BSF Report

BANKS MARCH 2013
SAUDI BANKING SECTOR

SECTOR UPDATE
Pressure on net interest margins is priced-in

Due to increasing competition, we reduce our NIM estimate and expect a 9bps decline in margins from a previous estimate of flat NIMs. As a result, we expect lower profit growth that is also due to reduced income from brokerage. Nonetheless, we expect a bottoming out of margin contraction in 2013E and hence expect current valuations to improve. All our ratings are unchanged; we continue to prefer large-caps banks such as Al Rajhi, Samba and Riyad which trade at attractive levels and offer high dividend yield. Estimates for profits are down for 2013E due to margin compression
We revise our estimates for profits for 2013E for the ten banks under our coverage 2.5% lower to SR29.4bn due to a 16bps reduction in our estimate for NIMs. This leads to our expectation of profit growth of 6.8% YoY in 2013E compared to our earlier estimate of 9.5%. The change in asset mix towards consumer financing will limit the NIMs decline to 9bps for 2013E compared to the 14bps decline in 2012.
Our NIMs estimates are more conservative than management guidance

We believe our estimate for margin contraction is on the higher end of the management guidance range of 5-10 bps. We are concerned about the similarities of strategies between banks, particularly the focus on lending to the consumer segment. We believe this supports our estimate for loans yield spread over SAIBOR, which we forecast to decline by 31bps in 2013E.
We believe the impact of NIM contraction on valuation is overstated

Despite the margin contraction, we continue to believe that valuations remain attractive with dividends limiting further downside risk on share prices. Indeed our forecasts do not incorporate the expected increase in global interest rates in 2016E. Hence, we only assume a marginal increase of 27bps in 2013-17E.
Our valuation call is based on P/B expansion; prefer large-caps

The sector is trading at a 2013E P/B of 1.5x compared to its historic five year average of 2.3x. We believe this discount is not justified as we expect a bottoming out of margins. Hence we expect valuation multiples to revert to its historic mean. Our top-picks are the large banks: AlRajhi, Samba and Riyad which offer dividends that limit downside risk. From the small-caps, we prefer SHB given its solid asset quality and its innovative lending policies.
Exhibit 1: Valuation summary
Rating Al Rajhi Overweight SAMBA Overweight RIBL SHB BSF SABB ANB BJAZ SAIB Albilad Overweight Overweight Overweight Overweight Overweight Neutral Neutral Underweight TP 88.4 57.7 33.8 35.4 37.1 41.0 32.3 23.3 19.2 23.3 Mcap 96,750 41,130 34,275 11,391 27,753 33,800 23,800 8,160 10,120 10,110 Stock perfr YTD (0.8) 2.2 (0.7) 5.9 4.4 13.0 6.1 4.2 1.7 19.1 P/E (x) P/BV (x) P/Adj BV DY (%) ROE (%) 2013E 2013E 2013E 2013E TTM 12.8 9.5 9.8 8.6 8.9 10.1 10.3 14.6 10.1 15.1 2.8 1.2 1.1 1.3 1.1 1.6 1.3 1.4 1.1 2.0 2.6 1.2 1.0 1.2 1.1 1.5 1.2 1.4 1.0 1.8 6.1 4.3 6.1 3.9 3.0 3.0 5.3 4.5 22.8 14.4 11.2 15.9 14.2 17.4 13.8 9.9 10.2 14.6 Mahmood Akbar +966 2 690 7943 m.akbar@ncbc.com
Source: NCBC Research
Please refer to the last page for important disclaimer
www.ncbc.com
SAUDI BANKING SECOR MARCH 2013
NCB CAPITAL
Change in estimates
Exhibit 2: Change in estimates of individual banks
In SR mn unless specified
Old 2013E New 2013E % Ch YoY % Gr Old 2014E New 2014E % Ch YoY % Gr
Al Rajhi Bank Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Samba Financial Group Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Riyad Bank Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Saudi Hollandi Bank Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Banque Saudi Fransi Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT SABB Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Arab National Bank Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT
Source: NCBC Research estimates
10,569 5,004 15,572 11,481 (2,515) 7,973
10,069 4,993 15,062 11,095 (2,652) 7,533
(4.7) (0.2) (3.3) (3.4) 5.5 (5.5)
6.0 11.4 7.7 8.7 14.3 7.1
11,832 5,623 17,455 12,981 (2,782) 9,069 89.4 5,238 2,975 8,213 5,886 (437) 5,306 59.7 4,892 2,713 7,604 5,009 (1,368) 3,545 33.1 1,789 1,032 2,822 1,757 (224) 1,393 33.0 4,091 1,896 5,987 4,230 (515) 3,649 37.1 4,162 2,221 6,384 4,534 (673) 3,963 39.1 4,049 1,784 5,833 3,660 (681) 2,656 34.0
11,265 5,708 16,973 12,615 (3,046) 8,537 88.4 5,121 2,733 7,854 5,463 (452) 4,881 57.7 5,053 2,778 7,830 5,133 (1,326) 3,736 33.8 1,754 1,020 2,775 1,744 (198) 1,480 35.4 4,042 1,850 5,892 4,164 (538) 3,558 37.1 4,014 2,193 6,207 4,305 (679) 3,739 41.0 3,925 1,749 5,674 3,501 (604) 2,633 32.3
(4.8) 1.5 (2.8) (2.8) 9.5 (5.9) (1.1) (2.2) (8.1) (4.4) (7.2) 3.3 (8.0) (3.4) 3.3 2.4 3.0 2.5 (3.1) 5.4 2.2 (2.0) (1.2) (1.7) (0.7) (11.3) 6.2 7.2 (1.2) (2.4) (1.6) (1.6) 4.5 (2.5) 0.0 (3.6) (1.3) (2.8) (5.1) 0.8 (5.6) 4.7 (3.1) (1.9) (2.7) (4.4) (11.3) (0.9) (5.0)
11.9 14.3 12.7 13.7 14.9 13.3
4,731 2,603 7,334 5,210 (387) 4,698
4,536 2,493 7,029 4,863 (400) 4,347
(4.1) (4.2) (4.2) (6.7) 3.4 (7.5)
6.1 3.0 5.0 5.0 33.8 8.8
12.9 9.6 11.7 12.4 13.0 12.3
4,534 2,589 7,123 4,688 (1,153) 3,442
4,675 2,533 7,208 4,716 (1,143) 3,505
3.1 (2.2) 1.2 0.6 (0.9) 1.8
6.7 5.3 6.2 6.3 (3.1) 5.7
8.1 9.6 8.6 8.9 16.1 6.6
1,575 920 2,495 1,550 (200) 1,227
1,553 927 2,480 1,549 (161) 1,329
(1.4) 0.8 (0.6) (0.1) (19.6) 8.3
13.1 9.5 11.8 12.8 15.1 10.8
13.0 10.0 11.9 12.6 23.2 11.4
3,618 1,709 5,327 3,727 (487) 3,181
3,575 1,678 5,253 3,649 (466) 3,123
(1.2) (1.8) (1.4) (2.1) (4.4) (1.8)
8.1 (1.5) 4.9 5.5 2.4 5.7
13.1 10.3 12.2 14.1 15.5 13.9
3,674 2,032 5,706 4,016 (614) 3,500
3,515 2,041 5,556 3,843 (590) 3,356
(4.3) 0.5 (2.6) (4.3) (3.9) (4.1)
7.7 7.3 7.5 7.7 34.0 5.1
14.2 7.4 11.7 12.0 15.0 11.4
3,597 1,604 5,201 3,223 (621) 2,322
3,474 1,575 5,050 3,075 (531) 2,315
(3.4) (1.8) (2.9) (4.6) (14.5) (0.3)
6.6 5.3 6.2 7.3 1.8 8.9
13.0 11.0 12.4 13.8 13.8 13.8
NCB CAPITAL
Exhibit 2: Change in estimates of individual banks (contd.)

In SR mn unless specified
Old 2013E New 2013E % Ch YoY % Gr Old 2014E New 2014E % Ch YoY % Gr
Bank Aljazira Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT The Saudi Investment Bank Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT Bank Albilad Net Sp Comm. Income Fee and other income Total operating income Pre-provision profits Provisions Net income PT
1,112 665 1,776 814 (245) 552
1,135 591 1,726 728 (155) 559
2.1 (11.1) (2.8) (10.6) (36.8) 1.4
19.3 (9.1) 7.8 8.1 (10.4) 14.4
1,279 739 2,019 941 (277) 643 21.1 1,486 452 1,938 1,243 (423) 929 18.4 1,020 1,225 2,246 1,141 (405) 717 21.2
1,272 665 1,937 857 (178) 663 23.3 1,477 462 1,939 1,229 (261) 1,090 19.2 1,035 1,212 2,248 1,142 (283) 838 23.3
(0.6) (10.0) (4.0) (8.9) (35.8) 3.2 10.3 (0.6) 2.1 0.0 (1.2) (38.2) 17.3 4.6 1.5 (1.0) 0.1 0.1 (30.2) 16.8 9.9
12.1 12.5 12.2 17.9 15.2 18.6
1,344 424 1,768 1,126 (368) 861
1,361 422 1,783 1,127 (244) 1,000
1.3 (0.6) 0.8 0.1 (33.6) 16.2
9.6 (12.1) 3.6 3.5 (4.3) 11.9
8.5 9.5 8.7 9.0 6.9 9.0
907 1,058 1,965 949 (361) 574
906 1,037 1,943 976 (290) 669
(0.1) (2.0) (1.1) 2.8 (19.6) 16.5
7.9 15.5 11.8 15.7 5.5 20.6
14.3 16.9 15.7 17.0 (2.6) 25.3
NCB CAPITAL
Themes and Outlook

Downward revision in our profit forecasts by 2.5%
Margin pressure in 2013E to impact profitability
We revise our estimates for net interest margins down for 2013E for banks under our coverage from 2.70% in 2012 (hence flat YoY) to 2.61% which represents a 9bps decline YoY. We believe the combination of greater competition from banks for lending opportunities as well as abundant liquidity in the Saudi economy will put further pressure on NIMs in 2013E. However, the extent of the decline will be lower than in 2012 when margins contracted by 14bps.
Exhibit 3: Changes to our estimates
SR mn
Variance from YoY Growth Estimate (%) New previous Estimate estimates (%) Old New
Exhibit 4: Profit and Loan growth; NIM's

%
18%
16% 14% 12% 10% 8% 6%
2.90%
2.85% 2.80% 2.75% 2.70%
Net Profit^ Loans* NSCI Total Op. Inc.
29,404 907,953 34,799 53,090
(2.5) 1.9 (2.4) (2.2)
9.5% 10.3% 10.1% 9.2%
6.8% 12.5% 7.4% 6.9%
4%
2% 0% 2011 2012 2013E 2014E 2015E 2016E
2.65%
2.60% 2017E
Profit Growth
Source: Annual Reports, NCBC Research ^ Before Zakat *New loan growth estimate lower due to higher-than-expected loan growth in 4Q12. Old YoY growth estimates calculated based on previous 2013E and 2012A numbers Source: Annual Reports, NCBC Research
Loan Growth
NIM's (RHS)
The decline in margins is the main contributor to the 2.5% downward revision in our estimates for 2013E profits to SR29.4bn. Nonetheless, we still see good profit growth of 6.8% in 2013E from 2012, although slightly lower than our previous growth estimate of 9.5%. Given the lower expected margins for 2013E, we expect the profit growth to be driven mostly due to a 12.5% expansion in loan books. Overall we expect net profit CAGR of 11.1% during 2012-16E which is slightly lower than our previous estimate of 12.7%. We expect this to be led by an 11.6% lending CAGR. We continue to be conservative with our estimates for margin, expecting only a 10bps improvement during the stated period.
Lending estimate revised 1.9% upwards; estimate for NSCI down

We revise our forecasts for lending 1.9% higher for 2013E to SR907.95bn for the 10 banks under our coverage. We believe the better-than-expected loan growth in 4Q12 coupled with the record government budget should further support demand for loans particularly from contracting companies. Overall we expect a loan growth of 12.5% in 2013E. Despite our upward revision in loan growth for the banks under our coverage, our estimate for net special commission income is 2.4% lower than our previous estimate. This is due to our higher forecast for NIMs contraction (-9bps YoY vs flat NIMs in earlier assumption) for 2013E. Nonetheless, we expect a 7.4% growth in NSCI for 2013E compared to our previous growth estimate of 10.1%.
NCB CAPITAL
Decline in Tadawul Value; assume 25% decline YoY for 2013E......

We have assumed a 25% decline in Tadawul value traded from 2012, 10% lower than our previous estimate. This is partially due to the low volumes YTD with value traded average 28% lower from the 2012 average and about 40% below the corresponding period in 2012. The impact will be particularly felt by Bank Al Jazira where value traded from the Tadawul comprises 26% of its total operating income in 2012.
Exhibit 5: Average Daily Value Traded in Tadawul
SR bn
12.0
10.0 8.0 6.0 4.0 2.0 0.0 9.5 7.6 6.7 5.0 3.0
Exhibit 6: Tadawul Value Traded, 50-day moving avg.

