KSA Banks and Macro Chartbook

Transcription

1 KSA Banks and Macro Chartbook August 2016 Aqib Elahi Mehboob +966 (11) Issued: 30th August 2016

2 Dashboard Macro data over last few months indicates an uptick in caution regarding non-oil economic growth Declining imports indicate lower corporate investment and consumer spending, with motor vehicle imports following machinery and building materials lower. Lending to the private sector also fell on a M/M for the first time since Dec-14. POS data and our proxy average basket size had been trending lower on our smoothed series since the middle of last year indicating more cautious consumer spending behaviour (may also indicate growing adoption of electronic transactions). For indications of the performance of the broad non-oil economy and equity market performance, the divergence between growth in M1 and M2 money supply growth is troublesome, however has improved over the last couple of months. Banking sector outlook relatively stronger with liquidity easing, earnings growth in positive territory and NPLs remaining contained Share of demand deposits appears to be stabilizing just above 60%, and with the government adopting a more diversified debt management strategy liquidity should remain relatively easy barring a sharp fall in oil prices. Sector profit growth is in positive territory with encouraging signs in expansion of NIM, whilst NPLs remain well-contained. Still high simple LDR and negative deposit growth remain concerns however. 2

3 Monetary Policy Chart 1: Via the SARUSD peg, the KSA reverse repo rate and US Fed Funds Rate have had a fairly tight historical relationship. FFR hike of 25 bps in Dec-15, matched by SAMA. Fed expects to hike by 50 bps in 2H16. Source: SAMA, Bloomberg Comments by leading Fed officials, including Chairperson Janet Yellen, at the Jackson Hole Annual Symposium have resulted in a sharp uptick in market expectations for a hike in 2H16. Yellen stated that the economy was moving in the right direction for another hike to be warranted later this year, while Vice-Chairman Fischer stated that up to 2 hikes could be considered in 2H16. Market-assigned probability of a September hike moved up to just shy of a coin toss, with participants now eyeing the NFP report next week for further affirmation. An NFP addition of 200k+ and reasonable wage growth could send probability much higher. The 2YR TB, which is most sensitive to FFR expectations, rose from 0.786% to 0.845% in response to the comments. 3

4 Monetary Trends Chart 2: Narrow money growth Y/Y remains firmly in negative territory for the 6 th straight month. Source: SAMA, Bloomberg M1 growth continued in negative growth territory for the 6 th consecutive month in Jul-16 (-8.6% Y/Y), while broad money also maintained its negative Y/Y growth at 3.3%. As of end Jul-16, the banking sector was underperforming the broader market index on a Y/Y basis, despite healthy growth in net interest margins and signs of demand deposit stabilization in 2Q16 results for the sector. 4

5 Monetary Trends Chart 3: Spread over US$ interest rates has declined in July Source: SAMA, Bloomberg As expected, the spread between 3M SAIBOR and 3M US$ deposit rate stabilized in Jul-16, helped by relatively easier liquidity conditions in KSA and as USD LIBOR inched higher by 10 bps. SAIBOR remained broadly flat during the month of Jul-16. KSA CPI is easing as the base effect kicks in and due to stronger SAR versus non-us$ currencies. 5

6 Monetary Trends Chart 4: KSA interest rates have appreciated more than other GCC countries, including Bahrain which has the lowest credit rating Source: SAMA, Bloomberg KSA interest rates have appreciated more sharply than GCC neighbours, including Bahrain which has seen its credit rating cut to Junk grade. KSA SAIBOR flattened out in Jul-16, while interest rates eased in most GCC countries despite USD LIBOR trending higher. 6

7 Banking Sector Drivers Chart 5: Banking sector deposit growth stayed in negative territory in Jul 2016, declining 3.1% Y/Y. Source: SAMA Share of demand deposits appears to be stabilizing slightly above 60%, which allied with continued re-pricing of loans should help nudge banking sector NIM higher in 3Q16. However, private demand deposits fell sharply in Jul-16 by SAR 14bn. Gov t/quasi-gov t deposits rose marginally during Jul-16, pushing their share in overall sector deposits higher to 20.9%. Overall deposits fell 3.1% Y/Y and 1% M/M. 7

