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MENA banks 3Q21e results preview | Decent profitability; Balance sheet recovery underway

Flag four momentum plays on 3Q21e results. Despite holding a N rating on BSF and an UW rating on Boubyan (FY22e P/BV: 1.36x and 3.68x, respectively), we expect both banks to emerge as the outperformers within their corresponding countries in 3Q21e. We also flag ADCB (decent cost synergies, largest beneficiary of NMC resolution) and CIB (strong capacity with LTD: 40%, CAR: 32%, CASA: 52%, NPL coverage: 2.04x, providing ample room for credit expansion and asset reallocation post COVID-19), both with OW ratings, as potential outperformers in 3Q21e.

Bulk of MENA banks under coverage to deliver higher y-o-y earnings. Aggregate net income is seen rising 11.9% y-o-y and 5.65% q-o-q in 3Q21e. Kuwait banks are anticipated to deliver the highest earnings y-o-y growth among MENA peers, while Saudi banks are set to beat, on system loan growth (+2.0% q-o-q vs. +1.1%, +1.0%, and +0.6% for UAE, Egypt, and Kuwait banks, respectively). We look for: i) largely steady NIMs q-o-q, ii) moderate growth in fee income, pending material improvement in loan origination, iii) continued opex control, and iv) relatively light provisioning.

Kuwait banks to beat; Saudi mortgage growth resumes. Kuwait banks’ aggregate earnings are expected to climb 41.3% y-o-y in 2Q21e (vs. +33.5% for Egypt, +13.6% for UAE, and +5.0% for Saudi banks), on being hit the hardest by a slump in economic activity and booking heavy quarterly provisions in FY20. Reported sector figures (through August for Saudi and Egypt; July for Kuwait and the UAE) indicate a continued beat for Saudi banks, on loan and deposit growth, over MENA peers in 3Qe. Mortgage growth in Saudi decelerated since April (mostly on seasonality, in our view), yet regained momentum in August. Early signs of recovery in corporate lending in the UAE (confirmed for retail) and retail in Kuwait (on improved consumer sentiment, supported by the retail deferral programme) continue to materialise.

Lighter provisioning, NIM expansion to support Egypt banks’ recovery in 3Q21e. Earnings should rise 33.5% y-o-y and 7.1% q-o-q in 3Q21e, on our figures, boosted by lighter provisioning, coupled with higher fees and commissions, and NIMs. CIB is projected to outshine its peers, with earnings surging c58% y-o-y in 3Q21e. Our Egypt banks coverage is forecast to grow loans by an average of 5.6% q-o-q in 3Q21e (vs. 5.6% in 2Q21) and deposits 1.9% q-o-q (vs. 3.1% in 2Q21).