 DDM Value of RIBL per share (SR) 32.0 Source: Global Research Sensitivity Analysis We have also prepared a sensitivity analysis for the estimated fair price of the share based on various terminal growth rates and COE. Table 03: Sensitivity analysis -DDM Cost of equity Source: Global Research Terminal Growth Rates 2.0% 2.5% 3.0% 3.5% 4.0% 10.6% % % % % Gordon Growth Model - GGM The adaptation of the Gordon Growth model uses the sustainable return on average equity (ROAE), cost of equity (COE) and expected growth in earnings (g) to calculate the target P/ BV of the bank. Under this methodology, we have used the following assumptions to arrive at the fair value of the bank: 2

3 - Sustainable ROE calculated as the average ROAE of the forecasted 4 years. - Cost of Equity derived using CAPM, using the same assumptions as in the DDM. - Terminal growth rate of 3.0%, similar to the DDM. Table 04: Gordon Growth Model Sustainable ROE (%) 15.8 COE (%) 11.6 Terminal Growth Rate (%) E: P/BV target multiple (x) E: BV/Share (SR) 18.6 GGM Value of RIBL per share (SR) 27.7 Source: Global Research Sensitivity Analysis This sensitivity analysis shows the movement in fair value as a consequence of different ROE and COE assumptions. Table 05: Sensitivity analysis -DDM Cost of equity Source: Global Research Return on Equity 14.8% 15.3% 15.8% 16.3% 16.8% 10.6% % % % % Valuation Based on the current market price of SR28.0 per share (as on Mar 06, 2010), the bank is traded at 2010E P/E and P/BV multiples of 12.1x and 1.5x, which shows RIBL is trading at a discount of 13% (PE basis) and 29% (PBV basis) to the sector 2010 estimates. Table 06: Valuation summary Price (SR) Weight Weighted Value (SR) DDM % 25.6 GGM % 5.6 Estimated Fair Price of RIBL per share 31.2 Source: Global Research According to our estimated fair value of RIBL at SR31.2 per share, the banking scrip offers an upside of 11.3% on the closing price (as on Mar 06, 2010) of SR28.0 per share. Therefore, we maintain our recommendation of Buy on the RIBL stock with a medium term perspective. 3

4 - Financial Update (RIBL) recording net income increase of 14.8% during the challenging 2009, posted an improved core banking performance (NII rise of 10.1%) coupled with noncommission income increase of 23.9%. The bank s fee & commission income (FY09) growth of 3.0% was led by trade finance and corporate finance & advisory business showing rise of 28.5%. Overall the encouraging financial performance was able to absorb the total provisioning increase of 40.8% in The increased provisions mainly arose from inflated charges for credit losses that rose by 77.2%, while the charge for investments dropped by 32.3% in The rise in provisioning for credit losses was recorded as the bank followed a conservative policy stance in the wake of softening in business activity. We estimate the overall provisioning (FY10) to drop by 16.9% and net income to increase by 14.2%, based on our expectations of uncertainties starting to clear up and business activity to gradually pick up in Chart 01: Income performance 250% 200% 150% 100% 50% 0% -50% -100% E 2011E 2012E Net interest income (lhs) Fee & commission income (lhs) Exchange, investment & other income (lhs) Net income growth (rhs) 25% 20% 15% 10% 5% 0% -5% -10% -15% Chart 02: Income stat. provisions 25% 20% 15% 10% 5% 0% E 2011E 2012E Prov./Net int. inc. (lhs) Prov./Net income (lhs) IS -prov. growth (rhs) 80% 60% 40% 20% 0% -20% The inflated levels of prov./nii at 16.9% and prov./net income at 24.3% in 2009, are expected to drop to 12.7% and 17.7%, respectively in Besides, the drop in provisions (esp. for credit losses), the improved core and non-core banking are also believed to be the drivers of improvement in Chart 03: Segmental net income (SR mn) 2,200 2,000 1,800 1,600 1,400 1,200 1, (200) (400) Retail Inv. banking & brokerage Corporate Treasury & inv. Other Chart 04: Provisions details (SR mn) Retail Corporate Treasury & inv The income from corporate segment (main driver) posted FY09 growth of 11.5% & constituted 68% of the total income. The significant provisioning increases by 3.5x for corporate is believe to be one-off highs and are expected to start decreasing from The status of nil provisions for inv. banking & brokerage continued in 2009, while the decline in provisions for treasury & inv. by 32% in FY09 is expected to further reduce in the year ahead. 4

