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MENA banks 3Q20e results preview | Earning drops y-o-y across the board; Flag CIB, CAE, SABB, Samba, FAB as top performers

Another rough quarter for MENA banks. We see net income dropping for all names, on a y-o-y basis, in both 3Q20e and 9M20e, across our 24 MENA banks under coverage, with three exceptions, namely Samba, SABB, and SAIB (only for the latter period, on a favourable base effect). We expect 1H20 trends to be broadly maintained through 3Q20e, specifically: i) further NIM pressure, albeit at a slower rate, ii) continued opex control, iii) elevated provision expenses, on a y-o-y basis, and iv) relatively moderate loan growth. We look for Egypt banks to outperform their MENA peers in terms of 3Q20 results, particularly on margins, provisioning, and total profitability. Within the GCC coverage, we see Saudi banks outperforming their peers in the UAE and Kuwait, on both net income and balance sheet growth, with the mortgage segment continuing to be the growth engine for the sector.   

Egypt banks to outperform MENA peers. We forecast Egypt banks’ earnings in 3Q20e to slightly recover q-o-q, with the majority of precautionary measures already booked during 1H20, in our view. We flag CIB and CAE as the expected top performers, coming from a low base in 2Q20. We still anticipate a c16% y-o-y drop in banks’ 3Q20e aggregate bottom line (-4% y-o-y for CIB), with NIMs contracting by c80bps y-o-y, on average (+60bps for CIB, flat q-o-q). As for 9M20e, we expect earnings to shed c13% y-o-y, driven by the higher CoR and narrowed NIMs. Loans and deposits are set to continue witnessing low single digit q-o-q growth in 3Q20e (c4.0% and c3.5%, respectively, on average, for Egypt banks under coverage).

Saudi lenders to outperform within GCC. Excluding SABB’s numbers, Saudi banks are expected to deliver a c22% drop in earnings y-o-y in 3Q20e and c16% in 9M20e. We expect UAE banks’ aggregate earnings to drop c44% y-o-y in 3Q20e and c38% y-o-y in 9M20e. Kuwait banks are set to underperform their GCC and MENA peers, delivering drops of c57% y-o-y in 3Q20e and c51% y-o-y in 9M20e, albeit with the strongest q-o-q recovery vs. other countries under coverage, following an exceptionally weak Q2 for all names under coverage in Kuwait. 

List of expected outperformers in 3Q20e overlaps with our top picks list. We flag: i) CIB, CAE, SABB, and Samba as our expected outperformers from the 3Q20 earnings season within our MENA banks coverage, ii) FAB within our UAE banks coverage, and iii) KFH, ENBD, and HDB as the expected underperformers from the season. This comes broadly in line with our MENA banks top picks, outlined in our latest MENA banks update (), which include: i) CIB: top-quality, liquid, well-provided, well-capitalised, attractive valuation, ii) CAE: aggressive credit growth outlook post-pandemic, among most profitable names within coverage, iii) SABB: mispriced name, as market ignores its stronger capacity, merger synergies, and iv) FAB: well-run, efficient, liquid balance sheet.