Investors sell off stock in Arab National Bank

Investors sold shares of Arab National Bank (ANB) after the Saudi lender announced a 7.4 per cent decline in profits for the first quarter because of the increased operating expenses.

Net income fell to 587 million riyals, from 634m riyals in the same period last year. Earnings per share for the quarter was 0.69 riyals, down 9 per cent from last year.

Relatively low interbank borrowing rates in Saudi Arabia, known as Sibor, has hurt the profitability of banks across the kingdom as net interest income has declined, said Faisal al Azmeh, an analyst at NCB Capital in Riyadh. Three-month Sibor is at 0.75 per cent.

Net interest income at ANB was down 1 per cent year on year and 5 per cent quarter on quarter.

The lender, listed on the Saudi Tadawul, declined 2.2 per cent to 34.10 riyals after the news was released yesterday. Mr al Azmeh has a "neutral" rating on the stock, with a fair value of 34.60 riyals.

The bank is likely to play to its strengths and focus on the retail and commercial loan segments where loan growth is improving, he said.

Retail growth should be driven by a restructured and sales-focused branch network. ANB has the country's fourth-largest network.

Loan growth for the quarter was up 3 per cent on the same period last year, while deposits were up 14 per cent and 5 per cent compared with the previous quarter.

Total operating expenses, including provisioning charges, were up 32 per cent in the first quarter compared with that period last year. Analysts are awaiting further details on loan-loss charges as the bank has not yet filed the full financials.

ANB's coverage ratio is more than 100 per cent, complying with the country's central bank regulations, Mr al Azmeh said.

The bank's credit quality declined in 2009 because of its exposure to major defaults in Saudi Arabia. But ANB booked provisions to improve its coverage ratio from 75.9 per cent for 2009 to 108.1 per cent for last year.