5 Banking spreads bottoming out The bank s interest rate spreads after touching highs of 3.6% in 2007, dropped to around 3.0% in FY09. Our estimates suggest RIBL s interest rate spreads to start increasing from 2011 reaching 3.3% by Since Jun2009, repo rate maintained at 2.0% and reverse repo rate at 0.25% indicates stability in the government policy rates with low chances of further cuts because of improving market conditions. However, inching up of interbank market rates (that may also be used as benchmark for lending rates), signals a rising demand of funds amongst financial institutions. We believe that with little room left to further lower banks cost of funds, while lending rates having higher chances to increase, the spreads will largely hover around the current levels if not improve marginally in Chart 05: Banking spreads 7.5% 6.5% 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% E 2011E 2012E Yield on Earning Assets (lhs) Cost of Funds (lhs) Spreads (rhs) 3.8% 3.6% 3.4% 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% Chart 06: Interest rates market 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Repo Rate Reverse Repo rate SAIBOR3M Source: SAMA, Bloomberg, & Global Research Jan-10 Balance sheet growth continues Despite the lackluster market conditions, the bank recorded asset growth of 10.5% in FY09, dominated by corporate assets constituting 50.9% of the total. RIBL with strong capital base and comfortable capital adequacy (2009: 18.3% CAR) position, posted loan growth of 10.4% and deposit growth of 19.2% in FY09. We expect assets, loans and deposits to record annual (FY10) growth of 8.3%, 14.2% & 15.7%, respectively and gross loans to deposit ratio between 85% to 88% (during ). Chart 07: Loan and deposit base (SR bn) Loans (lhs) Loan growth (lhs) LTD (lhs) 2010E 2011E 2012E Deposits (rhs) Deposit growth (lhs) 95% 85% 75% 65% 55% 45% 35% 25% 15% 5% Chart 08: Funding base 85% 75% 65% 55% 45% 35% 25% 15% 5% E 2011E 2012E Deposits /Assets (lhs) Equity /Assets (lhs) Assets growth (rhs) 35% 30% 25% 20% 15% 10% 5% 0% The bank s funding base (FY09) remains dominated by deposits constituting 71% of the total assets, while equity to assets ratio at 16%. The deposit mix consisted of 62% time, followed by 32% in demand deposits. NPL coverage of around 140% maintained... RIBL with NPL coverage increasing to 141% in 2009 (FY08: 132%) has an improved position against any possible asset quality deterioration. The bank s loan portfolio dominated 5

6 by commercial loans (77% of total) posted (FY09) an increase of 10.4%. RIBL with almost negligible to minimum exposure to debt issues arising from Saad and Algosaibi groups, largely remains clear of those credit fears. However, as the bank pruned through its credit portfolio in 2009, the bank also decided to write-off SR228.5mn of NPLs (related to commercial loans). Following a conservative approach in the wake of general market conditions, the bank increased its net impairment charge for credit losses by 77.2%, while recording a reduction in net NPLs by 1.3% in FY09. An increase in gross loans by 10.4% while NPLs reduced, led to drop in NPL ratio from 1.3% in 2008 to 1.2% in We expect NPLs to grow at an avg. ( ) of 22%, while NPL ratio is estimated to reach 1.4% with NPL coverage at 154.1% by Chart 09: Credit quality 178% 148% 118% 88% 58% 28% -2% E 2011E 2012E 1.6% 1.5% 1.4% 1.3% 1.2% 1.1% NPLs /Gross loans (rhs) NPLs growth (lhs) NPL coverage (lhs) The net NPLs for commercial loans recording an increase (FY09) of 10.8% also overshadowed the total NPLs constituting 91.2% of total. This was followed by overdraft NPL composing 6.2% of total. Chart 10: NPLs segment wise (SR mn) 1,400 1,200 1, Overdrafts Commercial loans Others Chart 11: Provisions by segment (SR mn) Overdrafts Commercial loans Others The bank maintaining its prudent stance also increased the allowance for impairment for commercial loans by 36%. However, net NPLs for overdraft recorded a decrease of 59.7% and its allowance for impairment also reduced by 60.4% during Investments dominated by government securities The bank s investments portfolio while still dominated by government & quasi-government securities witnessed a drop of 19.9% in FY09. The dominance of government securities on investment book is a comforting factor considering the debt issues faced by both regional & international corporations. Since Sep2008, the bank has reclassified its investments in fair value through income statement (FVIS) to the available for sale (AFS) category. We 6

