Itqan Cap expects profit recovery in Q4 2020 for Alinma Bank; lowers rating to “Neutral”

Itqan Capital expects a continued recovery in profitability for Alinma Bank in Q4 2020, as economic activity continues to recover during the quarter.

The rise in total operating income in the third quarter of 2020 came due to the partial recovery of economic activity, as net financing income and income from banking fees offset the drop in other non-financing income, the brokerage firm said in a recent report.

Loan loss provisions, however, continued to rise, weighing down on net earnings. It doubled to SAR 234 million from SAR 108 million in Q3 2019 and SAR 192 million in Q2 2020.

The report added that provisions are expected to continue to pressure Alinma’s earnings in the short-term due to the bank’s high exposure to corporates (78% of financing portfolio), which tend to have higher credit risk.

Itqan Capital expects to see tighter liquidity for Alinma in Q4 2020 and 2021 as loan-to-deposit ratio (LDR) reached its maximum threshold and Saudi Arabian Monetary Authority’s (SAMA) deposits injections ended.

The firm downgraded its recommendation to “Neutral” while maintaining the target price (TP) at SAR 16.9 per share.

The “Neutral” recommendation, according to Itqan Capital, means the value will stay in the range of up/down 10% in a 52-week period.