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Resilient despite the turmoil

Resilient despite the turmoil

SIGNIFICANT NEWS

Jordan Ahli Bank’s 9M 2020 net profit declined by 44.80%, yoy, to JOD8.885m due to the rise of the cost of risk which more than tripled reaching JOD12.430m. Loans and deposits rose by 1.81% and 0.25%, ytd, respectively, reflecting the harsh operating context. However, we expect the bank to maintain a strong equity generation capacity and we expect JAB’s Tier 1 to stand at 14.75% by the end of 2020 (vs. 14.54% in 2019).

FACT

Jordan Ahli Bank announced a high double-digit decline rate in its 9M 2020 net profit, reaching JOD8.885bn. The rise in the bank’s impairment charges was the main cause of this profitability shrinkage. In fact, impairment charges reached JOD12.430m (vs. JOD3.977m in 9M 2019). The bank’s net interest income, in turn, improved by 2.90%, yoy, to JOD64.073m thanks to a non-costly deposits structure, and high individuals and real estate’s financing yields. The net commission income declined by 15.04%, thus, decreasing to JOD10.47m (vs. JOD12.32 in 9M 2020). As a result, JAB’s total operating income declined by 5.38%, yoy, to JOD80.471m. The Operating expenses have also declined by 2%, yoy, to JOD54.084m thanks to the bank’s cost control strategy leading to a cost-to-income ratio at 67.21% (+234bps, yoy). Regarding the balance sheet, JAB’s loans and deposits increased by 1.81% and 0.25%, ytd, to JOD1.394bn and JOD1.689bn, respectively, leading to a loans-to-deposits ratio at 74.62% which reflects the bank’s difficulties to further snatch market shares. Furthermore, the bank’s asset quality has worsened. In fact, JAB’s NPLs ratio rose by 139bps to 7.67% in 9M 2020 reflecting the pandemic’s ravages. The Provision ratio has also declined to 78.54% (vs. 102% by the end of 2019). Admittedly, Covid-19 has negatively impacted Jordan Ahli Bank’s performance but we are confident about the bank’s equity generation capacity as well as its achievements over the next years (we expect JAB’s Tier 1 to reach 15.52% by the end of 2022 (vs. 14.54% in 2019)).


ANALYSIS

Even with the decline in Jordan Ahli Bank’s profitability due essentially to the rise of impairment charges, the bank’s core business showed a resilient performance even with the interest rates’ drop by 100bps thanks to its high credit yields and non-costly deposits structure. The bank also showed a strong cost control strategy especially with declining staff costs, which are weighing the most on JAB’s expenses. However, the decline in JAB’s asset quality was expected due to the pandemic which pushed central banks to take several measures, such as rescheduling loans. Concerning the balance sheet, JAB still benefits from a strong liquidity position but it is not enough to benefit from the non-costly deposits structure as we think that JAB has to do more efforts to enhance its loans’ portfolio while maintaining, of course, a healthy asset quality, noting that due to the current circumstances, good quality credit is scarce. In terms of solvency ratios, JAB’s equity generation capacity would still be in a comfortable position and we expect the bank’s Tier 1 to exceed the 14.90% threshold by the end of 2020.


IMPACT

Jordan Ahli Bank’s 9M 2020 key figures were slightly beyond our expectations and we will update our model in the next hours. We will slightly revise upward the bank’s operating income as well as its cost of risk. We will also adjust our balance sheet level.