7 believe that following this recognition standard somewhat reduces income statement volatility because for AFS any gain or loss arising from a change in (un-hedged) fair value is recognized under equity. Although the bank s AFS portfolio in terms of total investments increased to 40.3% in 2009 from 29.0% in 2008, RIBL s well capitalized balance sheet holds adequate cushion to absorb any unexpected losses as AFS to total equity ratio stood at 46.1% in FY09 (2008: 45.5%). Chart 12: Investments classification (SR bn) % 100% 80% 60% 40% 20% AFS portfolio (lhs) AFS /Total investments (rhs) Total investments (lhs) AFS /Equity (rhs) Although government and quasi-government securities continued to overshadow the portfolio, its portion in total decreased from 75% in 2008 to 60% in In addition the bank also restructured its investment portfolio by increasing the proportion of quoted securities to 42% in FY09 (2008: 27%), which also recorded an annual increase (FY09) of 25.5%. Chart 13: Investments detail 2009 Chart 14: Quoted & unquoted invt. Banks & Other FIs 19% 80% 70% 60% 50% 40% Corporate 21% Gov. & quasi Gov. 60% 30% 20% 10% 0% Source: Company reports Source: Company reports Overall, the bank net impairment charge for investments posted an annual decline of 32.3% in FY09, along with allowance for impairment on investments also witnessing a significant drop of 59.1% in FY09 (mainly due to the elimination of impairment charge for quoted investments of SR62mn in 2008). 7

8 Outlook RIBL with 13% share of both total banking assets and deposits, maintains robust balance sheet structure. We expect the bank s assets, loans and deposits to record a 4-year ( ) CAGR of 9.6%, 13.9% & 13.7%, respectively. The bank s encouraging profitability growth of 14.8% during the year (2009) of global turmoil, cements our faith in RIBL s ability to sustain healthy future profits recording net income increase of 14.2% and asset growth of 8.3% in Overall, the bank holds attractive growth potential arising from its various business segments. - Strong corporate relationships (both in private & public sectors). - Under-utilized retail network offering cross-selling opportunities for product & services. - Well positioned to capture higher share of increased infrastructure public spending, high share of government ownership (c. 50%) in the bank. - Significant business of government receipts routed through its branch network (3rd largest in the Kingdom, with 216 branches). - Robust trade finance and corporate finance & advisory business. - Well capitalized balance sheet with TIER-1 ratio of 15.8%. Chart 15: DuPont analysis 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% E 2011E 2012E Net profit margin (lhs) Asset turnover (lhs) Return on Equity (lhs) Leverage (rhs) The dip in the bank s ROE in 2008, besides subdued income in that year, can largely be attributed to boost in capitalization after 2Q08 rights issue. Thus, lowering leverage from 9.2x in FY07 to 6.2x in FY08. We expect the leverage to gradually grow to 7.8x by 2012, while net profit margins to consistently remain above 52% during the period of With asset turnover ratio estimated between 3% to 5% during , we expect the bank to effectively employ its capital strength enhancing its ROE to 18% by 2012; moving closer towards pre-rights issue ROE of more than 25% over the medium term. 8

