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MENA banks 4Q20e results preview | Not-all-bleak quarter; Flag RJHI, ADCB, CAE as top performers; ANB, GBK, HDB as underperformers

One-third of banks under coverage to deliver y-o-y earnings improvement in 4Q. We forecast aggregate net income to drop c11.9% y-o-y and c8.7% q-o-q in 4Q20e. The quarter is expected to see: i) less pressure on GCC banks' NIMs, on a sequential basis, ii) q-o-q improvement in fee and investment income, iii) continued opex control, iv) moderate provisioning, and v) relatively weak loan performance, save for Saudi. We expect Saudi banks to outperform their MENA peers on 4Q20e results, particularly in terms of margins, non-interest income, provisioning, and hence, overall profitability, as well as balance sheet growth.

Saudi banks to outperform MENA peers. Saudi banks are anticipated to deliver flattish earnings y-o-y in 4Q20e and a c6.2% y-o-y drop in 2020e (excluding SABB’s figures), with robust balance sheet growth, well-provided books helping banks absorb NIM and CoR pressure. UAE banks’ aggregate earnings are expected to drop c16.2% y-o-y in 4Q20e and c32.3% y-o-y in 2020e. Kuwait banks are set to underperform their MENA peers, delivering earning drops of c38.8% y-o-y in 4Q20e and c44.5% y-o-y in 2020e, albeit with the only expected q-o-q recovery within the countries under coverage. Released sector figures (through Nov-20 for Saudi, Kuwait, and Egypt, and Oct-20 for the UAE) indicate a probable outperformance for Saudi banks, on loan and deposit growth vs. their MENA peers in 4Q20e. We expect AlBilad, Al Rajhi, Alinma, and Al Riyad to outperform, on loan growth q-o-q in 4Q20e, with +3.8, +3.4%, +2.9%, and +2.2%, respectively. 

High provisioning to pressure Egypt banks’ profitability in 4Q20e. We forecast Egypt banks’ earnings to drop c7.1% q-o-q and c27.2% y-o-y in 4Q20e and c18.8% y-o-y in 2020e, pressured by narrowed NIMs and higher CoR levels. Crédit Agricole Egypt (CAE) is expected to be an exception, with earnings forecasted to grow on both q-o-q and y-o-y basis in 4Q20e. As for CIB, provisioning levels are expected to continue at elevated levels in 4Q20e, as per management's updated guidance for the quarter, in line with the second wave of the COVID-19 pandemic. That said, management confirmed there is no delayed impact from the CBE audit report on 4Q20e provisions. We expect consolidated sector loans in Egypt to grow by c2.5% in 4Q20e (vs. c5.9% in 3Q20) and deposits to rise c3.5% (vs. c5.3% in 3Q20).

Flag nine names as top/under performers out of 4Q20e results season. We flag: i) BSF, ii) Samba, iii) Al Rajhi, iv) ADCB, and v) CAE, as potential top performers, and i) ANB, ii) FAB, iii) HDB, and iv) GBK as potential underperformers. These are momentum plays on 4Q20e results, which, with the exception of CAE, do not overlap with our top list within our MENA banking coverage. Beyond 4Q numbers, we prefer: NCB, SABB, Bank AlJazira, Alinma, CIB, NBK, DIB, and Emirates NBD.