SR bn
16
14 12 10
5.6
4.4
8 6
4
2 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
2007
2008
2009
2010
2011
2012
YTD
Value Traded - 50 day mvg. avg

Source: Bloomberg, NCBC Research
6-year average
...Nonetheless we expect 5.8% growth in fee and other income

Despite the decline in Tadawul value traded, we expect 5.8% growth in fee and other income in 2013E led mostly by 14.8% growth in exchange income and 7.5% in fee income. This level of growth is broadly in-line with our estimate for loan growth and will reflect the target of banks to cross-sell to their corporate clients. This growth in fee and other income for 2013E, however, is relatively lower than the growth recorded in 2012 at 15.4% mostly due to lower Tadawul value traded. Overall we expect fee and other income CAGR of 9.2% during the period 201217E. Further strict regulations from SAMA on loan fee income and charges on ATM cards are key downside risks to our estimates.
NCB CAPITAL
Saudi banks valuations; impact of tight NIMs exaggerated

Despite downward revision in earnings forecasts, valuations attractive compared to EM/FM banks
Despite the downward revision in our estimates we continue to believe that Saudi banks with Overweight ratings are trading at attractive valuations. As illustrated in Exhibit 7, Saudi banks are placed attractively in the third quadrant of the chart comparing the valuations of Saudi banks against a sample of 74 emerging market and frontier market banks. While Saudi banks achieve, on average, 10% lower return on equity compared to EM/FM banks, valuations are about 12% lower. In fact excluding Albilad and Al Rajhi, valuations are 32% lower while returns are 26% lower. The discrepancy in valuations comes despite the underperformance of EM banks in 2011 (see Exhibit 8). The discount compared to EM/FM peers, in our view are unjustified. Indeed, we believe the sound SAMA regulation, high provision coverage, strong asset quality and relatively stable liquidity cycles in the Kingdom presents a strong case for premium valuations for Saudi banks, particularly the large-caps.
Exhibit 7: Saudi banks relative valuation
P/B (x) against RoE (%); 2013E
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 8.5 AlRajhi
AlRajhi
Albilad BJAZ SHB Samba 13.5 Albilad 18.5 BJAZ 23.5 Samba 28.5 SHB
We attribute this discount in valuations mostly due to the decline in NIM s. However, we believe that the discount placed on Saudi banks due to contracting margins is unjustified. Moreover, we believe current valuations are pricing in further pressure on NIMs whereas we believe NIMs will bottom out in 2013E.
LT stock price underperformance of Saudi banks a myth

While most commentators have asserted that the Saudi banks index have historically underperformed the Tadwaul benchmark index, statistics since 1996 indicate otherwise. For the 17-year period, the banking sector index has underperformed the Tadawul benchmark seven times. Out of the seven times the banks index has underperformed on a yearly basis, four of the times have been during the period 2009-12. It is during this period when the sector experienced tightening of margins and, to a certain extent, deterioration of asset quality. Therefore, during the 13-year period 1996-2008, the banks index has underperformed the index only three times. Hence we argue that there is no basis for the notion that banks have historically underperformed the general Tadawul index due to retail investor preference for non-banks stocks. The statistics presented rejects that view and this is why we do not place discounts to our valuations that reduce our target prices.
NCB CAPITAL
Exhibit 8: Performance of banking sector stocks
Exhibit 9: Excess returns of Saudi banks index

%, over the benchmark Tadawul Index
130
120 110 100 90 80 70 60 Jan-11
15%
10% 5%
0%
-5% -10%
-46% (2003)
1996 2000 2004 2008 2012
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
-15%
Saudi Banks
Source: SAMA, Bloomberg, NCBC Research
Tadawul
EM Banks
Source: SAMA, Bloomberg, NCBC Research
Our valuations are based on conservative forecasts

We continue to be conservative in our forecasts for most of the banks under coverage. For the ten banks, our estimates for 2013E are 5.9% lower than consensus while for 2014E it is 8.5% below consensus. This variance is relatively higher than our previous estimates where we were only 5.3% and 6.1% below consensus respectively. We believe this reflects our conservative assumptions for margins and loan growth. The exceptions are SAIB and SHB which we believe will be able to achieve good loan growth during the forecast period.
Exhibit 10: NCBC vs. Consensus estimates
SRmn
2013E NCBC Estimates 2014E 2015E 2016E Consensus Estimates 2013E 2014E 2015E 2016E 2013E Variance (%) 2014E 2015E 2016E
Al Rajhi Samba Riyad SABB BSF ANB SHB SAIB Albilad BJAZ Total
8,444 4,463 3,655 3,405 3,186 2,581 1,388 1,023 686 573 29,404
9,569 5,012 3,896 3,794 3,631 2,936 1,546 1,115 859 679 33,036
10,720 5,778 4,198 4,338 4,179 3,359 1,750 1,281 1,078 805 37,486
12,004 9,144 10,453 11,921 12,433 6,532 4,955 5,739 6,567 7,349 4,499 3,801 4,391 4,866 5,282 4,804 3,693 4,286 5,012 5,126 4,776 3,398 3,905 4,318 5,910 3,846 2,676 3,064 3,385 3,783 1,939 1,269 1,412 1,639 1,858 1,483 967 1,139 1,179 1,382 1,236 706 910 1,149 1,534 900 646 798 743 810 42,018 31,254 36,095 40,781 45,467
(7.7) (9.9) (3.8) (7.8) (6.2) (3.6) 9.4 5.8 (2.9) (11.3) (5.9)
(8.5) (12.7) (11.3) (11.5) (7.0) (4.2) 9.5 (2.1) (5.5) (14.9) (8.5)
(10.1) (12.0) (13.7) (13.4) (3.2) (0.8) 6.8 8.7 (6.2) 8.3 (8.1)
(3.4) (11.1) (14.8) (6.3) (19.2) 1.7 4.4 7.3 (19.5) 11.1 (7.6)
Source: Reuters, Bloomberg, NCBC Research
NCB CAPITAL
Consumer Finance: key sector target for banks

Expect consumer lending CAGR of 16% for banks under coverage
Based on management guidance and our forecasts, we expect consumer lending to grow at a CAGR of 16% during the period 2012-16E driven by improving economic outlook of the Kingdom and higher disposable income for Saudis. We believe the growth in consumer finance is sustainable and argue that is driven by effective demand rather than a consumer bubble. The recent labour market regulation which is set to restrict foreign hiring is expected to boost the local workforce and hence improve the capacity of households to borrow.
Exhibit 11: Consumer Loans for ten banks under coverage
SR bn
500 450
26%
30%
400 350 300 250 200 150 100 50 -
25% 24%
13% 8% 19% 17% 15% 20%
13%
15% 10% 5%
7% 3%
4%
0%
2006 2008 2010 Consumer Finance 2012 Growth 2014F 2016F
Source: Banks Annual Report, NCBC Research
Therefore, despite the recent growth in consumer finance, the proportion of personal loans as a percentage of GDP has declined to 12% in 2012 from 14% in 2006. This is relatively low compared to emerging markets and even among oil-exporting nations, which it could be argued have their nominal GDP inflated by high oil prices. We believe this reflects the potential for local banks to further penetrate the consumer segment.
Exhibit 12: Saudi Arabia Consumer loans as % of GDP
SR bn / %
300 250 18% 16%
Exhibit 13: Consumer loans as a % of GDP by country

%
60%
50% 40% 30% 20% 10% 0% 25% 53%
14% 12% 10%

8% 6% 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012
200
150 100 50 0
19%
15%
15% 12%
11%
Malaysia
Personal Loans
Source: SAMA, IMF, NCBC Research
Brazil
Oman
Russia
Kuwait
Personal Loans as a% of GDP (RHS)

Source: SAMA, respective central banks, IMF, NCBC Research
Saudi Arabia
Qatar
For example Saudis consumer finance to GDP at 12% is lower than other oil exporting nations like Oman (19%), Russia (15%) and Kuwait (15%). It is also considerably lower than in Malaysia, which is a relatively more economically developed country, where personal loans as a percentage of GDP is at 53%. There we believe that there continues to be potential for local banks to lend to the consumer segment. While mostly aided by the one-off government bonus salaries in 2011, we see that our proxy for consumption levels continue to be at
NCB CAPITAL
high levels compared to previous years. This reflects the improved consumer sentiment as well as the improving outlook for salaries in the Kingdom.
Similar strategies among banks a concern

Due to the significant decline in yields on assets, banks are increasingly focused on changing the asset mix towards the consumer sector. While we expect the greater focus on consumer loans to partially offset the decline in margins, we are concerned by the similarities of the various strategies of banks. Indeed, the competition amongst banks for consumer loans is expected to put significant downside risk on asset yields from this segment. Additionally, in order to meet these relatively high consumer lending targets, banks may favour higher yields over prudent risk management. While we do not foresee systematic risks emanating from consumers we argue that with Saudisation we expect Saudis to enjoy higher wages we are concerned by the potential willingness of local banks to extend credit to riskier consumers to meet their targets. We consider this to be a significant downside risk to our forecast.
Assume no material impact from Mortgage Law until clarifications; conservative approach
Despite the official announcement of the publication of three of the five laws forming what is referred to as the Mortgage Law, we do not factor in additional growth in real estate financing. Our growth assumptions for consumer real estate financing (which is included as part of consumer loans) will continue to be based on salary-assignment rather than on the new guidelines. Our relatively conservative assumption is based on our understanding that the proposed Mortgage Law is part of a long-term vision rather than a short-fix. Indeed we expect the new regulations to positively reform the Kingdoms real estate market while, with respect to banks, we await the laws related to foreclosure as well as management guidance. (For a discussion of this law, please see our report on Saudi Mortgage Law published on 25th February 2013.) As argued in our report on the proposed Mortgage Law, we believe that the recent increase in real estate financing is due to the chase for yields rather than in anticipation of the changes in regulations. Therefore the gradual changes in asset mix towards the consumer finance and in particular the real estate financing is particularly appealing currently due to the abundant opportunities and the relatively attractive margins.
We believe laws will separate mortgage lending functions

Given the limited reference to commercial banks in the laws published so far, coupled with the fact that the laws stipulate that the finance company can only engage in real estate financing, there is limited clarity on whether the Mortgage Law will apply to commercial banks. We believe the aim of the regulation is to separate mortgage lending function from commercial banks, similar to separating the commercial banks from the securities business. However, we have not assumed this to be the case in our models. We await the laws on foreclosures The Execution Law and the Registered Real Estate Mortgage Law as well as further clarity on how the banks will be involved in the new guidelines before updating our forecasts. Nonetheless, we expect this to have a positive impact on the long-term prospects of the Kingdom as the proposed regulation fully tackles issues related to the local real estate market.
NCB CAPITAL
Margins
Revise our forecasts for margins downwards due to competitive lending pressure
We have revised our expectations for NIMs downwards due to a combination of lower spreads over SAIBOR charged by banks, which reflects the expected competitive lending practices of banks, as well as higher cost of funding, particularly for the corporate banks. We now expect a 16bps decline in margins from our earlier forecast of no change for banks under our coverage. This translates to a 9bps YoY decline in margins for 2013E slightly lower than the 14bps decline seen in 2012. The competitive lending practises have had a noticeable impact on banks asset yields as banks compete for market share. Our proxy to measure the extent of this, the spread of banks weighted average asset yield over SAIBOR, has declined 30bps in 2012 despite a 22bps increase in the 3 months SAIBOR. The volume-driven strategy of Saudi banks while was an attempt to maintain or increase profitability in this near-zero global interest rate has further impacted margins.
Exhibit 14: Net Interest Margins
%, banks under our coverage
3.5% 3.4% 3.3% 3.2% 3.1% 3.0% 2.9% 2.8% 2.7% 2.6% 2.5% 2008
Exhibit 15: Spread: Banks loan yields vs SAIBOR

%
5.0% 4.5% 4.4% 4.2% 3.9% 3.4% 3.1% 2.8% 2.6% 3.2% 3.1%
3.42%
3.15%
4.0%
3.03%
3.5%
2.84% 2.70% 2.61%

2.0%
3.0%
2.72% 2.66%
2.76%
3.0%
2.5%
2.9%
2.8%
2010
2012
2014E
2016E
Source: SAMA, Bloomberg, Annual Reports, NCBC Research
Therefore, while management feedback has suggested that pressure on the funding has eased since December 2012, we believe there will continue to be pressure on yields on assets particularly on the corporate loan book. Big-ticket lending, which are typically associated with tighter margins, have put pressure on yields on assets in 4Q12 and we do not expect there to be improvements for 2013E. We also expect competitive pressure on the retail segment lending. As stated in the previous section, the increasing focus of banks on consumer finance particularly on the middle-class segment Affluent is expected to put further pressure. The overall competitive environment amongst banks, therefore, is expected to put further pressure on asset yields and net interest margins. We note that SAIBOR has been increasing over the past year; however, it is the spread that is charged over SAIBOR that has been under pressure. Overall, therefore, we expect a 31bps decline in spread charged over SAIBOR for 2013E.
2016E
2013E
2014E
2015E
2009
2005
2006
2007
2008
2010
2011
2012
10
NCB CAPITAL
Significant growth in money supply reflects abundant liquidity

With oil prices continuing to trade at elevated levels, coupled with the significant increase in budgeted government expenditure, liquidity in the Kingdom continues to be high. This supports the decline in yields while expanding the balance sheets of banks due to the increase in deposits. Overall, we expect customer deposits to increase by 10.2% YoY in 2013 for banks under our coverage led by the aforementioned factors.
Exhibit 16: Broad Money Supply (M3)
SR bn
1,600 1,400 1,200 25%
20%
15% 10% 5% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Broad Money Supply (M3) Money Supply growth (RHS)
1,000 800
600 400 200 -
Source: SAMA, NCBC Research
Lending practices of banks with low loan to customer deposit ratio pose a threat to NIMs
Given that the banks investment policy is dictated, to a great extent, by the fundamentals of the global economy, we believe the deterioration of the outlook will influence banks decision to expand their investment book. Consequently, if the global outlook is weak, we believe the funds will be utilised more aggressively in further domestic lending which will put further pressure on NIMs. This is particularly the case with Samba which as an LDR of 70%. If any of these banks decide to pursue more aggressive lending practices, there will be a significant downside risk to our forecast for margins and this will impact the sectors overall profitability. Currently, we do not expect significant deterioration in the global economy and hence expect growth in the investment book, particularly for Samba. This will limit the pressure to lend and hence ease competitive practices which bring down net interest margins.
We do not factor in increase in global interest rates in our models