8 Banking Sector Drivers Chart 6: Loan growth Y/Y has tapered off over the last few months Source: SAMA Loan growth has slowed notably over past couple of months from 10% Y/Y in April 2016 to 7.4% Y/Y Jul-16. May slow further as negative growth in deposits makes funding more difficult with sector simple LDR running above 90%. Loan book maturity profile continues to be relatively short as loan demand is primarily for working capital financing needs. 8

9 Banking Sector Drivers Chart 7: Projected decline in lending to private sector may be unfolding, with stock of loans to private sector falling by SAR7bn M/M in Jul-16, the first decline since Dec-14. LDR still rising due to negative deposit growth and at highest level since Nov-08 Source: SAMA Loan growth has weakened on Y/Y over the past 3 months, but at 7.4% Y/Y in Jul-16 growth is still far out-pacing deposit growth. SAMA has prudently adopted a more lenient stance with respect to bank LDR ceiling, which has allowed lending to remain relatively buoyant. Projected decline in lending to private sector may be unfolding, with stock of loans to private sector falling by SAR7bn M/M in Jul-16, the first decline since Dec-14. LDR still rising due to negative deposit growth. 9

10 Banking Sector Drivers Chart 8: 3m SAIBOR has flattened out over Jul-16, indicating that as expected banking sector liquidity has improved Source: SAMA Net Interbank lending fell to SAR 54.2bn in July, versus SAR 71.8bn in the month prior. 10

11 Banking Sector Drivers Chart 9: Sharp decline in real estate lending to corporates in 2Q16 Source: SAMA 11

12 Banking Sector Drivers Chart 10: NPLs remain contained, and coverage is healthy Source: SAMA Market performance of the banking sectors reflects a high degree of investor concern with respect to bad news from the sector, with growth in NPLs from the building & construction and allied sectors of particular concern. Thus far (2Q16 numbers for our coverage universe shows similar trend), NPLs have not risen significantly and coverage remains at healthy levels. 12

13 External Sector Chart 11: SAMA Foreign Assets have declined 16% Y/Y and 9% YTD in Jul-16; fell US$6.4 bn M/M Source: SAMA Foreign assets held by SAMA peaked in August 2014 at US$ 737 bln. Foreign assets of SAMA fell US$6.4 bn M/M, sharply lower than the US$11bn decline in prior month Government planning to raise US$10bn in bond sales in the coming month Commercial bank foreign assets continued to decline, falling a further SAR 7.4 bn in July. They are down SAR 70.6bn since end

14 External Sector Chart 12: As expected, Brexit-related US$ strength powered SAR REER higher in June. Source: IMF A hike in the FFR by the US Fed in September, prospects of which are already powering the US$ higher, could drive SAR REER higher. 14

15 Consumption and Imports Chart 13: Motor Vehicle imports have fallen off a cliff in recent months, while overall imports also remain weak. Source: SAMA July was a weak month for imports, with overall imports and vehicle imports declining to levels last seen in Machinery and building material imports have specially been hit, both declining to approximately half their peaks. Building materials imports had moved slightly higher over May-June 2016, but again contracted sharply in July. 15

16 Consumption Chart 14: 3MMA basket size in July 2016 was c.sar 356 vs. SAR 454 a year earlier (-22% Y/Y) Source: SAMA Value and number of POS transactions fell very sharply in Jul-16, down 25.5% and 15.8% M/M respectively. While average basket size has been declining for throughout the period of this chart (probably partly driven by wider adoption of cards), it has fallen off very sharply from 3Q 2015 as oil prices plunged. Taking stock values of POS value and transactions, average basket size in Jul-16 was SAR327 versus SAR369 in previous month and SAR439 in Jul

17 Banking sector profitability Chart 15: According to SAMA data, banking sector profits YTD July 2016 are up 3.5% Y/Y Source: SAMA, Bloomberg In 2Q 2016 sector results, NSCI income is up 7.6% Y/Y, however a 12% Y/Y decline in non-interest income and 6.5% rise in expenses (driven by higher employee and credit provisioning costs), have resulted in a 4% Y/Y decline in net income. NOTE: Based on quarterly results of all listed banks except BSF 17

