Banque Saudi Fransi First Quarter 2011 Financial Results Investors Call, 04 May 2011 John Sfakianakis,, Chief Economist Philippe Touchard, Chief Financial Officer
1. Saudi Economy
Measures announced by the Government will have significant financial implications. New financial support for citizens Allocation (SR, bn) Ministry of Housing to build 500,000 homes over five years 250.0 Real Estate Development Fund, to offer a greater number of home loans 40.0 Ministry of Housing to build homes for state employees 15.0 Saudi Credit & Savings Bank 30.0 Ministry of Health and private hospitals 17.0 Islamic organizations and charities 1.5 Funds for social security-related programmes 5.7 Literary, sporting clubs and professional associations 1.5 One-time bonus payments for public sector staff 52.9 Unemployment benefit, estimated annual cost 10.8 Permanent inclusion of 15% inflation allowance* 37.0 Estimated annual cost of new public sector jobs (61,700) 6.3 New minimum wage, estimated annual cost 7.1 Other 10.0 TOTAL 485 * The extension of this allowance was first announced in November and already considered in 2011 expenditures Source: Royal decrees, Banque Saudi Fransi estimates
but the forecasted GDP should be able to absorb them without too many difficulties. Oil production boost, govt spending to drive 2011 GDP growth 8.5 8.0 7.5 7.0 ) e 6.5 g n a 6.0 h c 5.5 % Y 5.0 o (Y 4.5 4.0 3.5 3.0 2.5 2.0 7.9 5.6 5.2 5.5 4.2 4.2 4.2 3.5 Oil sector Private sector Government sector Total GDP Source: Banque Saudi Fransi forecasts New forecast Previous forecast
Rental, food inflation likely to spike Rental, food inflation likely to spike (YoY % change) 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0-2.0 2008 Apr Jul Oct 2009 Apr Jul Oct 2010 April July Oct 2011 Source: CDSI Food and beverage inflation rate Rental inflation Inflation rate
New state payouts to add 20% to 2011 expenditures New state payouts to add almost 20% to 2011 expenditures 1000 800 904.1 842.4 769 676 600 540 580 (SR, bn) 400 200 61.68 93 0-200 New forecast Previous forecast Govt budget forecast -40 Total government revenue Total government expenditure Deficit/surplus Source: Banque Saudi Fransi forecasts, Ministry of Finance
BSF business confidence index BSF Business Confidence Index 102.5 102.0 101.5 101.0 100.5 100.0 99.5 99.0 98.5 98.0 97.5 101.7 100.7 101.3 100.0 99.8 100.2 99.4 98.2 Q3 2009 Q4 2009 Q2 2011
2. Financial Performance
BSF Overall Performance Key Financials Positive macroeconomic environment US$ mn Q1 2010 Q4 2010 Q1 2011 Y-Y Assets increased by 4% Y-Y and 3% YTD Balance Sheet Recent developments Significant development of Retail Assets Improvement in Asset quality indicators NPL ratio from 1.26% to 1.22% Cost of risk (0.11%) decreased by 61% Strong coverage ratio at 143% Total Assets Net Loans & Advances Customer Deposits Total Equity Income Statement Operating Income 32,332 21,221 23,389 4,210 286 32,858 21,594 24,941 4,801 289 33,746 22,385 25,609 4,745 307 4% 5% 9% 13% 7% All ratings at investment grade Net Income 190 189 191 - Key Ratios RoAA 2.36% 2.31% 2.30% Key Financial Highlights 9 Operating income increased by 7.3% vs Q1 2010. Q1 2011 Net Interest Income up 5% compared to Q1 2010, Fees & Commissions increased by 20% Net income almost flat (+0.4%) due to an exceptional bonus awarded to the Bank s Staff following the example set by King Abdullah. Loan to Deposit Ratio at 83% Return on Equity at 16% Capital Adequacy Ratio at 14.2% S&P and Fitch BBB- AA- A+ A A- NPL / Gross Loans Loan / Deposits Total Capital Adequacy BBB+ BBB 1.26% 83.7% 13.46% 1.23% 82.3% 14.73% Moody's S&P Fitch (1) Upgraded from A1 to Aa3 in February 2010 (2) Affirmed in June 2010 (3) Affirmed in March 2010 1.22% 83.2% 14.16% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Moody s
BSF Operating Income Analysis 285.9 2.9% Operating Income Analysis by Business Segments (US$mn) 307.9 289.2 289.1 3.2% 2.2% 2.4% 21.4% 21.0% 19.6% 19.0% 306.7 3.0% 18.9% Operating Income increased by 7.3% (3 months 2011 vs. 3 month 2010) 44.8% 45.7% 47.7% 47.2% 46.1% 30.9% 30.1% 30.4% 31.4% 31.9% Retail banking Corporate banking Treasury Investment banking and brokerage 285.9 7.4% 4.5% Operating Income Analysis by Product (US$mn) 307.9 289.2 289.1 306.7 7.1% 6.7% 4.4% 4.8% 2.6% 4.9% 4.5% 4.3% 20.7% 21.3% 18.9% 19.8% 23.2% 67.4% 67.2% 71.4% 73.1% 65.9% It is noteworthy that: Retail assets (Retail Banking and Private Banking) increased by +10.2% Consumer Assets : +29% Volume of Non Interest Bearing Deposits represent now 51% of total deposits Fee and commissions increased by 20%: Trade Finance : +19% Loan fees:+20% Brokerage fees: +16% Higher contribution of Non interest related revenue to the total revenue (34.1% vs 33% end of Q1 2010) Net interest income Source: BSF financial Fees from banking services, net Exchange income, net Trading income, net statements 10
