Al Baraka Bank Egypt [SAUD]: Earnings Pressured by Higher Cost of Risk
Hefty credit provisions cast shadows on profitability
Read in PDF
Al Baraka Bank Egypt [SAUD]
Egypt / Banks / Q4 2021 Results
12M PT: EGP25.6 (+77%)
set on 7 Dec 2021
Investment Rating: Overweight | Risk Rating: Medium
Lower earnings due to higher opex and credit provisions:
Al Baraka Bank Egypt [SAUD] reported its 2021 stand-alone figures, with a bottom line of EGP1.1bn (-9% y/y) due to weaker efficiency. G&A recorded EGP781mn (+19% y/y), coupled with an intensive upping in provisions (+49% y/y) to EGP554mn, out of which EGP140mn (i.e. 25% of total credit provisions) was booked in Q4 2021. This implied a cost of risk (CoR) of 236bps vs. 176bps a year ago and 234bps in Q3 2021. Accordingly, Q4 2021 bottom line fell 80% q/q to EGP101mn. Net interest income (NII) grew 12.2% y/y to EGP2.7bn despite lower yields on the back of lower interest cost (-13% y/y). Hence, NIM to slipped to 3.08% (-58bps y/y).
ROAE weakened on earnings drop
Total assets grew by 9% y/y to EGP82.3bn, shadowing the growth in deposits of 9% y/y to EGP72.6bn. However, balance sheet growth did not filter through to earnings. Hence, ROAA dropped marginally to 1.43% (-25bps y/y), whereas ROAE fell by c.7pp to 20.5%, as equity multiplier slipped to 13.7x vs. 15x in 2020. However, we note that the NPL ratio decreased to 4.5% (-150bps y/y), while overall coverage ratio rose to 184% in 2021 vs. 127% a year earlier and higher than the 171% recorded in Q3 2021.
Balance sheet growth driven by interbank assets:
Total assets grew 8% y/y to EGP82.3bn in 2021, driven by a 120% leap in interbank assets to EGP29.7bn capturing the highest share (36%) of total assets. Moreover, the loan book grew by 7.4% y/y to EGP21bn, representing 25.5% of total assets. GLDR fell slightly to 31.6%
(-38bps) due to a higher increase in deposits to EGP72.6bn (+9% y/y). We note that SAUD has a short-term (ST) negative repricing gap of c.18% of total assets. This means its ST financial assets are much lower than its ST financial liabilities, making the event of higher interest rates of a negative impact on the bank’s NIM.
Maintaining Overweight rating
SAUD market price remained within range since we published our banking sector note in December 2021. In view of 2021 results, we maintain our 12MPT at EGP25.60/share (ETR +77%), hence we maintain our Overweight rating. SAUD is currently traded at 2022e P/E of 2.0x and P/BV of 0.44x.
Amany Shaaban
Equity Analyst
T +202 3300 5720