18 Banking sector profitability Chart 16: Summary quarterly banking sector results (excludes BSF) SAR mln 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Net Commission Income (NSCI) 12,253 12,017 12,424 12,523 12,712 12,799 13,453 Non-Interest Income (NII) 4,925 6,466 6,867 5,299 5,430 6,401 5,966 Total Income (TI) 17,177 18,483 19,291 17,822 18,141 19,200 19,418 Operating Expenses 8,325 8,458 8,325 8,354 8,897 8,559 8,867 Net Income 8,853 10,025 10,966 9,467 9,244 10,642 10,551 Pre-Provisioning Income 10,506 11,477 12,627 11,412 11,281 12,363 -na- Total Assets 1,915,500 1,954,273 1,989,037 2,009,843 1,983,300 2,013,968 2,029,911 Investments 448, , , , , , ,668 Net Loans 1,160,454 1,177,000 1,207,445 1,212,093 1,243,469 1,293,569 1,310,535 Deposits 1,511,564 1,528,350 1,560,770 1,558,557 1,515,241 1,537,570 1,522,773 Net Yield (%) Simple LDR (%) Avg 3M SAIBOR (%) Chg in 3M SAIBOR (bps) (7) (5) RoA (%) NSCI as %age of TI Non-Interest Income % of TI Cost-to-TI (%) Change Q/Q Chg in Net Yield (bps) (1) 14 Chg in Net Loans (%) Chg in Deposits (%) (0.1) (2.8) 1.5 (1.0) Chg in NSCI (1.9) Chg in NII (22.8) (6.8) Chg in TI (7.6) Chg in NI (13.7) (2.4) 15.1 (0.9) Change Y/Y Chg in Net Yield (bps) Chg in Net Loans (%) Chg in Deposits (%) (2.4) Source: Company Accounts, SFC, Tadawul and Bloomberg Chg in NSCI Chg in NII 10.3 (1.0) (13.1) Chg in TI Chg in NI (3.8) Source: Company Accounts, SFC 18

19 Trailing PBV vs. Sector Al Rajhi P/B relative to Bank index P/B Bank Aljazira P/B relative to Bank index P/B Saudi British Bank P/B relative to Bank index P/B D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 Al Rajhi PB relative to Bank PB Mean +1STD -1STD D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 BJAZ PB relative to Bank PB Mean +1STD -1STD D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 SABB PB relative to Bank PB Mean +1STD -1STD Source: Bloomberg, SFC Source: Bloomberg, SFC Source: Bloomberg, SFC Riyad Bank Alinma P/B relative to Bank index P/B Saudi Investment Bank P/B relative to Bank index P/B Alinma P/B relative to Bank index P/B D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 RIBL PB relative to Bank PB Mean +1STD -1STD D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 SIBC PB relative to Bank PB Mean +1STD -1STD F-08 O-08 J-09 F-10 O-10 J-11 F-12 O-12 J-13 F-14 O-14 J-15 F-16 Alinma PB relative to Bank PB Mean +1STD -1STD Source: Bloomberg, SFC Source: Bloomberg, SFC Source: Bloomberg, SFC 19

20 Trailing PBV vs. Sector (cont.) National Commercial Bank P/B relative to Bank index P/B Samba Financial Group P/B relative to Bank index P/B Saudi Hollandi Bank P/B relative to Bank index P/B J-14 A-14 S-14 N-14 D-14 F-15 M-15M-15 J-15 A-15 S-15O-15D-15 J-16 M-16 A-16 J-16 J-16 NCB PB relative to Bank PB Mean +1STD -1STD D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 SAMBA PB relative to Bank PB Mean +1STD -1STD AAAL PB relative to Bank PB Mean +1STD -1STD Source: Bloomberg, SFC Source: Bloomberg, SFC Source: Bloomberg, SFC Arab National Bank P/B relative to Bank index P/B Bank Albilad P/B relative to Bank index P/B D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 ARNB PB relative to Bank PB Mean +1STD -1STD D-07 J-08 F-09 S-09 A-10 N-10 J-11 J-12 A-12 M-13 O-13 M-14 D-14 J-15 F-16 ALBI PB relative to Bank PB Mean +1STD -1STD Source: Bloomberg, SFC Source: Bloomberg, SFC 20

21 Disclaimer This report is prepared by Saudi Fransi Capital ( SFC ), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. 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 report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations. Saudi Fransi Capital LLC C.R P.O Box Riyadh Saudi Arabia, Head Office Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. ( ) 21