9 Balance Sheet (SR 000 ) E 2011E 2012E 2013E Cash & balances with SAMA 16,579,009 11,078,032 23,419,303 18,712,681 14,044,257 12,422,395 11,763,196 Due from banks and other FI s 4,168,405 6,257,050 8,704,462 10,010,131 8,909,017 8,018,115 8,258,659 Trading investments 4,177,933 2,169,607 2,183,925 2,445,996 2,984,115 3,461,574 3,807,731 Non-trading investments 23,563,722 38,159,447 30,124,152 32,232,843 35,456,127 40,774,546 44,036,510 Net Loans and advances 67,340,425 96,429, ,514, ,610, ,986, ,463, ,496,562 Net fixed assets 1,472,211 1,630,306 1,830,157 2,189,061 2,696,432 3,048,061 3,452,434 Other assets 4,049,120 3,928,237 3,622,646 3,803,778 3,993,967 3,794,269 3,983,982 Total Assets 121,350, ,652, ,399, ,004, ,069, ,982, ,799,074 Due to banks and other financial institutions 17,798,326 21,213,194 16,163,012 12,283,889 11,055,500 10,502,725 9,977,589 Customers deposits 84,331, ,055, ,278, ,946, ,384, ,538, ,654,323 Debt Securities in Issue 1,872,017 1,873,932 1,873,403 1,873, Other liabilities 4,162,480 5,819,402 4,849,293 4,073,406 3,788,268 3,977,681 4,176,565 Total Liabilities 108,164, ,962, ,163, ,177, ,228, ,018, ,808,477 Share capital 6,250,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 Statutory reserve 5,189,282 10,223,971 10,981,592 11,847,123 12,874,966 14,131,990 14,998,796 Other reserves 195,411 (939,690) 605, , , , ,636 Proposed dividend 1,075,000 1,131,000 1,135, Retained Earnings 477, , , , , , ,164 Total shareholders equity 13,186,795 25,690,451 28,235,444 27,827,511 28,841,945 29,963,574 30,990,597 Total Liabilities and Shareholders Equity 121,350, ,652, ,399, ,004, ,069, ,982, ,799,074 Source: Company Reports & Global Research 9

10 Income Statement (SR 000 ) E 2011E 2012E 2013E Special commission income 6,209,586 6,736,708 5,814,294 6,511,052 7,675,202 9,470,696 11,177,411 Special commission expense (2,943,210) (2,789,894) (1,467,108) (1,692,874) (2,072,304) (2,699,148) (3,409,110) Net special commission income 3,266,376 3,946,814 4,347,186 4,818,179 5,602,897 6,771,547 7,768,301 Impairment charge for credit losses, net (345,530) (349,070) (618,539) (553,051) (579,249) (609,474) (652,903) Net special commission income after PLLs 2,920,846 3,597,744 3,728,647 4,265,128 5,023,648 6,162,074 7,115,398 Fee & commission income, net 1,010,543 1,187,288 1,222,513 1,283,639 1,373,493 1,510,843 1,631,710 Exchange income, net 271, , , , , , ,440 Trading income /(losses), net 479,619 (282,663) (5,971) 71, , , ,500 Gains /(losses) on non-trading investments, net 101,632 52,508 (18,650) 933 1,585 3,091 5,873 Other operating income 51,225 80, ,181 87,213 56,689 53,854 79,704 Total non-commission income 1,914,647 1,301,548 1,612,923 1,620,896 1,723,736 1,905,094 2,099,228 Total operating income 4,835,493 4,899,292 5,341,570 5,886,024 6,747,384 8,067,168 9,214,625 Salaries & employee related expenses (960,038) (1,052,708) (1,118,172) (1,207,626) (1,328,388) (1,487,795) (1,658,891) Rent & premises related expenses (166,389) (216,563) (226,915) (247,337) (284,438) (341,326) (395,938) Depreciation and amortization (195,013) (230,756) (262,248) (306,007) (364,400) (432,965) (497,910) Other G & A expenses (489,667) (575,948) (578,402) (595,754) (649,372) (766,259) (873,535) Impairment charge for investments, net - (174,105) (117,843) (58,922) Other operating expenses (13,140) (10,455) (7,505) (8,256) (9,411) (10,729) (12,338) Total operating expenses (1,824,247) (2,260,535) (2,311,085) (2,423,901) (2,636,010) (3,039,074) (3,438,612) Net Income 3,011,246 2,638,757 3,030,485 3,462,123 4,111,374 5,028,094 5,776,013 P&L appropriation Opening balance of retained earnings 293, , , , , , ,168 Net income 3,011,246 2,638,757 3,030,485 3,462,123 4,111,374 5,028,094 5,776,013 Transfer to statutory reserve (752,811) (659,689) (757,621) (865,531) (1,027,844) (1,257,024) (866,806) Gross dividends (2,075,000) (2,181,000) (2,035,000) (2,492,729) (3,042,417) (3,921,914) (4,765,211) Closing balance of retained earnings 477, , , , , , ,164 Source: Company Reports & Global Research 10