We do not forecast any increase in central bank target rates in our models. In this respect, our assumptions for net interest margins are somewhat conservative. We continue to see uncertainty on the timing and the extent of increases in global interest rates in our forecast period. Hence the expected increase in SAIBOR is mostly a reflection of high lending growth and demand for inter-bank deposits for some of the corporate banks rather than in anticipation of higher global interest rates. Nonetheless, we note that our models are highly sensitive to changes in global interest rates, particularly the corporate banks where loans are priced using SAIBOR. Hence we believe that any increases in global interest rates, although unlikely in the near-term, will serve as an immediate positive risk to our target prices.
11
NCB CAPITAL
Increase in global interest rates to affect cost of funds

The share of time deposits will increase in case of increase in interest rates. Currently, the high proportion of demand deposits is attributable to the low interest rate environment which significantly reduces the opportunity cost associates with interest (or profit) bearing deposits. Indeed, the reduced rates have a noticeable substitution effect as depositors prefer short-term liquidity over longer-term deposits offering limited returns. Moreover, the abundant liquidity at low cost limits the need for banks demand for longer maturity funds.
Exhibit 17: Cost of Funds
%
3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007
0.0% Jun-09
Exhibit 18: Inter-bank rates

%
1.2% 1.0% 0.8% 0.6% 0.4%
0.2%
Mar-10
Dec-10
Sep-11
SAIBOR 3M
Jun-12
Mar-13
LIBOR 3M
2008
2009
2010
2011
2012
2013E 2014E 2015E 2016E
LIBOR-SAIBOR Spread
Going forward, however, we expect an increase in the proportion of time deposits, particularly for with limited distribution channels. Hence, we believe that corporate banks are particularly at risk while Shariah-compliant banks, face lesser risk due to the client concentration of more conservative depositors. For example, more than 85% of Al Rajhis retail depositors are low to mid income earners and hence, the opportunity cost, in absolute terms, is limited even in the case of a significant increase in interest rates.
12
NCB CAPITAL
Strong asset quality expected to continue

With the exception of MMG which was a relatively small figure the key risks from family-owned contracting companies did not materialise in 2012. Indeed, based on management feedback, we believe that the cash flow situation of many of the local contracting companies have improved considerably since mid2012. Therefore, while we expect such concerns to resurface, particularly in the Ramadan period, we do not see systematic risks emanating from local contracting companies. This is particularly the case with the significant increase in government spending expected in 2013E which should drive their profitability. Nonetheless, we continue to be relatively conservative with our forecasts for provision charges, which is done on a bank-by-bank basis. Overall, we expect average cost of risk of 79bps during our forecast period compared to past seven year average of 81bps. We note that our cost of risk assumption is slightly higher than most management guidance.
Exhibit 19: Provision coverage and cost of risk
%
250% 200% 150% 100% 50% 0% 0.9% 0.8%
2.0%
Exhibit 20: NPL Ratio

%
2.4% 2.22%
2.2%
0.8%
1.8%
1.79%
1.76%
1.71%
1.68%
1.66%
0.7% 0.7% 0.6%
1.6%
1.4% 1.2%
2011
2012
2013E
2014E
2015E
2016E
1.0%
2011
NPL coverage
Cost of Risk (RHS)
2012
2013E
2014E
2015E
2016E
Provision coverage expected to further increase; NPL stable

Assuming no negative shocks in the local economy, we expect provision coverage to increase in the short and medium term. With our assumptions for cost of risk, we expect the provision coverage for the banks under our coverage to increase to 193% by 2016E. The relatively high coverage reflects conservative regulations which, while positive in our view, limit the profitability of banks in the short-term. Nonetheless, the extent of these provisioning means that significant risks on asset quality can easily be mitigated in the mediumterm. From the NPL perspective, we expect gross NPL ratio to fall gradually to 1.66% by 2016E. We do not believe there is likely to be significant corporate defaults or deterioration in the financial health of consumers. While we do not forecast a significant drop in gross NPL ratio we believe that, it is relatively low on an absolute level and reflects the growing domestic economy.
Zain KSA exposure expect syndicated Murabaha to be refinanced

Despite the continued delays in refinancing of the SR9.0bn syndicated Murabaha facility, we assume that the loan will be refinanced in the first half of this year at lower financing cost. We believe that it is in the interest of banks to continue lending to Zain KSA even with lower interest as restrictions to credit facilities will impact the companys operations and, as a result, limit its ability to repay the debt.
13
NCB CAPITAL
The expected decline in financing costs from the Murabaha facility will particularly impact BSF which has an exposure of SR1.0bn. Our forecast of a 5bps decline in NIMs in 2013E will be partly attributable to the lower profit rate charged on the credit facility extended to Zain KSA. Overall, we continue to expect the loan to perform with the company generating enough cash flows to service the debt. We are concerned, however, of the lack of sufficient investment to enable the company to move quickly towards profitability. We see slow revenue growth and delays in attaining profitability for Zain KSA as a key risk for both the company and its ability to pay the debt.
We do not assume recoveries from Al Gosaibi

We believe that there is very limited potential of recoveries from the provisioning. In-line with our previous note (December 2012) we continue to believe that even in the case of claw back of AlGosaibis assets , we do not see direct recoveries unless the clawback is more than 40 halalas to the rial. Although unlikely in our opinion, news flow on the likelihood and timing of recoveries from AlGosaibi would act as a trigger to price performance of banking sector stocks. This is due to two reasons (1) it could potentially lead to lower provision charges and hence act as indirect recoveries and (2) signal the extent of significant provisioning forecasted
14
BANKS MARCH 2013
AL RAJHI BANK
CHANGE IN PRICE TARGET
Positive on strong fundamentals

We remain Overweight on Al Rajhi, with a revised PT of SR88.4. We believe in Al Rajhis strong fundamentals, ability to grow top line and post good profits despite the higher cost of risk. Expectations of further selling by some of the inheritors has put downside pressure on the stock; however we believe this offers long-term investors a compelling opportunity to enter the stock. Cost of risk to remain high, limited impact expected on profits growth
We forecast Al Rajhis cost of risk to remain high in the industry at 1.4% for 2013E and 2014E as compared to industry peers average of 0.7% and 0.8% respectively. This is mainly due to lower NPL coverage at the end of 2012 which stood at 137%, below industry average of 145%. However, the banks ability to grow its top-line is likely to result in limited impact on its net income. We forecast provisions to grow 14.3% and 14.9% YoY while net income to grow 7.1% and 13.3% YoY in 2013E and 2014E, respectively.
OVERWEIGHT
Target price (SR)
Current price (SR)
88.4
64.5
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (5.1) (5.3) 82.8/63.5 25,800 1,500 TADAWUL 3M (1.9) (5.0) SR 132.0 107.4 12M (17.0) (10.2) US$ 35.2 28.6
Top-line growth to remain in-line with industry growth

We expect AlRajhis total operating income to grow in-line with the industry CAGR at 10.5% during 2012-17E. NSCI as well as fee and other income will remain strong on the backdrop of strong loan growth and increased fee and other income. We expect the contraction in net special commission margin to be negated mostly by loan volume and fee income growth that are expected to increase at a CAGR of 11.5% and 11.8%, respectively.
Avg daily turnover (mn) 3M 12M Reuters code Bloomberg code
1120.SE RJHI AB www.alrajhibank.com.sa
ROE expected to remain stronger than industry peers

Al Rajhis strong top-line growth and lower cost-to-income ratio offers it strong risk appetite for credit expansion. This enables the bank to post good profit growth as well as better profitability as compared to its peers. We expect the banks ROE to increase by 319 bps from 20.1% in 2012 to 23.3% in 2017E, the highest in the industry.
VALUATION MULTIPLES
12A P/E (x) P/BV (x) P/ABV (x) Div Yield (%) 13.8 3.0 2.9 5.0 13E 12.8 2.8 2.6 5.2 14E 11.3 2.5 2.4 5.9
Regular dividends and strong fundamentals supports investment case

Al Rajhis dividend payout ratio has averaged 75% in last three years. We expect the bank to continue with its high dividend payout ratio during our forecast period given its strong profit base, adequate capital position and CAR and expect dividend yield for 2013E to be 5.2%. We also believe 17% and 86% premium on 2013E earnings and book value is justifiable given its strong fundamentals and ability to grow loans and profits.
xx
SHARE PRICE PERFORMANCE

85 80 75 70 65 60 Mar-12 Jul-12
RJHI (LHS)
Nov-12
8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 Mar-13

TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR) 2012A 9,501 4,482 13,983 7,035 172,234 221,343 40,880 267,383 4.7 2013E 10,069 4,993 15,062 7,533 197,315 247,904 42,924 296,917 5.0 2014E 11,265 5,708 16,973 8,537 223,223 275,174 46,358 326,969 5.7 2015E 12,582 6,456 19,038 9,565 248,996 302,691 50,994 358,522 6.4 2016E CAGR (%) 13,919 10.0 7,227 12.7 21,145 10.9 10,710 11.1 273,002 12.2 326,906 10.2 56,093 8.2 386,958 9.7 7.1 11.1
Source: Tadawul
Mahmood Akbar
+966 2 690 7943 m.akbar@ncbc.com
Source: Company, NCBC Research estimates
www.ncbc.com
AL RAJHI BANK MARCH 2013
NCB CAPITAL
Financials
Exhibit 21: Income statement
In SR mn, unless otherwise stated, Year-end December 31.
2012 2013E 2014E 2015E 2016E 2017E
Special commission income Special commission expense Net special commission income Net Special Commission Margins (%) Fee income Other Operating income Total operating income Pre-provision Operating Expenses Provisions Total operating expenses Pre-provision profits Pre-provision profit margin (%) Net income before Zakat Zakat Net income after Zakat Net income margin (%)
9,846 (346) 9,501 4.0 3,086 1,396 13,983 (3,779) (2,319) (6,098) 10,204 73.0 7,885 (850) 7,035 50.3
10,732 (663) 10,069 3.7 3,504 1,489 15,062 (3,966) (2,652) (6,618) 11,095 73.7 8,444 (910) 7,533 50.0
12,083 (818) 11,265 3.7 4,026 1,682 16,973 (4,359) (3,046) (7,404) 12,615 74.3 9,569 (1,032) 8,537 50.3
13,748 (1,166) 12,582 3.8 4,581 1,875 19,038 (4,863) (3,455) (8,318) 14,175 74.5 10,720 (1,156) 9,565 50.2
15,507 (1,588) 13,919 3.8 5,165 2,062 21,145 (5,273) (3,868) (9,142) 15,872 75.1 12,004 (1,294) 10,710 50.6
17,307 (2,058) 15,248 3.9 5,594 2,227 23,070 (5,740) (4,258) (9,998) 17,330 75.1 13,071 (1,409) 11,662 50.6
Exhibit 22: Balance Sheet

In SRmn, unless otherwise stated, Year-end December 31.
2012 2013E 2014E 2015E 2016E 2017E
Cash and balances with SAMA Due from banks Investments, net Performing loans Non performing loans Loans and advances, net Fixed assets, net Other assets Total assets Due to banks Customers deposits External borrowing Other liabilities Total liabilities Share Capital Reserves Retained Earnings Shareholders' funds Total equity & liab
30,804 16,557 40,880 173,244 3,530 172,234 3,818 3,090 267,383 2,235 221,343 7,336 230,914 15,000 15,000 1,148 36,469 267,383
31,487 17,882 42,924 198,774 4,288 197,315 4,066 3,244 296,917 2,123 247,904 7,703 257,730 15,000 15,000 3,682 39,187 296,917
30,817 18,834 46,358 225,346 4,990 223,223 4,330 3,406 326,969 2,335 275,174 8,088 285,597 15,000 15,000 6,552 41,372 326,969
30,568 19,775 50,994 252,036 5,858 248,996 4,612 3,577 358,522 2,616 302,691 8,492 313,799 15,000 15,000 9,232 44,723 358,522
28,431 20,764 56,093 277,259 6,624 273,002 4,912 3,755 386,958 2,930 326,906 8,917 338,753 15,000 15,000 12,233 48,205 386,958
29,567 21,803 60,581 302,111 7,288 296,334 5,231 3,943 417,459 3,164 353,059 9,363 365,585 15,000 15,000 15,501 51,873 417,459
www.ncbc.com
AL RAJHI BANK MARCH 2013
NCB CAPITAL
Exhibit 23: Key Ratios

Year-end December 31.
2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Special Commission Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios (SR mn) Cost/Income (%)
4.7 3.3 21.7 22.5 13.8 3.0 2.9 5.0 4.15 0.17 3.97 4.00 20.1 2.9 77.7 76.9 18.5 19.8 14.4 68.1 16.2 2.0 (0.7) 136.9 27.0
5.0 3.3 23.4 24.5 12.8 2.8 2.6 5.2 3.90 0.28 3.62 3.66 19.9 2.7 79.5 78.8 17.3 19.2 13.9 70.1 15.3 2.1 (0.9) 141.2 26.3
5.7 3.8 25.3 26.8 11.3 2.5 2.4 5.9 3.97 0.31 3.66 3.70 21.2 2.7 81.0 80.3 16.8 18.2 13.3 71.9 14.9 2.2 (1.1) 149.0 25.7
6.4 4.6 27.1 29.1 10.1 2.4 2.2 7.1 4.11 0.40 3.71 3.76 22.2 2.8 82.1 81.4 16.8 17.9 13.1 72.9 15.0 2.3 (1.3) 157.7 25.5
7.1 5.1 29.1 31.9 9.0 2.2 2.0 8.0 4.26 0.50 3.76 3.82 23.0 2.9 83.4 82.7 17.2 17.7 13.1 74.0 15.2 2.3 (1.6) 169.7 24.9
7.8 5.6 31.3 35.0 8.3 2.1 1.8 8.7 4.40 0.60 3.80 3.88 23.3 2.9 83.8 83.1 17.2 17.6 13.0 74.3 15.2 2.4 (2.0) 184.5 24.9
www.ncbc.com
BANKS MARCH 2013
SAMBA FINANCIAL GROUP