Profitability and Efficiency 2.66% 2.85% Net Interest (US$mn) 2.85% 2.85% 2.71% Operating Income (US$mn) 307.9 306.7 192.8 207.0 207.4 210.4 202.0 285.9 289.2 289.1 Net Interest Income Net Interest Margin Net Income (US$mn) 18.10% 18.52% 190.3 201.8 14.33% 165.7 15.85% 16.01% 189.1 191.1 28.4% 27.0% Cost/Income 28.8% 30.5% 35.1% 2.36% 2.50% 2.06% 2.32% 2.30% Net Profit R.O.E R.O.A 11
Business Segments Performance Corporate Banking 19,173 19,580 Assets (US$mn) Operating Income (US$mn) Net Income (US$mn) 19,894 141 122 19,418 128 19,152 104 Q1 2010 Q1 2011 Q1 2010 Q1 2011 Assets increased by 3.6% compared to Q1 2010 The Operating Income increased by 10.5% (Interest Related :+6.5%, Non interest Related: +22% Net results increased by 17.7% Retail Banking (including Wealth Management) 3,663 3,656 3,788 3,817 Assets (US$mn) Operating Income (US$mn) Net Income (US$mn) 88 98 3,506 35 28 Q1 2010 Q1 2011 Q1 2010 Q1 2011 Assets increased by 10% compared to Q1 2010, with consumer assets increasing by 29% Net income (-21%) penalized by the lower remuneration on Non Interest Bearing Deposits due to lower interest rates on our deposits Low cost of risk at 1% p.a 12 Source: BSF and financial statements Note: US$ /SAR exchange rate = 3.75.
Business Segments Performance Investment Banking & Brokerage Operating Income (US$mn) Net Income (US$mn) 8 10 6 7 9 4 2 1 1 0 BSF s brokerage activities have suffered from a very slow Saudi equity market. BSF s market share in this segment of activity has increased from 9% to 10% during the quarter Treasury and Proprietary activities 9,648 Assets (US$m) 9,176 9,896 10,003 22% 50 56 Net Income (US$mn) 46 53 39 8,903 13% 65% 13 Saudi Government Bonds Investment grade Unrated Source: BSF and financial statements Note: US$ /SAR exchange rate = 3.75.
3. Asset Quality & Risk Management
Assets Mix Optimisation of Asset Mix (US$mn) 33,564 32,153 32,858 33,746 6% 4% 5% 4% 26,615 4% 64% 65% 66% 66% 60% 23% 22% 14% 16% 16% 13% 8% 16% 13% 14% 2007 2008 2009 2010 Q1 2011 Liquid assets Investments net Loans and advances net Other assets (1) Note: US$ /SAR exchange rate = 3.75. Source: Financial statements. Liquid Assets are made of Cash at SAMA, Interbank lending. 75% of securities held in the investment portfolio are repoable and saleable on the market. 15
Loan Portfolio Analysis Loan Portfolio (US$mn) 22,385 BSF managed to grow its loan portfolio at by 5.5% Year-on-Year 21,221 21,850 21,721 142.0% 21,594 147.0% 142.9% NPL Ratio reduced from 1.26% to 1.22% Performing loans increased by 5.7%, and non performing loans increased by 2.8%. 127.4% 127.5% New loan loss provisions created during Q1 2011 are 59% lower than Q1 2010. 1.26% 1.27% 1.25% 1.23% 1.22% 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11 The actual Stock of provisions represent, end March 2011, 143% of total Non Performing loan while it was at 127% end of March 2010. Net Loans NPL Coverage NPL / Total Loans 16
Funding and Liquidity Funding Mix (US$mn) 29 001 28 122 27 639 27 514 28 052 5% 4% 2% 5% 4% 2% 5% 2% 5% 2% 2% 2% 2% 2% 2% 3% 2% 2% 6% 2% 83% 89% 88% 89% 88% Customer deposits Due to banks Term loan Debt securities Other liabilities 19 735 69.6% 30.4% 24 744 69.1% 30.9% Deposits Development (US$mn) 24 330 62.7% 37.3% 24 941 50.4% 25 609 78.3% 82.8% 82.7% 85.3% 83.2% 48.1% 49.6% 51.9% The Bank is fairly liquid with a loan to deposit ratio at 83.2% and Liquid assets accounting for more than 25% of total assets BSF relies on a very stable and diversified customers deposit base (88% of total funding) The proportion of Non Interest Bearing Deposits in the total customers deposits improved from 43% (Q1 2010) to 52% (Q1 2011) Debt securities are the USD Bond that was issued in March 2010 for an amount of USD 650 M. 17 2007 2008 2009 2010 Q1 2011 (1) Non Interest Bearing Deposits Interest Bearing Deposits Loan/Deposit (1) As per SAMA s definition, loans / deposits ratio includes medium term loans as part of deposits Source: BSF and financial statements
Capital Adequacy Capital Base (US$mn) 3,617 12.2% 11.6% 2,998 4,118 13.7% 4,753 4,493 14.7% 14.2% 193 184 184 385 2007 2008 2009 2010 Q1 2011 Tier 1 Tier 2 CAR % BSF maintains at all time a Capital Adequacy Ratio (Total Capital) above 12% Total Capital increased by 12.7% Year-on-Year Source: BSF and financial statements 18
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