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MENA banks 1Q21e results preview | Better profitability; Top performers: ADCB, Alinma, GBK, KFH, CIB; Underperformers: ENBD, BSF, Burgan, HDB

Roughly two-thirds of banks under coverage to display y-o-y earnings improvement in 1Q21e. We forecast aggregate net income to grow c11.0% y-o-y and c21.3% q-o-q in 1Q21e. UAE banks are seen delivering the highest y-o-y earnings growth among their MENA peers, while Saudi banks continuing to beat on loan growth (+4.1% q-o-q, on the sector level, for Saudi banks vs. +2.5%, +0.6%, and +0.5% for Egypt, UAE, and Kuwait banks). We look for: i) eased pressure on NIMs q-o-q, ii) stable fee and investment income, pending further improvement in loan origination, iii) continued opex control, iv) relatively light provisioning, and v) comparatively weak loan and deposit performance, with Saudi Arabia, and to a lesser extent, Egypt, standing out as exceptions to the latter.

UAE banks to outperform MENA peers on y-o-y earnings growth, Saudi banks on balance sheet growth. UAE banks’ aggregate earnings are anticipated to grow c18.8% y-o-y in 1Q21e, the highest among peers (vs. +15.8% for Kuwait, +6.8% for Saudi, and +4.9% for Egypt banks). This is owing to a favourable base effect for UAE, as 1Q20 carried significantly heavy provisions, which dampened profitability. Released sector figures (through Feb-21 for Saudi and Jan-21 for Kuwait, Egypt, and the UAE) indicate a continued outperformance for Saudi banks, on loan and deposit growth vs. their MENA peers in 1Q21e. We see loan growth in Saudi continuing to be fuelled by mortgage lending, with corporate lending recovery becoming a 2022 story. 

NIM compression, fees waiver to pressure Egypt banks’ profitability in 1Q21e. We forecast Egypt banks’ earnings to rise c4.9% y-o-y and c2.4% q-o-q in 1Q21e, pressured by narrowed NIMs, as well as fees and commissions waiver. CIB is expected to outperform its peers, with earnings forecast to grow c15% on a y-o-y basis in 1Q21e. As per management’s guidance, although FY21e provisioning (a maximum of cEGP1.5-2bn) should be lower y-o-y, CIB’s provisioning levels are projected to remain at elevated levels in 1Q21e, with the bulk of guided provisions to be booked in the first two quarters. We look for consolidated sector loans in Egypt to grow c2.5% q-o-q in 1Q21e (vs. c4.6% in 4Q20) and deposits to rise c3.0% q-o-q (vs. c2.8% in 4Q20).

Flag nine names as top/under performers out of 1Q21e results season. We flag: i) ADCB, ii) Alinma, iii) GBK, iv) KFH, and vi) CIB, as potential top performers. Conversely, we flag: i) Burgan, ii) HDB, iii) BSF, and iv) ENBD as potential underperformers. We are particularly excited about Alinma, GBK, and CIB, provided they overlap with our top pick list within our MENA banking coverage.