Lending growth to support profit growth

We remain Overweight on SAMBA with our revised PT of SR57.7. We are positive on the banks strategy to grow lending and increase its loan-to-customer deposit ratio. This is likely to enable YoY growth in NSCI that declined for past three years and keep its top-line growth strong. Overall we expect profit growth of 8.8% for 2013E driven by a loan growth of 12%. NSCI to grow after declining for three years; at lower rate compared to
previous estimates We forecast Sambas NSCI to grow 6.1% YoY in 2013E and at a CAGR of 12.0% during 2012-17E. After declining for three consecutive years, we believe expanded loan books would translate into YoY growth in NSCI. However, NSCI is likely to grow 4.1% below our previous estimates due to downward revision in our NIM estimates. We expect the bank to maintain flat NIMs at 2.27% in 2013E and report gradual increase from 2014E.
OVERWEIGHT
Target price (SR)
Current price (SR)
57.7
45.7
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M 1.3 1.2 56.8/43.4 10,968 900 TADAWUL 3M 0.7 (2.4) SR 11.4 10.3 12M (11.7) (4.9) US$ 3.0 2.7
11.3% CAGR in lending during 2012-17E to improve LTD to 76.7%

We expect Samba to continue its strategy to utilize its abundant liquidity and strong capital position to increase retail as well as corporate loans. The bank is likely to focus on growing retail loans and improve returns on corporate lending by focusing on cross-selling. We expect the bank to grow its loan book at a CAGR of 11.3% during 2012-17E and increase its loan to customer deposit ratio from 70.5% in 2012 to 76.7% by the end of 2017E.
1090.SE SAMBA AB www.samba.com.sa
VALUATION MULTIPLES
Gross NPLs improved; but NPL coverage still below industry levels
Sambas gross NPL ratio declined 82bps to 2.2% in 2012 and NPL coverage increased to 133.2%, but remained below industry average of 1.8% and 145.3%, respectively. Hence, we expect the bank s provision charges for 2013E to increase 33.8% YoY and its NPL coverage to expand to 142%.
We remain positive on the banks capacity to grow lending

Sambas focus on improving LTD ratio, expected growth in NSCI and maintained margins ensures strong top-line growth. We are positive on the banks loan expansion strategy and expect a CAGR of 11.1% in net income during 2012-17E. At CMP the banks stock trades at attractive P/E of 9.5x 2013E earnings and P/B of 1.2x. Hence, we remain overweight with PT of SR57.7.

60 55 50 45 40 35 Mar-12 Jul-12
SAMBA (LHS)
Nov-12
8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 Mar-13

TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR) 2012 4,273 2,421 6,694 3,994 104,786 148,736 52,576 199,224 4.4 2013E 4,536 2,493 7,029 4,347 117,351 160,635 55,205 214,688 4.8 2014E 5,121 2,733 7,854 4,881 133,546 178,305 59,621 236,585 5.4 2015E 5,897 3,026 8,923 5,627 149,902 199,702 64,689 262,792 6.3 2016E CAGR (%) 6,717 12.0 3,278 7.9 9,995 10.5 6,362 12.3 164,102 11.9 215,678 9.7 69,217 7.1 284,406 9.3 7.1 12.3
Source: Tadawul
Mahmood Akbar
www.ncbc.com
SAMBA FINANCIAL GROUP MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
Special commission income Special commission expense Net special commission income Net interest margin (%) Fee income Other Operating income Total operating income Pre-provision Operating Expenses Provisions Total operating expenses Pre-provision profits Pre-provision profit margin (%) Net income before Zakat Zakat Net income after Zakat Net income margin (%)
4,768 (495) 4,273 2.3 1,693 728 6,694 (1,765) (299) (2,063) 4,929 73.6 4,330 (336) 3,994 59.7
5,098 (562) 4,536 2.3 1,728 766 7,029 (1,767) (400) (2,167) 5,262 74.9 4,463 (116) 4,347 61.8
5,965 (844) 5,121 2.4 1,909 824 7,854 (1,939) (452) (2,391) 5,915 75.3 5,012 (131) 4,881 62.1
7,079 (1,182) 5,897 2.4 2,140 886 8,923 (2,171) (487) (2,658) 6,752 75.7 5,778 (150) 5,627 63.1
8,345 (1,628) 6,717 2.5 2,345 933 9,995 (2,370) (547) (2,917) 7,625 76.3 6,532 (170) 6,362 63.6
9,662 (2,132) 7,530 2.6 2,523 1,066 11,119 (2,580) (598) (3,178) 8,538 76.8 7,342 (191) 7,151 64.3

2012 2013E 2014E 2015E 2016E 2017E
Cash and balances with SAMA Due from banks Investments, net Performing loans Non performing loans Loans and advances, net Investment in associate Fixed assets, net Other assets Total assets Due to banks Customers deposits External borrowing Other liabilities and provisions Total liabilities Share Capital Reserves Retained Earnings Shareholders' funds ^ Total equity & liab
30,916 3,642 52,576 105,564 2,341 104,786 1,548 5,756 199,224 11,957 148,736 6,792 167,485 9,000 9,369 13,577 31,739 199,224
31,185 3,278 55,205 118,386 2,446 117,351 1,625 6,044 214,688 12,554 160,635 7,132 180,322 9,000 9,369 16,255 34,366 214,688
32,251 3,114 59,621 134,898 2,542 133,546 1,707 6,346 236,585 13,559 178,305 7,489 199,353 9,000 9,369 18,761 37,233 236,585
36,476 3,270 64,689 151,590 2,653 149,902 1,792 6,663 262,792 14,915 199,702 7,863 222,479 9,000 9,369 21,650 40,313 262,792
38,678 3,531 69,217 166,170 2,777 164,102 1,882 6,996 284,406 16,705 215,678 8,256 240,639 9,000 9,369 24,915 43,767 284,406
41,445 3,814 74,062 181,125 2,914 178,640 1,976 7,346 307,283 18,041 232,932 8,669 259,642 9,000 9,369 28,586 47,641 307,283
19
SAMBA FINANCIAL GROUP MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Interest Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios (SR mn) Cost/Income (%)
4.4 1.6 34.1 34.9 10.3 1.3 1.3 3.5 2.53 0.31 2.22 2.26 13.3 2.0 70.5 65.2 35.3 20.0 15.9 52.6 26.4 2.2 (0.7) 133.2 30.8
4.8 1.8 37.1 38.2 9.5 1.2 1.2 3.9 2.56 0.34 2.22 2.27 13.2 2.1 73.1 67.8 34.4 19.3 16.0 54.7 25.7 2.0 (0.9) 142.3 30.8
5.4 2.5 39.9 41.3 8.4 1.1 1.1 5.6 2.74 0.46 2.28 2.35 13.6 2.2 74.9 69.6 33.4 18.7 15.7 56.4 25.2 1.8 (1.0) 153.2 30.4
6.3 2.9 43.1 44.9 7.3 1.1 1.0 6.4 2.93 0.58 2.35 2.44 14.5 2.3 75.1 69.8 32.4 18.2 15.3 57.0 24.6 1.7 (1.1) 163.6 29.8
7.1 3.3 46.7 48.9 6.5 1.0 0.9 7.2 3.15 0.73 2.42 2.54 15.1 2.3 76.1 70.6 32.1 18.2 15.4 57.7 24.3 1.6 (1.2) 174.5 29.2
7.9 3.7 50.8 53.5 5.8 0.9 0.9 8.1 3.37 0.88 2.49 2.63 15.6 2.4 76.7 71.2 31.8 18.2 15.5 58.1 24.1 1.6 (1.4) 185.3 28.6
20
BANKS MARCH 2013
RIYAD BANK
Continue to favour management strategy

We remain Overweight on RIBL with our revised PT at SR33.8. The focus on improving NIMs through further penetration into the consumer lending segment is expected to continue to lead the growth in operating income. Our net income estimate is revised up by 1.8% for 2013E mostly due to the 4.3% upward revision in our forecast for net loans. Contraction in NIMs is a key risk for RIBL. Margin stable through better loan mix; down from previous estimate
We expect Riyad Banks NIMs to increase marginally by 3bps in 2013E from 2012 due to the focus of maintaining favourable loan mix. We expect expansion in retail loans by 20% in 2013E, up from 16% in 2012 which will see the share of the consumer segment in total lending increase to 29% from 26% in 2012. On an absolute level, however, our NIMs forecast for Riyad Bank is 11 bps lower than our previous estimate as we continue to see competitive pressure on lending which we expect to bring down yields.
OVERWEIGHT
Target price (SR)
Current price (SR)
33.8
22.85
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (1.9) (2.1) 26.8/22.7 9,140 1,500 TADAWUL 3M (1.3) (4.4) SR 9.5 9.7 12M (14.7) (7.9) US$ 2.5 2.6
Lending focus on consumer finance

RIBLs focus on consumer loans is expected to come at the cost of corporate sector lending. For 2012-17E, we expect muted corporate lending CAGR of 5.4% compared to consumer lending CAGR of 21% during the same period. This will increase the share of consumer lending to 41% by 2017E from 26% in 2012. Based on management feedback, we expect corporate loans to be focused mostly on contracting companies and petrochemical projects.
1010.SE RIBL AB www.riyadbank.com
VALUATION MULTIPLES
NSCI to drive profit growth in 2013E and 2014E

We believe the NSCI growth of 6.7% and 8.1% YoY in 2013E and 2014E, respectively, will be the main driver for profit growth. Fee and other income will be driven by trade finance with an expected growth of 17% in 2013E. We also expect the Remittance Business to have a positive impact the fee income business. Overall we forecast RIBLs fee and other income to grow 5.3% YoY in 2013E aiding the 6.2% growth in top-line.

28 8,500 8,000 26 7,500 7,000 24 6,500 6,000 22 5,500 20 5,000 Mar-12 Jul-12 Nov-12 Mar-13
RIBL (LHS) TASI
Consistent strategy ensures consistent profits

RIBLs consistent management strategy has enabled an average YoY growth of 9.7% for last two years, while our conservative forecast assumes 5.7% growth in net income for 2013E. We therefore continue to favour this strategy with high dividend yield of 5.7% providing downside support.
Financial Summary
Source: Tadawul
Mahmood Akbar
www.ncbc.com
RIYAD BANK MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
5,163 (782) 4,381 2.5 1,777 627 6,786 (2,350) (1,050) (3,400) 4,436 65.4 3,466 (150) 3,316 48.9
5,635 (961) 4,675 2.5 1,925 609 7,208 (2,493) (1,143) (3,635) 4,716 65.4 3,655 (150) 3,505 48.6
6,191 (1,139) 5,053 2.5 2,132 645 7,830 (2,697) (1,326) (4,023) 5,133 65.6 3,896 (160) 3,736 47.7
7,172 (1,539) 5,633 2.6 2,325 692 8,651 (3,012) (1,534) (4,545) 5,639 65.2 4,198 (172) 4,026 46.5
8,455 (2,104) 6,351 2.7 2,524 738 9,613 (3,327) (1,882) (5,208) 6,286 65.4 4,499 (185) 4,314 44.9
9,968 (2,794) 7,174 2.7 2,723 777 10,674 (3,780) (2,231) (6,011) 6,894 64.6 4,763 (195) 4,567 42.8

2012 2013E 2014E 2015E 2016E 2017E
26,271 3,191 36,254 117,975 2,037 117,471 1,738 4,847 190,181 6,163 146,215 5,840 158,217 15,000 14,466 1,372 31,964 190,181
21,962 3,442 38,792 128,466 2,246 127,589 1,825 5,099 199,202 6,101 153,525 6,132 165,758 15,000 15,380 2,013 33,444 199,202
19,863 3,718 42,671 140,399 2,471 139,039 1,916 5,375 213,162 5,796 165,807 6,438 178,042 15,000 16,125 2,827 35,121 213,162
22,033 3,975 46,084 154,472 2,718 152,505 2,012 5,671 232,954 6,086 183,217 6,760 196,063 15,000 16,125 4,506 36,891 232,954
25,195 4,173 49,771 172,275 3,002 169,459 2,112 5,993 257,472 6,390 205,203 7,098 218,692 15,000 16,125 6,306 38,780 257,472
27,532 4,382 53,255 193,023 3,328 189,134 2,218 6,339 283,729 6,710 228,801 7,453 242,965 15,000 16,125 8,211 40,764 283,729
22
RIYAD BANK MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Interest Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap. adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios Cost/Income (%)
2.2 1.3 20.6 20.9 10.3 1.1 1.1 5.7 2.90 0.52 2.37 2.46 10.7 1.8 80.3 77.1 24.8 19.0 16.8 61.9 19.1 1.7 (0.4) 124.8 34.6
2.3 1.3 21.6 22.2 9.8 1.1 1.0 5.7 3.01 0.62 2.39 2.49 10.7 1.8 83.1 79.9 25.3 18.6 16.8 64.2 19.5 1.7 (0.7) 139.0 34.6
2.5 1.5 22.6 23.5 9.2 1.0 1.0 6.4 3.12 0.69 2.43 2.54 10.9 1.8 83.9 81.0 25.7 18.1 16.5 65.4 20.1 1.7 (1.0) 155.1 34.4
2.7 1.6 23.8 25.0 8.5 1.0 0.9 6.8 3.34 0.85 2.48 2.62 11.2 1.8 83.2 80.6 25.2 17.5 15.9 65.7 19.8 1.7 (1.3) 172.4 34.8
2.9 1.7 25.0 26.8 7.9 0.9 0.9 7.3 3.57 1.05 2.52 2.68 11.4 1.8 82.6 80.1 24.3 16.7 15.1 66.0 19.4 1.7 (1.6) 193.8 34.6
3.0 1.8 26.2 28.7 7.5 0.9 0.8 7.8 3.81 1.25 2.56 2.74 11.5 1.7 82.7 80.3 23.3 16.0 14.4 66.9 18.8 1.7 (2.0) 216.8 35.4
23
BANKS MARCH 2013
SAUDI HOLLANDI BANK

