Due to increasing competition, NCB Capital has reduced its NIM estimate for the Saudi banking sector and expects a 9bps decline in margins from a previous estimate of flat NIMs. As a result, NCBC expects lower profit growth that is also due to reduced income from brokerage.
Estimates for profits are down for 2013E due to margin compression. NCBC said, “We revise our estimates for profits for 2013E for the ten banks under our coverage 2.5 per cent lower to SR29.4bn due to a 16bps reduction in our estimate for NIM’s. This leads to our expectation of profit growth of 6.8 per cent YoY in 2013E compared to our earlier estimate of 9.5 per cent. The change in asset mix towards consumer financing will limit the NIM’s decline to 9bps for 2013E compared to the 14bps decline in 2012.
“Our NIM’s estimates are more conservative than management guidance. We believe our estimate for margin contraction is on the higher end of the management guidance range of 5-10 bps. We are concerned about the similarities of strategies between banks, particularly the focus on lending to the consumer segment. We believe this supports our estimate for loans yield spread over SAIBOR, which we forecast to decline by 31bps in 2013E.
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