Results Update: Banking Q3-2011

Transcription

1 BSFF Research Results Update: Banking Q INSIGHT OBJECTIVITY QUALITY

2 CONTENTS - INTRODUCTION 3 - SECTOR OVERVIEW 3 - INDIVIDUAL BANK ANALYSIS ALPHA Banks ARBS: Arab Bank-Syria 5 BASY: Bank Audi- Syria 6 BBS: Byblos Bank- Syria 7 BBSF: Banque Bemo Saudi Fransi 8 BSO: Bank of Syria and Overseas 9 CHAM: Cham Bank 10 IBTF: International Bank for Trade and Finance 11 SIIB: Syria International Islamic Bank 12 BETA Banks BARAKA: Al Baraka Bank- Syria 13 BOJS: Bank of Jordan- Syria 14 FSBS: Fransabank- Syria 15 QNBS: Qatar National Bank- Syria 16 SGB: Syria Gulf Bank 17 SHRQ: Bank Al-Sharq 18 - ANNEX Summary of Financials for ALPHA Banks 20 Summary of Financials for BETA Banks 20 Glossary 21

3 Introduction & Sector Overview

4 RESEARCH BANKING SECTOR INTRODUCTION In July 2011, BSFF s research team initiated coverage of Syria s banking sector with a comprehensive report based on the 2010 annual financial statements. BSFF has been producing quarterly updates of this report following the announcement of the quarter s financial results by all banks. The individual bank financial statement analysis section is updated on a quarterly basis while aggregate industry figures and comparative analysis is updated on a semi-annual basis. The main focus of this report is the private banking sector, and for more relevant comparative analysis, banks have been divided into two groups: 1) ALPHA(A) banks are the first eight banks that were established: Arab Bank- Syria (ARBS); Bank Audi- Syria (BASY); Byblos Bank- Syria (BBS); Banque Bemo Saudi Fransi (BBSF); Bank of Syria and Overseas (BSO); Cham Bank (CHAM); International Bank for Trade and Finance (IBTF); Syria International Islamic Bank (SIIB). 2) BETA(B) banks are the newer six banks: Al Baraka Bank- Syria (BARAKA); Bank of Jordan- Syria (BOJS); Fransabank- Syria (FSBS); Qatar National Bank- Syria (QNBS); Syria Gulf Bank (SGB); Bank Al-Sharq (SHRQ). SECTOR OVERVIEW Syria s economic and political difficulties have yet to be resolved and nonetheless financials of Syria s fourteen private banks continued to mask the impact of the turmoil as ten banks reported a stronger bottom line in the third quarter of this year compared to last. The consolidated balance sheet of all private banks continued to shrink, albeit at a slower pace, with ALPHA banks responsible for the decline and BETA banks offsetting only a small portion of the drop. Total assets decreased by 4.2% over the last three months to SYP 560.1bn (A: -6.9% B: +7.8%) and withdrawals also continued as total deposits declined by 5.7% to SYP 410bn (A: -8.1% B: +11.9%). A portion of these withdrawals was used to purchase US dollars in the parallel market, taking unofficial SYP/USD rates to at the end of October, a 12-15% depreciation from pre-crisis levels. In spite of the reluctance of several banks to extend new loans and their cautious approach to renewals, total lending by all private banks actually increased by 0.6% over the last three months to SYP 253.4bn. Lending activity by all six BETA banks increased on average by 11.4%. In contrast, only two (BBS and ARBS) of the eight ALPHA banks managed to increase their loan portfolio, however the average decline was a mere -1.8%. Total lending by BETA banks contributed 20% of total loans as of September 30th 2011, up from 18% mid-year. The Central Bank s decision to hike interest rates by 2% in June to slow down customer withdrawals has impacted the banks Cost of Funds significantly with all but one bank (QNBS) reporting a higher cost in Q compared to the same quarter of last year (the CBK later expanded the limits to +/- 2% basically allowing banks to back track their rate increase however many banks chose not to in an attempt to halt withdrawals). The range continued to be wide (from BBSF at 1.65% to FSBS at 7.35%) while the consolidated average Cost of Funds increased 80bps Y-o-Y to 3.52%. The higher interest rate environment was however beneficial for most banks with total Net Interest Income rising 7.1% to SYP 2.97bn and only four banks reporting a drop. Fees related to foreign currency withdrawals and exchange as well as a larger customer base drove Net Fee and Commission Income higher, with the total rising 21.9% Y-o-Y to SYP 859mn, and contributing 22.4% of recurring income (vs. 20.3% in Q3-2010). The Syrian Pound s 4-5% depreciation (as per Central Bank rates) against major currencies resulted in most banks translating their foreign currency positions into Syrian Pounds at a gain, thereby boosting the total Operating Revenue of the 14 banks by 48.8% Y- o-y despite growth of only 10.1% in recurring income compared to the same quarter last year. Operating expenses (excluding provisions) for the quarter increased 51% YoYwith Y-o-Y many banks continuing their geographic expansion despite the current turmoil and the comparatively slower growth of recurring income (10.1%). While the consolidated Cost to Income was relatively flat compared to the same quarter of last year (68.3% vs. 67.3%), the ratio is underestimated due to higher non-recurring income. The ratio of Cost to Recurring Income on the other hand increased from 67.4% to 92.4%, indicating significantly lower cost efficiency. Bemo Saudi Fransi Finance 3

5 RESEARCH BANKING SECTOR Deteriorating asset quality in light of the economic downturn has also become a rising concern with the average Non Performing Loans ratio increasing from 3.6% in mid-2011 to 5.4% as of September 30th NPL provisions have in turn also increased significantly as consolidated provisions rose 384% to SYP 1.01bn, putting additional pressure on profitability. While the total net profit pool increased 91% Y-o-Y to SYP 1.39bn, a restatement of consolidated financials excluding non-recurring income (mostly gains from foreign currency revaluation) shows that pre-tax earnings (from actual banking activities) have in fact dropped significantly. A consolidated pre-tax profit of SYP 926mn in Q was replaced with a loss of SYP 719mn in Q3-2011, a figure that is concealed by the improved accounting bottom line of most banks. On a different note, three banks (BBSF, BBS, and FSBS) went to the market over the last three months to raise almost SYP 6.8bn in capital in compliance with the instructions of Law No. 3 of 2010, putting additional pressure on shareholders and stock prices. The aforementioned law was recently amended however with the extension of the deadline to comply with minimum capital requirements until the end of 2013, thus easing pressure on both shareholders (fresh cash) and management (returns). That said, Syria s banks remain well capitalized and sector leverage (assets/ shareholder s equity) is at a healthy In summary, Syria s private banks continued to withstand the difficult period the country is going through and in fact seem to have benefitted in terms of Revenue and Net Income. A closer look however showed smaller balance sheets, weaker lending growth, lower cost efficiency, and a deteriorating asset quality all being masked by higher non-recurring income (resulting from the Syrian Pound s depreciation) and in turn higher profitability. Should the situation prolong into next year, 2012 could prove a difficult one for the country s private banks. Nonetheless, from a long run perspective, the fundamentals of Syria s economy and the growth opportunities continue to be the strong, keeping the belief in the country s private banks and perhaps indicating attractive valuations in the market. This belief is shared by the local banks strategic partners (parent banks), several of which have moved to increase their ownership stake in their local counterparts over the last few months. Bemo Saudi Fransi Finance 4

6 To obtain a copy of the Banking Sector Report, you can contact BSFF Research at: Tel: Fax: research@bsff.com