Strategy ensures strong loan and top-line growth

We remain Overweight on SHB with revised PT of SR35.4. We are positive on the banks strategy to focus on SMEs for loan growth. Although we expect margins to remain under pressure in 2013E, we expect profit growth of 8.3% led by loan growth of 13.9%. New focus on SMEs with Business Banking to drive loan growth
We expect SHBs new strategy to focus on retail as well as SME segment is likely to drive loan growth for the bank. SHB started Business Banking in 4Q12 and has 7 business centers in operations that focus on the SME segment. The bank also aims to increase its retail loans which grew by 31% YoY in 2012. We revised our loan forecast up by 4.6% for 2013E and expect it to grow 13.9% YoY led by a 20% growth in retail loans.
OVERWEIGHT
Target price (SR)
Current price (SR)
35.4
28.7
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M 0.3 0.2 29.3/25.7 3,038 397 TADAWUL 3M 5.1 2.1 SR 2.4 2.6 12M 2.1 9.0 US$ 0.6 0.7
Increase in time deposits and external debt to keep cost of funds high
With the 25% growth in time deposits coupled with the recently issued SR1.4bn of Sukuk we expect SHBs cost of funds to be under pressure in 2013E. We expect the banks cost of funds to increase by 14bps to 0.8%, which will reduce NIMs by 5bps from 2012. We forecast, however, yields on assets to increase by 8bps from 2012 mostly due to an increase in the share of retail loans in the loan portfolio.
1040.SE AAAL AB www.shb.com.sa
Net income revised up for 2013E and 2014E on lower provision needs;
superior asset quality W e expect the banks cost of risk to remain 0.33% in 2013E and 0.36% in 2014E and revise our provisions forecast downward by 19.6% in 2013E and 11.3% in 2014E. Consequently, the banks profits have increased by 8.3% and 6.2% for 2013E and 2014E, respectively. This downward revision in our provision forecasts reflects SHBs excellent asset quality and prudent risk management.
VALUATION MULTIPLES
Good top-line due to strong loan book growth keep us positive on SHB
We expect the banks NSCI as well as fees and other income to remain strong on the back of good loan growth. On the other side, lower provisions will improve its short term profits. Hence, we remain Overweight on the banks stock with a revised PT of SR35.4 (up 7.2% to our previous PT).

30 8,500 8,000 28 7,500 26 7,000 6,500 24 6,000 22 5,500 20 5,000 Mar-12 Jul-12 Nov-12 Mar-13
SHB (LHS) TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR) 2012 1,372 847 2,219 1,199 45,276 53,914 11,366 68,506 3.0 2013E 1,553 927 2,480 1,329 51,559 60,922 11,934 76,258 3.3 2014E 1,754 1,020 2,775 1,480 57,483 69,452 13,127 85,972 3.7 2015E 2,023 1,137 3,160 1,674 63,841 77,439 14,703 95,229 4.2 2016E CAGR (%) 2,297 13.7 1,243 10.1 3,539 12.4 1,856 11.5 69,666 11.4 84,408 11.9 16,467 9.7 103,587 10.9 4.7 11.5
Source: Tadawul
Mahmood Akbar
www.ncbc.com
SAUDI HOLLANDI BANK MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
1,720 (347) 1,372 2.2 628 219 2,219 (727) (120) (847) 1,492 67.2 1,253 (54) 1,199 54.0
2,046 (493) 1,553 2.2 688 240 2,480 (770) (161) (931) 1,710 68.9 1,388 (60) 1,329 53.6
2,375 (621) 1,754 2.2 754 266 2,775 (833) (198) (1,031) 1,942 70.0 1,546 (67) 1,480 53.3
2,757 (734) 2,023 2.3 837 300 3,160 (909) (251) (1,160) 2,251 71.2 1,750 (75) 1,674 53.0
3,188 (891) 2,297 2.4 915 328 3,539 (974) (314) (1,288) 2,566 72.5 1,939 (84) 1,856 52.4
3,663 (1,074) 2,588 2.4 990 354 3,933 (1,046) (375) (1,420) 2,887 73.4 2,140 (92) 2,048 52.1

2012 2013E 2014E 2015E 2016E 2017E
Cash and balances with SAMA Due from banks Investments, net Performing loans Non performing loans Loans and advances, net Investment in associate Fixed assets, net Other assets Total assets Due to banks Customers deposits External borrowing Other liabilities Total liabilities Share Capital Reserves Retained Earnings Shareholders' funds Total equity & liab
9,562 841 11,366 45,658 722 45,276 18 489 954 68,506 1,475 53,914 2,900 1,911 60,200 3,969 2,830 1,051 8,306 68,506
10,279 967 11,934 51,972 741 51,559 19 499 1,001 76,258 1,401 60,922 2,900 2,006 67,230 3,969 3,177 1,648 9,028 76,258
12,700 1,083 13,127 57,949 780 57,483 20 509 1,052 85,972 1,471 69,452 2,900 2,107 75,930 3,969 3,564 2,190 10,043 85,972
13,850 1,191 14,703 64,398 828 63,841 21 519 1,104 95,229 1,545 77,439 2,900 2,212 84,095 3,969 4,001 2,802 11,133 95,229
14,433 1,310 16,467 70,361 903 69,666 23 529 1,159 103,587 1,622 84,408 2,900 2,323 91,253 3,969 4,093 3,873 12,335 103,587
15,668 1,398 17,968 76,175 984 75,297 24 540 1,217 112,112 2,266 91,161 1,500 3,526 98,453 3,969 4,093 5,157 13,659 112,112
25
SAUDI HOLLANDI BANK MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Interest Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratio Cost/Income (%)
3.0 0.9 19.8 20.7 9.5 1.4 1.4 3.1 2.81 0.65 2.15 2.24 15.3 1.9 84.0 77.7 21.1 18.8 12.1 66.1 16.6 1.6 (0.8) 152.8 38.2
3.3 0.9 22.2 23.2 8.6 1.3 1.2 3.0 2.89 0.80 2.09 2.19 15.3 1.8 84.6 79.1 19.6 18.4 11.8 67.6 15.6 1.4 (0.8) 155.6 37.6
3.7 1.3 24.5 25.6 7.7 1.2 1.1 4.5 2.99 0.89 2.09 2.20 15.5 1.8 82.8 77.9 18.9 17.8 11.7 66.9 15.3 1.3 (0.8) 159.8 37.2
4.2 1.4 27.2 28.5 6.8 1.1 1.0 5.0 3.10 0.94 2.16 2.27 15.8 1.8 82.4 78.0 19.0 17.4 11.7 67.0 15.4 1.3 (0.9) 167.2 36.7
4.7 1.6 30.1 31.7 6.1 1.0 0.9 5.6 3.26 1.04 2.22 2.35 15.8 1.9 82.5 78.3 19.5 17.3 11.9 67.3 15.9 1.3 (1.0) 176.9 36.4
5.2 1.8 33.3 35.4 5.6 0.9 0.8 6.2 3.45 1.17 2.28 2.44 15.8 1.9 82.6 79.3 19.7 15.9 12.2 67.2 16.0 1.3 (1.1) 189.2 36.1
26
BANKS MARCH 2013
BANQUE SAUDI FRANSI

COMPANY UPDATE
Growth potential remains strong

BSFs strategy is to target corporate clients to grow retail loans and increase term debt to support corporate lending. We believe this is likely to grow net loans at a CAGR of 11% during 2012-17E. In addition, better asset quality and lower cost-to-income is expected to translate to higher profit growth compared to industry. We remain Overweight on the banks stock with PT of SR37.1. Targeting corporate clients to grow retail loans
BSF aims to target retail segment via its corporate clients. The bank offers retail loans and other products to employees of its corporate client. It also plans to provide mortgage loans guaranteed by the employer. This will enable the bank to grow its retail loans at a CAGR of 12.0% in 2012-17E, slightly higher than expected CAGR of 11.1% for corporate loans during the same period.
OVERWEIGHT
Target price (SR)
Current price (SR)
37.1
30.7
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (1.0) (1.1) 40.0/28.9 7,401 904 TADAWUL 3M 1.3 (1.7) SR 7.1 5.9 12M (15.2) (8.4) US$ 1.9 1.6
Term debt to support LT loans and CAR; but results in higher CoF
BSF has raised a Sukuk of USD750mn and SR1.9mn in 2012 to support long term loans and project financing as well as strengthen its capital base. However, these term deposits are more expensive than customer deposits and likely to keep cost of funds high. We expect the bank to focus on increasing its demand deposits to reduce the impact of costly debts. We forecast the banks deposits to grow 11.0% YoY in 2013E driven by demand deposit and its cost of funds to widen by 10bps in 2013E to 0.72%.
1050.SE BSFR AB www.alfransi.com.sa
VALUATION MULTIPLES
Decline in brokerage partially negated by increased trade finance

We forecast lower trading on Tadawul to reduce BSFs brokerage income 32.5% YoY in 2013E. However, we expect the 13.4% growth in income from the banks highly-rated trade finance services to partially offset the decline in income from brokerage. We estimate a muted growth of 0.7% YoY in BSFs fee income for 2013E.

45 8,500 8,000 40 7,500 7,000 35 6,500 6,000 30 5,500 25 5,000 Mar-12 Jul-12 Nov-12 Mar-13
BSF (LHS) TASI
Profits CAGR of 12.3% in 2012-17E vs. industrys 11.0%, supports our

positive outlook Despite higher cost of funds and lower fee income, we expect BSFs net income to grow 5.7% YoY in 2013 on better asset quality and low cost-toincome ratio. We expect the banks profits to grow at a CAGR of 12.3%, faster than industrys 11.0%. Hence, we remain Overweight on the stock.
Financial Summary
Source: Tadawul
Mahmood Akbar
www.ncbc.com
BANQUE SAUDI FRANSI MARCH 2013
NCB CAPITAL
To fin
Financials
2012 2013E 2014E 2015E 2016E 2017E
4,069 (764) 3,306 2.3 1,173 530 5,010 (1,108) (444) (1,552) 3,901 77.9 3,015 (60) 2,955 59.0
4,554 (979) 3,575 2.3 1,182 496 5,253 (1,138) (466) (1,604) 4,114 78.3 3,186 (63) 3,123 59.5
5,221 (1,179) 4,042 2.3 1,307 543 5,892 (1,190) (538) (1,728) 4,702 79.8 3,631 (72) 3,558 60.4
6,266 (1,579) 4,688 2.4 1,430 607 6,725 (1,296) (628) (1,924) 5,430 80.7 4,179 (83) 4,096 60.9
7,320 (1,894) 5,425 2.5 1,548 668 7,642 (1,393) (740) (2,133) 6,249 81.8 4,776 (95) 4,681 61.3
8,573 (2,414) 6,158 2.5 1,663 736 8,557 (1,484) (848) (2,332) 7,073 82.7 5,384 (107) 5,277 61.7

2012 2013E 2014E 2015E 2016E 2017E
15,233 5,435 27,498 103,293 1,045 102,785 172 641 6,012 157,777 5,662 115,572 1,778 4,948 135,090 9,040 9,429 3,408 22,687 157,777
15,447 5,164 28,873 115,688 1,148 114,946 176 661 6,613 171,879 6,229 128,285 5,542 147,230 9,040 10,225 4,969 24,649 171,879
17,193 5,680 33,204 130,090 1,240 129,070 181 680 7,275 193,282 6,976 145,603 6,207 165,961 9,040 10,915 6,821 27,321 193,282
18,964 6,532 37,188 147,134 1,350 145,780 187 701 8,002 217,354 8,023 167,444 6,951 187,130 9,040 10,915 9,537 30,224 217,354
24,182 7,512 41,651 162,151 1,478 160,349 194 722 8,802 243,411 9,226 188,374 7,786 210,098 9,040 10,915 12,403 33,313 243,411
27,881 8,263 44,983 175,463 1,601 173,076 201 743 9,682 264,830 10,333 207,211 8,720 228,164 9,040 10,915 15,633 36,665 264,830
28
BANQUE SAUDI FRANSI MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
3.3 0.8 24.2 24.7 9.4 1.3 1.2 2.6 2.85 0.62 2.24 2.32 14.0 2.0 88.9 79.0 23.8 16.5 14.4 65.1 17.4 1.0 (0.5) 148.6 31.0
3.5 0.8 26.8 27.6 8.9 1.1 1.1 2.7 2.89 0.72 2.17 2.27 13.2 1.9 89.6 81.1 22.5 16.4 14.3 66.9 16.8 1.0 (0.6) 164.6 30.5
3.9 1.1 29.6 30.7 7.8 1.0 1.0 3.5 2.99 0.78 2.20 2.31 13.7 1.9 88.6 80.8 22.8 15.9 14.1 66.8 17.2 0.9 (0.8) 182.3 29.3
4.5 1.5 32.6 34.1 6.8 0.9 0.9 4.8 3.18 0.93 2.26 2.38 14.2 2.0 87.1 80.9 22.2 15.4 13.9 67.1 17.1 0.9 (0.9) 200.3 28.6
5.2 2.0 35.8 37.7 5.9 0.9 0.8 6.4 3.31 0.99 2.32 2.45 14.7 2.0 85.1 79.3 22.1 15.2 13.7 65.9 17.1 0.9 (1.1) 222.0 27.9
5.8 2.2 39.4 41.9 5.3 0.8 0.7 7.2 3.51 1.14 2.37 2.52 15.1 2.1 83.5 78.9 21.7 15.3 13.8 65.4 17.0 0.9 (1.3) 249.1 27.3
29
BANKS MARCH 2013
SABB
CHANGE IN PRICE TARGET r
Volume focus to result in strong profit growth

We maintain our Overweight rating on SABB with revised PT at SR41.0. SABBs strategy to grow loan volumes will enable the bank to increase its NSCI faster than other peers. This is likely to enable SABB to growth its net income in-line with the industry, despite the tight margins and higher provisions. Credit growth expected to remain highest in the industry
We expect SABB to continue with its loan volume growth strategy during 2012-17E and have highest CAGR of 11.8% for loan volumes. We believe, SR1.5bn of Sukuk and other term deposits will enable the bank to grow its corporate loans particularly for project financing. We expect SABB to maintain corporate to retail loans ratio at 80:20 and grow its corporate credit at a CAGR of 11.6% and consumer loans at a CAGR of 13.8% in 2012-17E.
OVERWEIGHT
Target price (SR)
Current price (SR)
41.0
42.2
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (1.2) (1.3) 37.0/28.5 9,013 1,000 TADAWUL 3M 8.3 5.3 SR 4.7 4.9 12M (1.5) 5.4 US$ 1.3 1.3
NSCI to grow at a CAGR of 13.5% in 2012-17, second best after BJAZ

We forecast SABBs NSCI growth of 13.5% CAGR during 2012-17E to remain the second best in the industry given its focus on faster expansion in loan volumes. Although we assume, the banks NIMs to decline 9bps in 2013E, we expect it to widen by 28bps between 2013E and 2017E, which will aid the growth in NSCI.
1060.SE SABB AB www.sabb.com
Provisions to increase in 2013E; but cost of risk remains below peers

We expect SABBs provision to increase 34% YoY in 2013E to improve its coverage ratio to 164% from 151%. However, we expect its cost of risk during 2013E-17E to average 0.63%, below its peers average of 0.79%, reflecting better asset quality. Nonetheless, growth in provisions is likely to impact net income growth in 2013E. Overall, we expect 5.1% YoY growth in profits in 2013E.
12A P/E (x) P/BV (x) P/ABV (x) Div Yield (%) 10.6 1.8 1.7 2.7
VALUATION MULTIPLES
13E 10.1 1.6 1.5 2.7 14E 9.0 1.4 1.3 2.7
Better performance at attractive valuations

At a 10.1x 2013 earnings and 1.6x 2013 book value, we believe, the stock is trading at attractive valuations. SABBs growth strategy to result in better loan and NSCI growth than peers. Hence, we remain Overweight on SABB with a revised PT of SR41.0.

