JPMorgan Says Saudi Fransi Net Sets Strong Expectation for Banks

Banque Saudi Fransi, whose fourth-quarter profit topped estimates, will probably spur “upbeat” earnings expectations for other banks in the largest Arab economy, according to JPMorgan Chase & Co.

The fifth-biggest Saudi Arabian lender, part-owned by Credit Agricole SA, said yesterday quarterly profit climbed 22 percent to 808 million riyals ($215 million). That beat the average estimate of five analysts for a profit of 750 million riyals, according to data compiled by Bloomberg. Total operating income rose 16 percent, while net special commission income increased 7 percent to 834 million riyals.

“This is an encouraging start to the Saudi banks’ reporting,” JPMorgan analysts, including Naresh Bilandani and Christian Kern, wrote in a note to clients. It “will likely set upbeat expectations for full-year reporting of peers, given investor concerns on the sector post a damp third quarter, which was negatively impacted by higher-than-expected provisioning.”

Saudi Arabian lenders are benefiting from lending to government projects as the world’s top oil exporter pursues more than $500 billion of investments to develop infrastructure and create jobs. Al-Rajhi Bank, the kingdom’s biggest lender by market value, will probably post a 7 percent increase in 2012 net income next week to 7.92 billion riyals, according to the mean estimate of fourteen analysts compiled by Bloomberg.

Rising Provisions

Shares of Saudi banks underperformed the benchmark index last year and third-quarter net missed estimates as rising provisions against bad loans from construction companies eclipsed the fastest loan growth in three years. The Tadawul All Share Bank Index rose 0.4 percent in 2012, compared with a 6 percent gain for the Tadawul. Saudi Fransi shares tumbled 13 percent in the period.

JPMorgan has an overweight recommendation on the stock with a price estimate of 42 riyals. The shares, which are unchanged so far this month, closed at 29.40 riyals in Riyadh trading yesterday.

Saudi Fransi’s “earnings have bounced sharply as non-interest income recovered and provisioning costs normalized,” EFG-Hermes Holding SAE said in a research note yesterday. “However, balance sheet growth was sluggish, with loan growth decelerating and deposits declining marginally. Net interest spreads are likely to have been impacted by year-end hike in deposit rates, and should recover in the first quarter of

2013.” EFG-Hermes also has a price estimate of 42 riyals for the stock, with a buy recommendation.

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