11 Cash flow statement (SR 000 ) E 2011E 2012E 2013E Net income 3,011,246 2,638,757 3,030,485 3,462,123 4,111,374 5,028,094 5,776,013 Accretion of discounts (144,697) (228,288) (377,167) Losses /(Gains) on investments, net (101,632) (52,508) 18,650 (933) (1,585) (3,091) (5,873) Depreciation 195, , , , , , ,910 Impairment charge for credit losses, net 345, , , , , , ,903 Impairment charge for investments, net - 174, ,843 58, Due from banks, FI s & SAMA deposits 1,945,304 (2,313,200) (2,419,825) (1,305,669) 1,101, ,902 (240,543) Investments held at fair value (34,646) 277,698 - (262,071) (538,119) (477,458) (346,157) Loans and advances (15,502,854) (29,438,491) (10,703,306) (15,648,926) (19,954,822) (21,086,494) (18,686,384) Other assets (1,774,205) 120, ,591 (181,132) (190,189) 199,698 (189,713) Due to banks and other FI s 9,631,294 3,414,868 (5,050,182) (3,879,123) (1,228,389) (552,775) (525,136) Customers deposits 15,139,589 20,724,339 20,222,560 19,668,663 20,437,494 23,153,797 21,116,263 Other liabilities 1,368,100 1,732,000 (986,516) (1,018,214) (339,662) 204, ,105 CF from operations 14,078,042 (2,370,011) 5,038,920 1,752,697 4,340,867 8,399,974 8,264,386 Net sale /purchase of investments (103,664) (13,668,952) 9,779,572 (2,166,680) (3,221,699) (5,315,328) (3,256,090) Capital expenditure (498,512) (388,851) (462,099) (664,910) (871,771) (784,594) (902,283) CF from investing (602,176) (14,057,803) 9,317,473 (2,831,590) (4,093,471) (6,099,922) (4,158,374) Rights issue - 13,125, Debt Securities in Issue 1,165 1,915 (529) - (1,873,403) - - Dividend and zakat paid (2,072,000) (2,200,078) (2,014,593) (3,627,729) (3,042,417) (3,921,914) (4,765,211) CF from financing (2,070,835) 10,926,837 (2,015,122) (3,627,729) (4,915,820) (3,921,914) (4,765,211) Change in cash 11,405,031 (5,500,977) 12,341,271 (4,706,622) (4,668,424) (1,621,862) (659,199) Beginning cash 5,173,978 16,579,009 11,078,032 23,419,303 18,712,681 14,044,257 12,422,395 Ending cash 16,579,009 11,078,032 23,419,303 18,712,681 14,044,257 12,422,395 11,763,196 Source: Company Reports & Global Research 11