38 36 8,500 8,000 7,500 34 7,000 32 6,500 30 6,000 28 5,500 26 5,000 Mar-12 Jul-12 Nov-12 Mar-13
SABB (LHS) TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans (bn) Deposits (bn) Investments (bn) Assets (bn) EPS (SR) 2012 3,264 1,902 5,166 3,194 96,098 120,434 27,587 156,652 3.2 2013E 3,515 2,041 5,556 3,356 108,032 134,886 29,794 173,764 3.4 2014E 4,014 2,193 6,207 3,739 122,343 152,421 32,178 195,351 3.7 2015E 4,671 2,415 7,086 4,276 137,586 173,760 35,395 219,149 4.3 2016E CAGR (%) 5,391 13.4 2,604 8.2 7,994 11.5 4,735 10.3 152,708 12.3 193,742 12.6 38,227 8.5 243,805 11.7 4.7 10.3
Source: Tadawul
Mahmood Akbar
www.ncbc.com
SABB MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
4,000 (736) 3,264 2.3 1,322 581 5,166 (1,159) (439) (1,598) 4,007 77.6 3,240 (47) 3,194 61.8
4,469 (955) 3,515 2.2 1,433 609 5,556 (1,122) (590) (1,713) 4,434 79.8 3,405 (49) 3,356 60.4
5,176 (1,162) 4,014 2.2 1,536 657 6,207 (1,224) (679) (1,902) 4,984 80.3 3,794 (55) 3,739 60.2
6,164 (1,493) 4,671 2.3 1,692 723 7,086 (1,385) (773) (2,157) 5,701 80.5 4,338 (63) 4,276 60.3
7,276 (1,885) 5,391 2.4 1,835 769 7,994 (1,465) (956) (2,421) 6,530 81.7 4,804 (69) 4,735 59.2
8,597 (2,462) 6,135 2.5 1,932 813 8,881 (1,518) (1,161) (2,679) 7,363 82.9 5,227 (75) 5,151 58.0

2012 2013E 2014E 2015E 2016E 2017E
20,404 8,091 27,587 96,913 1,599 96,098 612 605 3,255 156,652 5,932 120,434 4,646 5,575 136,587 10,000 6,987 2,079 20,066 156,652
22,183 8,901 29,794 109,110 1,695 108,032 658 617 3,580 173,764 6,644 134,886 3,910 5,854 151,293 10,000 7,838 3,633 22,471 173,764
25,350 10,236 32,178 123,729 1,818 122,343 676 629 3,938 195,351 7,640 152,421 3,879 6,146 170,086 10,000 8,787 5,478 25,265 195,351
28,726 11,771 35,395 139,326 1,901 137,586 698 642 4,332 219,149 8,786 173,760 1,547 6,454 190,547 10,000 9,871 7,430 28,603 219,149
33,558 13,183 38,227 154,939 2,011 152,708 709 654 4,765 243,805 9,665 193,742 1,516 6,776 211,699 10,000 9,996 10,669 32,106 243,805
36,289 14,238 41,285 171,077 2,145 168,198 713 667 5,242 266,633 10,510 213,116 7,115 230,742 10,000 9,996 14,327 35,891 266,633
31
SABB MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
3.2 0.9 19.1 19.9 10.6 1.8 1.7 2.7 2.80 0.60 2.20 2.28 17.2 2.2 79.8 73.4 22.9 15.7 12.8 61.3 17.6 1.6 (0.8) 151.0 30.9
3.4 0.9 21.5 22.5 10.1 1.6 1.5 2.7 2.78 0.69 2.09 2.19 15.8 2.0 80.1 74.3 22.1 15.3 12.9 62.2 17.1 1.5 (1.0) 163.6 30.8
3.7 0.9 24.3 25.6 9.0 1.4 1.3 2.7 2.88 0.75 2.13 2.24 15.7 2.0 80.3 74.7 21.1 15.4 12.9 62.6 16.5 1.4 (1.1) 176.2 30.6
4.3 1.2 27.3 29.0 7.9 1.2 1.2 3.5 3.05 0.86 2.20 2.31 15.9 2.1 79.2 74.8 20.4 15.4 13.1 62.8 16.2 1.3 (1.2) 191.5 30.4
4.7 1.3 30.7 32.9 7.1 1.1 1.0 3.9 3.23 0.97 2.26 2.39 15.6 2.0 78.8 74.5 19.7 15.5 13.2 62.6 15.7 1.3 (1.4) 211.0 30.3
5.2 1.4 34.3 37.2 6.6 1.0 0.9 4.3 3.45 1.15 2.31 2.47 15.2 2.0 78.9 75.2 19.4 15.2 13.5 63.1 15.5 1.2 (1.7) 234.2 30.2
32
BANKS MARCH 2013
ARAB NATIONAL BANK

Maintain Overweight due to attractive valuations

We maintain our Overweight rating on ANB with a revised PT of SR32.3. We believe the current valuation does not incorporate the good profit CAGR of 13.3% expected in 2012-17E. Additionally, with highest NPL coverage ratio, we expect a small 1.8% increase in provision which should support its bottom-line growth. Higher cost of funds due to higher share of time deposits is a key risk to our assumptions for top-line growth. Low CAR to restrict faster loan growth
We forecast ANBs loan portfolio to grow in-line with industry at a CAGR of 11.3% during 2012-17E. W e expect ANBs CAR to reach near SAMA limit by 2017E at 13.3%. This may require ANB to raise additional capital either through rights issue, or to conserve current capital by lowering dividend payout ratio.
OVERWEIGHT
Target price (SR)
Current price (SR)
32.3
28.0
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M 1.1 0.9 33.7/25.3 6,347 850 TADAWUL 3M 4.5 1.4 SR 5.9 4.5 12M (14.6) (7.8) US$ 1.6 1.2
Increased share of time deposits to put NIMs under pressure

The recent increase in the share of time deposit to total deposits has recently put upward pressure on ANBs cost of funds. We expect a further increase in cost of funds by 17bps in 2013E which will contribute to the 16bps reduction in NIMs for the bank. Greater-than-expected increase in cost of funds is the key risk to ANB going forward.
1080.SE ARBN AB www.anb.com.sa
However, better asset quality to require lower provisions going forward

ANBs NPLs declined 26.3% YoY improving its NPL to gross loan ratio from 2.4% in 2011 to 1.5% in 2012. Consequently, its NPL coverage ratio also improved from 146% to 205% in 2012, the highest in the industry. This is likely to require lower provisions going forward. We forecast ANBs provisions to grow by just 1.8% YoY in 2013E and 13.8% in 2014E.
VALUATION MULTIPLES
Maintain Overweight rating on good profit growth

We believe the moderate 3.4% dividend yield coupled with good profit CAGR of 13.3% during 2012-17E supports our Overweight call on the stock. At current market price, the stock trades at relatively attractive valuation of P/E of 10.3x and P/B of 1.3x for 2013E.

40 35 30 25 20 Mar-12 Jul-12
ARNB (LHS)
Nov-12
8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 Mar-13

TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR) 2012 3,260 1,496 4,757 2,126 86,329 107,560 24,323 136,639 2.5 2013E 3,474 1,575 5,050 2,315 98,265 118,854 26,269 150,267 2.7 2014E 3,925 1,749 5,674 2,633 110,260 131,928 28,896 165,731 3.1 2015E 4,505 1,936 6,441 3,012 123,740 145,121 32,363 181,605 3.5 2016E 5,078 2,092 7,170 3,449 135,946 158,182 34,952 195,835 4.1 CAGR (%) 11.7 8.7 10.8 12.9 12.0 10.1 9.5 9.4 12.9
Source: Tadawul
Mahmood Akbar
Source: Company, NCBC Research estimates Please refer to the last page for important disclaimer
www.ncbc.com
ARAB NATIONAL BANK MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
Special commission income Special commission expense Net special commission income Net interest margin (%) Fee income Other Operating income Total operating income Pre-provision Operating Expenses Provisions Total operating expenses Pre-provision profits Pre-provision profit margin (%) Net income before Zakat ^ Zakat Net income after Zakat Net income margin (%)
Source: Company, NCBC Research estimates ^ Net income includes minority interest and income from associates
3,748 (488) 3,260 2.6 909 588 4,757 (1,370) (522) (1,892) 3,386 71.2 2,371 (245) 2,126 44.7
4,234 (760) 3,474 2.5 995 580 5,050 (1,443) (531) (1,974) 3,606 71.4 2,581 (266) 2,315 45.8
4,912 (988) 3,925 2.5 1,130 619 5,674 (1,569) (604) (2,173) 4,105 72.4 2,936 (303) 2,633 46.4
5,814 (1,309) 4,505 2.7 1,267 670 6,441 (1,769) (678) (2,447) 4,673 72.5 3,359 (347) 3,012 46.8
6,687 (1,609) 5,078 2.7 1,368 724 7,170 (1,975) (698) (2,672) 5,196 72.5 3,846 (397) 3,449 48.1
7,748 (1,938) 5,811 2.9 1,464 776 8,051 (2,185) (757) (2,942) 5,866 72.9 4,402 (455) 3,947 49.0

2012 2013E 2014E 2015E 2016E 2017E
Cash and balances with SAMA Due from banks Investments, net Performing loans Non performing loans Loans and advances, net Investment in associate Fixed assets, net Other assets Total assets Due to banks Customers deposits External borrowing Other liabilities Total liabilities Share Capital Reserves Retained Earnings Shareholders' funds ^ Total equity & liab
Source: Company, NCBC Research estimates ^ Shareholders' funds includes minority interest
20,334 2,241 24,323 87,713 1,315 86,329 430 1,307 1,675 136,639 6,550 107,560 1,688 2,932 118,730 8,500 6,875 1,580 17,910 136,639
19,810 2,353 26,269 99,980 1,363 98,265 464 1,346 1,759 150,267 7,008 118,854 1,688 3,078 130,629 8,500 7,520 2,257 19,638 150,267
20,323 2,518 28,896 112,354 1,429 110,260 502 1,387 1,847 165,731 7,569 131,928 1,688 3,232 144,417 8,500 8,254 2,866 21,314 165,731
18,773 2,820 32,363 126,260 1,514 123,740 542 1,428 1,939 181,605 8,326 145,121 1,688 3,394 158,529 8,500 8,745 3,745 23,077 181,605
17,799 3,045 34,952 138,886 1,612 135,946 585 1,471 2,036 195,835 9,159 158,182 3,564 170,904 8,500 8,745 5,311 24,931 195,835
18,915 3,289 37,749 150,678 1,722 147,282 632 1,515 2,138 211,520 9,891 170,837 3,742 184,470 8,500 8,745 7,102 27,050 211,520
34
ARAB NATIONAL BANK MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Interest Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios Cost/Income (%)
2.5 1.0 19.9 21.3 11.2 1.4 1.3 3.6 3.0 0.5 2.58 2.6 12.3 1.7 80.3 74.6 22.6 14.8 13.1 63.2 17.8 1.5 (1.6) 205.3 39.8
2.7 1.0 21.5 23.2 10.3 1.3 1.2 3.4 3.0 0.6 2.40 2.5 12.3 1.6 82.7 77.0 22.1 15.8 13.1 65.4 17.5 1.3 (1.7) 225.8 39.1
3.1 1.3 23.1 25.1 9.0 1.2 1.1 4.6 3.2 0.7 2.45 2.5 12.9 1.7 83.6 78.1 21.9 15.2 12.9 66.5 17.4 1.3 (1.8) 246.6 38.3
3.5 1.7 24.7 27.1 7.9 1.1 1.0 5.9 3.4 0.9 2.54 2.7 13.6 1.7 85.3 79.8 22.3 14.5 12.7 68.1 17.8 1.2 (2.0) 266.5 38.0
4.1 1.9 26.5 29.4 6.9 1.1 1.0 6.8 3.6 1.0 2.62 2.7 14.4 1.8 85.9 81.2 22.1 13.3 12.7 69.4 17.8 1.1 (2.1) 282.4 37.3
4.6 2.2 28.6 31.9 6.0 1.0 0.9 7.8 3.9 1.1 2.77 2.9 15.2 1.9 86.2 81.5 22.1 13.3 12.8 69.6 17.8 1.1 (2.2) 297.2 36.5
35
BANKS MARCH 2013
BANK ALJAZIRA
Growth held back from lower brokerage income

We remain Neutral on BJAZ with a revised PT of SR23.3. We expect the banks net income to grow 14.4% in 2013E due to an expected 14.6% loan growth. Although we expect the banks net income to grow faster than industry during 2012-17E, its ROE will remain below peers aggregate during the forecast period due to the high cost-to-income ratio. Net income expected to increase 14% in 2013E driven by loan growth
W e expect BJAZs top-line to grow 7.8% in 2013E, driven by a loan growth of 14.6%. The strong loan growth will contribute to the 19.3% growth in NSCI. Overall, we expect a profit CAGR of 15.1% during the period 2012-17E driven by a loan growth of 11.3%.
NEUTRAL
Target price (SR)
Current price (SR)
23.3
27.2
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (0.1) 31.9/21.3 2,176 300 TADAWUL 3M 7.9 4.9 SR 49.2 26.2 12M (4.6) 2.3 US$ 13.1 7.0
However, CAR will reach near SAMA limits on significant loan growth
At this rate of loan growth, BJAZ will reach a capital adequacy ratio of 13.5%, close to SAMAs limit of CAR of 12% by the end of 2017E. This will either require bank to slow-down its loan growth or increase capital base. We believe this will be a key risk for BJAZ going forward.
Growth in NSCI to partially off-set lower fee income

We expect the 25% YoY decline in Tadawul value traded to impact BJAZs fee income in 2013E. BJAZs fee income contributed 35% of total operating income in 2012, but is likely to decline 9% YoY in 2013E and reduce its share to 30%. However, this decline is likely to be partially negated by the increase in NSCI. BJAZs expanded loan books will increase its NSCI 19% YoY in 2013E, in our opinion. In addition, we expect BJAZs CAGR in NSCI t o remain highest amongst its peers at 14.3% between 2012-17E.
1020.SE BJAZ AB www.baj.com.sa
VALUATION MULTIPLES
12A P/E (x) P/BV (x) P/ABV (x) Div Yield (%) 16.7 1.6 1.5 13E 14.6 1.5 1.4 14E 12.3 1.3 1.2 2.2
Lower ROE, higher valuations; maintain Neutral

Despite the expected 15.1% CAGR in net income during 2012-17E, BJAZs ROE is likely to remain significantly below industry average. We expect ROE to remain 4.5% lower than the sector average during our forecast period. Given the lower ROE, and a P/E of 14.6x 2013E earnings (up 33% from Industry peers average) we believe BJAZs valuation is expensive. Hence, we maintain our Neutral rating on the stock.

8,500 8,000 34 7,500 7,000 30 6,500 26 6,000 22 5,500 18 5,000 Mar-12 Jul-12 Nov-12 Mar-13 38
BJAZ (LHS) TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR)
2012 951 650 1,601 488 29,897 40,675 9,099 50,957 1.6
2013E 1,135 591 1,726 559 34,254 46,370 10,464 57,617 1.9
2014E 1,272 665 1,937 663 38,862 51,934 12,033 64,365 2.2
2015E 1,473 739 2,212 786 43,337 57,647 13,477 71,241 2.6
2016E CAGR (%) 1,652 14.8 809 5.6 2,461 11.3 878 15.8 47,101 12.0 63,412 11.7 15,094 13.5 78,149 11.3 2.9 15.8
Source: Tadawul
Mahmood Akbar
www.ncbc.com
BANK ALJAZIRA MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
1,220 (269) 951 2.2 564 86 1,601 (755) (172) (928) 846 52.8 500 (12) 488 30.5
1,492 (357) 1,135 2.2 513 78 1,726 (844) (155) (998) 882 51.1 573 (14) 559 32.4
1,742 (471) 1,272 2.2 576 89 1,937 (901) (178) (1,079) 1,036 53.5 679 (16) 663 34.2
2,043 (570) 1,473 2.2 639 99 2,212 (1,001) (203) (1,204) 1,211 54.7 805 (19) 786 35.5
2,381 (729) 1,652 2.3 700 109 2,461 (1,060) (250) (1,310) 1,401 56.9 900 (22) 878 35.7
2,758 (901) 1,856 2.3 750 121 2,727 (1,177) (270) (1,447) 1,550 56.8 1,009 (24) 985 36.1

2012 2013E 2014E 2015E 2016E 2017E
7,109 3,139 9,099 30,234 1,040 29,897 466 1,247 50,957 3,286 40,675 810 45,771 3,000 1,630 382 5,186 50,957
8,214 2,825 10,464 34,677 1,104 34,254 489 1,372 57,617 3,615 46,370 874 51,859 3,000 1,773 812 5,759 57,617
8,904 2,542 12,033 39,384 1,177 38,862 514 1,509 64,365 4,048 51,934 944 57,927 3,000 1,943 1,117 6,438 64,365
9,812 2,415 13,477 43,974 1,259 43,337 540 1,660 71,241 4,534 57,647 1,020 64,201 3,000 2,144 1,520 7,040 71,241
11,025 2,536 15,094 47,892 1,348 47,101 567 1,826 78,149 4,897 63,412 1,101 70,410 3,000 2,369 1,969 7,739 78,149
11,819 2,663 16,906 52,088 1,444 51,130 595 2,009 85,121 5,289 69,119 1,190 76,597 3,000 2,621 2,474 8,524 85,121
37
BANK ALJAZIRA MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Special Commission Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios Cost/Income (%)
1.6 16.7 17.8 16.7 1.6 1.5 2.82 0.70 2.11 2.19 9.7 1.1 73.5 68.0 22.4 15.7 10.2 58.7 17.9 3.3 (1.1) 132.4 58.0
1.9 18.6 20.0 14.6 1.5 1.4 2.84 0.76 2.08 2.16 10.2 1.0 73.9 68.5 22.6 14.8 10.0 59.5 18.2 3.1 (1.2) 138.3 57.8
2.2 0.6 20.2 21.9 12.3 1.3 1.2 2.2 2.95 0.89 2.06 2.15 10.9 1.1 74.8 69.4 23.2 14.1 10.0 60.4 18.7 2.9 (1.3) 144.4 55.7
2.6 0.6 22.2 24.3 10.4 1.2 1.1 2.1 3.11 0.96 2.15 2.24 11.7 1.2 75.2 69.7 23.4 13.7 9.9 60.8 18.9 2.8 (1.4) 150.6 54.4
2.9 0.6 24.5 27.0 9.3 1.1 1.0 2.3 3.29 1.12 2.17 2.28 11.9 1.2 74.3 69.0 23.8 13.6 9.9 60.3 19.3 2.7 (1.6) 158.7 53.2
3.3 0.7 27.0 30.1 8.3 1.0 0.9 2.6 3.48 1.26 2.22 2.35 12.1 1.2 74.0 68.7 24.5 13.5 10.0 60.1 19.9 2.7 (1.8) 166.3 53.1
38
BANKS MARCH 2013
THE SAUDI INVESTMENT BANK

Top-line to remain strong but profitability weak

Improved asset quality and focus on retail segment is expected to translate into strong profit growth. However, margin contraction in short term is most likely due to high share of time deposits. We believe SAIBs growth potential is priced-in. We maintain our Neutral rating on the stock with revised PT at SR19.2. Writing off bad loans to result in lower provisioning requirement
SAIB had taken balance sheet clean up exercise in 2012 to write off SR1.7bn of bad loans or 4.9% of gross loans. This reduced its gross NPL ratio to 1.3% in 2012 from 6.1% in 2011 and improved its coverage ratio to 181.3% from 124.6% in 2011. This improved asset quality will translate into lower provisioning requirement going forward. Hence, we reduce our provisions forecast by 33.6% and 38.2% for 2013E and 2014E. We expect provisions for 2013E to decline 4.3% YoY, while grow 6.9% YoY in 2014.
NEUTRAL
Target price (SR)
Current price (SR)
19.2
18.4
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (5.6) (5.8) 21.0/15.6 2,699 550 TADAWUL 3M 0.3 (2.8) SR 3.2 3.3 12M (8.5) (1.6) US$ 0.8 0.9
Focusing on retail segment for growth

Based on management feedback, we believe SAIB intends targets to capture retail segment to grow its loan books. We forecast SAIBs retail loans to grow at a CAGR of 18% vs. corporate loan CAGR of 10%.
High share of time deposits keep cost of funds high

SAIB highly relies on time deposits to fund its loan growth. Although the bank targets to increase low cost demand deposits through expanding its retail reach, the current high share of 74% of time deposits in total deposits is likely to keep the cost of funds higher in 2013E. We expect SAIBs cost of funds to increase 11bps YoY while growth in retail loans to enable 6bps expansion in yields on assets, resulting in net spread compression of 5bps in 2013E.
1030.SE SIBC AB www.saib.com.sa
VALUATION MULTIPLES
Profits to grow faster than industry but ROE to remain below than peers
We forecast SAIB to grow its profits at a CAGR of 12.8% in 2012-17E, faster than industry growth of 11.0%. Although we expect the banks ROE to increase to 13.1% in 2017 from 10.0% in 2012, it is likely to remain below industrys average by about 400bps during our forecast period. At the current price of SR18.4, the stock trades at its fair value. Hence, we remain Neutral.

22 8,500 8,000 20 7,500 7,000 18 6,500 6,000 16 5,500 14 5,000 Mar-12 Jul-12 Nov-12 Mar-13
SAIB (LHS) TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR)
2012 1,242 480 1,722 894 34,051 40,414 10,912 59,067 1.6
2013E 1,361 422 1,783 1,000 37,329 44,051 11,785 64,070 1.8
2014E 1,477 462 1,939 1,090 41,460 48,896 12,963 70,468 2.0
2015E 1,693 512 2,205 1,252 46,841 55,253 14,260 78,429 2.3
2016E CAGR (%) 1,946 11.9 570 4.4 2,515 9.9 1,450 12.9 52,417 11.4 61,883 11.2 15,401 9.0 85,867 9.8 2.6 12.9
Source: Tadawul
Mahmood Akbar
www.ncbc.com
THE SAUDI INVESTMENT BANK MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
1,591 (349) 1,242 2.4 315 165 1,722 (308) (324) (632) 1,414 82.1 912 (18) 894 51.9
1,807 (446) 1,361 2.3 314 108 1,783 (392) (264) (656) 1,391 78.0 1,023 (23) 1,000 56.1
2,014 (537) 1,477 2.3 343 119 1,939 (429) (281) (710) 1,510 77.9 1,115 (25) 1,090 56.2
2,341 (649) 1,693 2.4 379 133 2,205 (503) (298) (801) 1,702 77.2 1,281 (29) 1,252 56.8
2,740 (795) 1,946 2.5 423 146 2,515 (598) (309) (906) 1,918 76.2 1,483 (33) 1,450 57.6
3,184 (981) 2,203 2.6 469 159 2,831 (673) (341) (1,014) 2,159 76.2 1,667 (37) 1,629 57.5

2012 2013E 2014E 2015E 2016E 2017E
7,336 3,832 10,912 34,417 450 34,051 966 867 1,104 59,067 6,269 40,414 2,000 1,005 49,688 5,500 2,892 598 9,379 59,067
7,749 4,023 11,785 37,885 500 37,329 1,046 910 1,229 64,070 7,209 44,051 2,000 1,055 54,316 5,500 3,148 905 9,755 64,070
8,309 4,345 12,963 42,218 557 41,460 1,129 956 1,305 70,468 8,075 48,896 2,000 1,108 60,079 5,500 3,426 1,239 10,389 70,468
9,067 4,649 14,260 47,810 623 46,841 1,217 1,004 1,391 78,429 8,882 55,253 2,000 1,164 67,299 5,500 3,747 1,624 11,131 78,429
9,324 4,882 15,401 53,610 696 52,417 1,308 1,054 1,482 85,867 9,770 61,883 1,000 1,222 73,875 5,500 4,117 2,068 11,992 85,867
9,303 5,126 16,633 59,585 778 58,143 1,403 1,106 1,576 93,289 10,552 68,505 1,283 80,339 5,500 4,534 2,568 12,950 93,289
40
THE SAUDI INVESTMENT BANK MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Interest Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios Cost/Income (%)
1.6 0.6 16.3 16.9 11.3 1.1 1.1 3.5 3.03 0.77 2.26 2.36 10.0 1.6 84.3 69.9 27.0 17.6 15.9 57.6 18.5 1.3 (1.1) 181.3 36.7
1.8 0.7 17.3 18.3 10.1 1.1 1.0 3.9 3.09 0.87 2.21 2.33 10.4 1.6 84.7 70.1 26.8 17.8 15.2 58.3 18.4 1.3 (1.4) 211.4 36.8
2.0 0.8 18.4 19.8 9.3 1.0 0.9 4.2 3.15 0.96 2.19 2.31 10.8 1.6 84.8 70.3 26.5 17.4 14.7 58.8 18.4 1.3 (1.8) 236.0 36.6
2.3 0.9 19.7 21.4 8.1 0.9 0.9 4.9 3.30 1.04 2.26 2.39 11.6 1.7 84.8 70.8 25.8 16.7 14.2 59.7 18.2 1.3 (2.0) 255.7 36.3
2.6 1.0 21.2 23.3 7.0 0.9 0.8 5.6 3.49 1.15 2.35 2.48 12.5 1.8 84.7 72.1 24.9 16.5 14.0 61.0 17.9 1.3 (2.2) 271.4 36.0
3.0 1.2 22.9 25.4 6.2 0.8 0.7 6.3 3.72 1.29 2.43 2.57 13.1 1.8 84.9 73.5 24.3 16.3 13.9 62.3 17.8 1.3 (2.4) 285.5 35.8
41
BANKS MARCH 2013
BANK ALBILAD
Growth priced at an excessive premium