12 Ratios E 2011E 2012E 2013E Profitability - Return on average assets 2.8% 1.9% 1.8% 1.9% 2.1% 2.3% 2.4% - Return on average equity 26.1% 14.4% 11.7% 12.6% 14.5% 17.1% 19.0% - Net special com. inc. after PLLs/ Total op. inc. 60.4% 73.4% 69.8% 72.5% 74.5% 76.4% 77.2% - Non-commission income/ Total op. income 39.6% 26.6% 30.2% 27.5% 25.5% 23.6% 22.8% - Fees from banking services/ Total op. income 20.9% 24.2% 22.9% 21.8% 20.4% 18.7% 17.7% - Dividend payout ratio 68.9% 82.7% 67.2% 72.0% 74.0% 78.0% 82.5% Margins - Net (or profit) margin 62.3% 53.9% 56.7% 58.8% 60.9% 62.3% 62.7% - Special com. expense/ Special com. income 47.4% 41.4% 25.2% 26.0% 27.0% 28.5% 30.5% - Yield on average earning assets 6.8% 5.6% 4.0% 4.2% 4.3% 4.7% 5.0% - Cost rate on average com. bearing liabilities 3.2% 2.4% 1.0% 1.2% 1.2% 1.4% 1.7% - Spread 3.6% 3.2% 3.0% 3.0% 3.1% 3.3% 3.3% Efficiency - Total op. expense /Total op. income 37.7% 46.1% 43.3% 41.2% 39.1% 37.7% 37.3% - Staff expenses/ Total op. income 19.9% 21.5% 20.9% 20.5% 19.7% 18.4% 18.0% - Rent, G&A expenses/ Total op. income 13.6% 16.2% 15.1% 14.3% 13.8% 13.7% 13.8% - Non-commission expense/ Avg. total assets 1.7% 1.6% 1.4% 1.3% 1.3% 1.4% 1.4% Liquidity - Loans / Commission earning assets 70.5% 69.1% 74.0% 74.6% 76.4% 77.2% 77.8% - Loans/ Customer Deposits 81.7% 93.4% 86.4% 85.5% 87.0% 87.5% 87.6% - Customer Deposits/ Equity 639.5% 408.9% 443.7% 520.9% 573.4% 629.2% 676.5% - Customer Deposits/ Total assets 69.5% 65.8% 71.0% 75.9% 79.1% 80.9% 82.3% - Due from Banks/ Due to Banks 23.4% 29.5% 53.9% 81.5% 80.6% 76.3% 82.8% Credit Quality - Provisions /Total op. income 7.1% 7.1% 11.6% 9.4% 8.6% 7.6% 7.1% - Provisions /Average loans 0.6% 0.4% 0.6% 0.5% 0.4% 0.4% 0.4% - Non Performing Loans (SR mn) 1, , , , , , , Provision for loan losses (SR mn) 1, , , , , , , NPLs /Gross Loans 1.6% 1.3% 1.2% 1.2% 1.3% 1.4% 1.5% - PLLs / Gross Loans 2.2% 1.7% 1.6% 1.9% 2.0% 2.1% 2.3% - NPL Coverage 139.2% 131.9% 140.9% 157.2% 157.4% 154.1% 153.1% Capital Adequacy - Equity/ Total Assets 10.9% 16.1% 16.0% 14.6% 13.8% 12.9% 12.2% - Equity/ Gross Loans 19.1% 26.2% 26.1% 22.5% 20.0% 18.2% 16.9% Constitution of Total Operating Income - Fees from banking services/ Total op. income 20.9% 24.2% 22.9% 21.8% 20.4% 18.7% 17.7% - Investment Income/ Total op. income 12.0% -4.7% -0.5% 1.2% 1.5% 1.6% 1.8% - Exchange Income/ Total op. income 5.6% 5.4% 3.1% 3.0% 2.8% 2.6% 2.4% - Other Income/ Total op. income 1.1% 1.6% 4.7% 1.5% 0.8% 0.7% 0.9% - PLLs/ Total op. income 7.1% 7.1% 11.6% 9.4% 8.6% 7.6% 7.1% Operating Performance - Change in special commission income 12.7% 8.5% -13.7% 12.0% 17.9% 23.4% 18.0% - Change in Fees from banking services -23.3% 17.5% 3.0% 5.0% 7.0% 10.0% 8.0% - Change in Investment Income 54.1% % -89.3% % 40.4% 29.0% 26.5% Ratios used for valuation - Par value per share (SR) Shares in issue (mn) 625 1,500 1,500 1,500 1,500 1,500 1,500 - EPS (SR) -Adjusted DPS (SR) -Adjusted Book value per share (SR) -Adjusted Market price year end (SR) Market Cap. (SR bn) P/E P/BV Dividends yield 2.7% 6.6% 4.9% 5.7% 7.0% 9.0% 10.9% Source: Company Reports & Global Research *Historical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the Tadawul as of March 06,

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15 The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Ticker Price Disclosure BUY RIBL AB 1010.SE SR28.0 1, did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in. 3. makes a market in securities issued by this company. 4. acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of serves on the board of directors of this company. 7. Within the past year, has managed or co-managed a public offering for this company, for which it received fees. 8. has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition Buy Hold Reduce Sell Fair value of the stock is >10% from the current market price Fair value of the stock is between +10% and -10% from the current market price Fair value of the stock is between -10% and -20% from the current market price Fair value of the stock is < -20% from the current market price This material was produced by - Saudia, a firm regulated by the Capital Market Authority of KSA. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities Information and opinions contained herein have been compiled or arrived by Global -Saudia from sources believed to be reliable, but Global- Saudia has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global - Saudia accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global- Saudia for, or sent by Global- Saudia to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Global investment house- Saudia is authorized and regulated by the Capital Market Authority (CMA) in the Kingdom of Saudi Arabia. License Number

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