We maintain our Underweight rating on AlBilad with a revised PT at SR23.3. Although we believe growth stocks like AlBilad should be trading at a premium, we believe current valuations prices this growth at an excessive premium. Hence we maintain our Underweight rating on the stock. Top line growth strong on expanded loans and better remittance
We forecast a stronger top-line growth for AlBilad vs. industry peers. We expect a CAGR of 13.4% in total operating income during 2012-17E on the back of Albilads expanded loan books and increased remittance income. We expect a 11.7% CAGR in loan books to translate into 13.0% expansion in NSCI. In addition, the forecasted 17.9% CAGR in remittance income will keep the fee income growth strong during our forecast period.
UNDERWEIGHT
Target price (SR)
Current price (SR)
23.3
33.7
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M 0.9 0.8 34.1/24.6 2,696 300 TADAWUL 3M 25.3 22.2 SR 26.7 27.1 12M 18.7 25.5 US$ 7.1 7.2
Net Special Commission Margins decline expected in short term on

competition AlBilad has maintained its net special commission margin at 3.0% in the last two years due to focus on consumer lending. However, we believe increased competition for lending is likely to pressure profit yields on assets. We forecast 8bps decline in yields on assets for 2013E which will lead to a 9bps YoY decline in net special commission margin. Overall we forecast only a 29bps increase in net special commission margin in 2017E from 2013E. .
1140.SE ALBI AB www.bankalbilad.com/en
Operating at lower profit margins

Albilad operates at a higher cost-to-income ratio than its industry peers and hence impacting its net profit margin. Despite significant growth in total operating income, the banks net income margin stood at 31.9% vs. industrys 55.4%. Although we expect the ratio to increase to 43.8% by 2017E, it will still remain below industrys 55.5%.
VALUATION MULTIPLES
12A P/E (x) P/BV (x) P/ABV (x) Div Yield (%) 18.2 2.3 2.1 13E 15.1 2.0 1.8 14E 12.1 1.7 1.6 -
Profit growth being bought a premium in our view

Albilad ROE expanded notably by 443bps in 2012 and we forecast it to grow further by 255bps in 2017E. However, while we acknowledge growth stocks should be trading at a premium to the market, we believe, the stock has already appreciated by 19.1% on an YTD basis. We believe the stock is now trading at premium valuation and hence, we remain Underweight on the banks stock.

36 8,500 34 8,000 32 7,500 30 7,000 28 6,500 26 6,000 24 5,500 22 5,000 Mar-12 Jul-12 Nov-12 Mar-13
Albilad (LHS) TASI
Financial Summary
SR mn Net Sp Comm Income Fee and other Income Total Operating Income Net Income Loans Deposits Investments Assets EPS (SR) 2012 840 898 1,737 554 18,256 23,742 1,537 29,778 1.8 2013E 906 1,037 1,943 669 21,313 26,828 1,768 33,826 2.2 2014E 1,035 1,212 2,248 838 24,371 29,779 1,980 37,955 2.8 2015E 1,195 1,388 2,582 1,051 26,924 32,757 2,218 42,280 3.5 2016E CAGR (%) 1,361 12.8 1,556 14.7 2,918 13.8 1,205 21.4 29,294 12.6 35,705 10.7 2,550 13.5 46,670 11.9 4.0 21.4
Source: Tadawul
We have adjusted for the land sale in 2012 when looking at profit growth.
Mahmood Akbar +966 2 690 7943 m.akbar@ncbc.com
Source: Company, NCBC Research estimates Please refer to the last page for important disclaimer
www.ncbc.com
BANK ALBILAD MARCH 2013
NCB CAPITAL
Financials
2012 2013E 2014E 2015E 2016E 2017E
861 (21) 840 3.0 645 253 1,737 (618) (275) (894) 1,119 64.4 569 (14) 554 31.9
932 (26) 906 2.9 739 298 1,943 (677) (290) (967) 1,266 65.2 686 (17) 669 34.4
1,079 (43) 1,035 2.9 871 342 2,248 (823) (283) (1,106) 1,425 63.4 859 (21) 838 37.3
1,259 (64) 1,195 3.0 1,005 383 2,582 (857) (324) (1,181) 1,725 66.8 1,078 (27) 1,051 40.7
1,466 (105) 1,361 3.1 1,134 422 2,918 (965) (358) (1,324) 1,952 66.9 1,236 (31) 1,205 41.3
1,696 (152) 1,544 3.2 1,254 458 3,255 (1,011) (391) (1,402) 2,244 68.9 1,462 (37) 1,425 43.8

2012 2013E 2014E 2015E 2016E 2017E
2,932 6,575 1,537 18,597 752 18,256 336 141 29,778 571 23,742 1,094 25,407 3,000 385 1,023 4,371 29,778
3,350 6,904 1,768 21,771 852 21,313 343 148 33,826 628 26,828 1,313 28,769 3,000 557 1,537 5,057 33,826
3,643 7,457 1,980 24,937 945 24,371 350 155 37,955 684 29,779 1,576 32,039 3,000 771 2,181 5,916 37,955
4,267 8,351 2,218 27,648 1,022 26,924 357 163 42,280 746 32,757 1,891 35,394 3,000 1,041 2,774 6,886 42,280
4,937 9,354 2,550 30,225 1,080 29,294 364 171 46,670 806 35,705 2,269 38,780 3,000 1,350 3,454 7,890 46,670
5,984 10,102 2,933 32,913 1,115 31,723 371 179 51,292 926 38,562 2,723 42,211 3,000 1,715 4,258 9,082 51,292
43
BANK ALBILAD MARCH 2013
NCB CAPITAL

2012 2013E 2014E 2015E 2016E 2017E
Per share ratios (SR) EPS Div per share Book value per share Adj Book value per share Valuation ratios (x) P/E P/BV P/ABV Div yield (%) Profitability ratios (%) Yield on earning assets Cost of funds Spreads Net Special Commission Margins ROE ROA Liquidity ratios (%) Loans/ Customer Deposits Loan/Total deposits Investments/Customer Deposits Capitalization ratios (%) Total cap.adequacy Equity/Total assets Loans/Assets Investments/Assets Asset quality ratios (%) Gross NPLs Net NPLs Provisions cover Efficiency ratios (SR mn) Cost/Income (%)
1.8 14.6 15.7 18.2 2.3 2.1 3.06 0.09 2.97 2.98 14.2 1.9 76.9 75.1 6.5 18.5 14.7 61.3 5.2 3.9 (1.8) 145.4 51.4
2.2 16.9 18.3 15.1 2.0 1.8 2.98 0.10 2.88 2.89 14.2 2.1 79.4 77.6 6.6 16.2 14.9 63.0 5.2 3.8 (2.0) 153.7 49.8
2.8 19.7 21.6 12.1 1.7 1.6 3.05 0.15 2.90 2.93 15.3 2.3 81.8 80.0 6.6 16.4 15.6 64.2 5.2 3.7 (2.2) 159.9 49.2
3.5 0.6 22.6 24.9 9.6 1.5 1.4 1.9 3.18 0.20 2.98 3.02 16.4 2.6 82.2 80.4 6.8 16.9 16.3 63.7 5.2 3.6 (2.5) 170.8 45.7
4.0 0.7 25.9 28.9 8.4 1.3 1.2 2.1 3.34 0.30 3.04 3.10 16.3 2.7 82.0 80.2 7.1 17.5 16.9 62.8 5.5 3.4 (3.0) 186.2 45.4
4.8 0.9 29.8 33.7 7.1 1.1 1.0 2.5 3.50 0.40 3.10 3.19 16.8 2.9 82.3 80.3 7.6 18.3 17.7 61.8 5.7 3.3 (3.5) 206.8 43.1
44
SAUDI BANKING SECTOR MARCH 2013
NCB CAPITAL
Kindly send all mailing list requests to research@ncbc.com NCBC Research website http://research.ncbc.com Brokerage website www.alahlitadawul.com www.alahlibrokerage.com Corporate website www.ncbc.com
NCBC Investment Ratings OVERWEIGHT: NEUTRAL: UNDERWEIGHT: PRICE TARGET: Target price represents expected returns in excess of 15% in the next 12 months Target price represents expected returns between -10% and +15% in the next 12 months Target price represents a fall in share price exceeding 10% in the next 12 months Analysts set share price targets for individual companies based on a 12 month horizon. These share price targets are subject to a range of company specific and market risks. Target prices are based on a methodology chosen by the analyst as the best predictor of the share price over the 12 month horizon
Other Definitions NR: Not Rated. The investment rating has been suspended temporarily. Such suspension is in compliance with applicable regulations and/or in circumstances when NCB Capital is acting in an advisory capacity in a merger or strategic transaction involving the company and in certain other situations CS: Coverage Suspended. NCBC has suspended coverage of this company NC: Not covered. NCBC does not cover this company
Important information The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the securities and companies that are the subject of this document. The authors also certify that neither they nor their respective spouses or dependants (if relevant) hold a beneficial interest in the securities that are the subject of this document. Funds managed by NCB Capital and its subsidiaries for third parties may own the securities that are the subject of this document. NCB Capital or its subsidiaries may own securities in one or more of the aforementioned companies, or funds or in funds managed by third parties The authors of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. The Investment Banking division of NCB Capital may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this document or are mentioned in this document. This document is issued to the person to whom NCB Capital has issued it. This document is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This document is not intended as an offer or solicitation with respect to the purchase or sale of any security. This document is not intended to take into account any investment suitability needs of the recipient. In particular, this document is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this document. NCB Capital 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 document take into account both risk and expected return. Information and opinions contained in this document have been compiled or arrived at by NCB Capital from sources believed to be reliable, but NCB Capital has not independently verified the contents of this document and such information may be condensed or incomplete. 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. To the maximum extent permitted by applicable law and regulation, NCB Capital shall not be liable for any loss that may arise from the use of this document or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this document may not be realized. All opinions and estimates included in this document constitute NCB Capitals judgment as of the date of production of this document, 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 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 document may be reproduced without the written permission of NCB Capital. Neither this document 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 document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations. NCB Capital is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia to carry out dealing, as principal and agent, and underwriting, managing, arranging, advising and custody, with respect to securities under licence number 37-06046. The registered office of which is at Al Mather street in Riyadh, P.O. Box 22216, Riyadh 11495, Kingdom of Saudi Arabia.
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BANKS MARCH 2013

SAUDI BANKING SECTOR

Pressure on net interest margins is priced-in

Our NIMs estimates are more conservative than management guidance

We believe the impact of NIM contraction on valuation is overstated

Our valuation call is based on P/B expansion; prefer large-caps

Source: NCBC Research

Please refer to the last page for important disclaimer

SAUDI BANKING SECOR MARCH 2013

10,569 5,004 15,572 11,481 (2,515) 7,973

10,069 4,993 15,062 11,095 (2,652) 7,533

(4.7) (0.2) (3.3) (3.4) 5.5 (5.5)

6.0 11.4 7.7 8.7 14.3 7.1

11.9 14.3 12.7 13.7 14.9 13.3

4,731 2,603 7,334 5,210 (387) 4,698

4,536 2,493 7,029 4,863 (400) 4,347

(4.1) (4.2) (4.2) (6.7) 3.4 (7.5)

6.1 3.0 5.0 5.0 33.8 8.8

12.9 9.6 11.7 12.4 13.0 12.3

4,534 2,589 7,123 4,688 (1,153) 3,442

4,675 2,533 7,208 4,716 (1,143) 3,505

3.1 (2.2) 1.2 0.6 (0.9) 1.8

6.7 5.3 6.2 6.3 (3.1) 5.7

8.1 9.6 8.6 8.9 16.1 6.6

1,575 920 2,495 1,550 (200) 1,227

1,553 927 2,480 1,549 (161) 1,329

(1.4) 0.8 (0.6) (0.1) (19.6) 8.3

13.1 9.5 11.8 12.8 15.1 10.8

13.0 10.0 11.9 12.6 23.2 11.4

3,618 1,709 5,327 3,727 (487) 3,181

3,575 1,678 5,253 3,649 (466) 3,123

(1.2) (1.8) (1.4) (2.1) (4.4) (1.8)

8.1 (1.5) 4.9 5.5 2.4 5.7

13.1 10.3 12.2 14.1 15.5 13.9

3,674 2,032 5,706 4,016 (614) 3,500

3,515 2,041 5,556 3,843 (590) 3,356

(4.3) 0.5 (2.6) (4.3) (3.9) (4.1)

7.7 7.3 7.5 7.7 34.0 5.1

14.2 7.4 11.7 12.0 15.0 11.4

3,597 1,604 5,201 3,223 (621) 2,322

3,474 1,575 5,050 3,075 (531) 2,315

(3.4) (1.8) (2.9) (4.6) (14.5) (0.3)

6.6 5.3 6.2 7.3 1.8 8.9

13.0 11.0 12.4 13.8 13.8 13.8

SAUDI BANKING SECOR MARCH 2013

Exhibit 2: Change in estimates of individual banks (contd.)

1,112 665 1,776 814 (245) 552

1,135 591 1,726 728 (155) 559

2.1 (11.1) (2.8) (10.6) (36.8) 1.4

19.3 (9.1) 7.8 8.1 (10.4) 14.4

12.1 12.5 12.2 17.9 15.2 18.6

1,344 424 1,768 1,126 (368) 861

1,361 422 1,783 1,127 (244) 1,000

1.3 (0.6) 0.8 0.1 (33.6) 16.2

9.6 (12.1) 3.6 3.5 (4.3) 11.9

8.5 9.5 8.7 9.0 6.9 9.0

907 1,058 1,965 949 (361) 574

906 1,037 1,943 976 (290) 669

(0.1) (2.0) (1.1) 2.8 (19.6) 16.5

7.9 15.5 11.8 15.7 5.5 20.6

14.3 16.9 15.7 17.0 (2.6) 25.3

SAUDI BANKING SECOR MARCH 2013

Themes and Outlook

Exhibit 4: Profit and Loan growth; NIM's