QIB reports higher Q4 earnings but balance sheet growth was "disappointing", analyst says

Although earnings growth was strong, analyst sees QIB's results as modest, as balance sheet growth was "disappointing"

QIB reports higher Q4 earnings but balance sheet growth was "disappointing", analyst says

Shares in Qatar Islamic Bank (QIB) edged lower on Thursday, despite the bank reporting an increase in fourth quarter (Q4) and fiscal year 2018 earnings, as the bank’s balance sheet performance proved to be weaker in Q4 2018.

QIB, Qatar’s largest sharia-compliant lender by assets, posted a net profit attributable to shareholders of 2.76 billion Qatari riyals ($758 million) for 2018, compared to 2.41 billion Qatari riyals for 2017, translating into a 14.52 percent year-on-year increase (YoY).

The bank reported a 19 percent rise in fourth-quarter net profit (YoY), as it posted a Q4 2018 net profit of 750 million Qatari riyals, compared with 630.2 million Qatari riyals in Q4 2017, beating an analysts from SICO bank's estimate by 7 percent.

The improved quarterly profit came on the back of higher FX income, lower investment provisioning and Zakat reversal.

“QIB’s balance sheet performance was weak in the quarter, with lending book contracting by 4 percent QoQ (quarter on quarter) and deposits declining by 2.2 percent QoQ, leading to a flat lending book growth YoY and deposits contraction by 1.2 percent YoY,” Chiro Ghosh, research manager at investment bank SICO, told Zawya.

Ghosh added that the rise in interest rates “along with asset mix shift helped the bank boost its NIM (net interest margin) by 32bps”, which led QIB to report a net interest income growth of 19 percent YoY.  Ghosh said that non-interest income also rose 43% YoY, supported by higher fee income from banking services and strong FX income.

QIB’s stock edged 0.13 percent lower on Thursday, and the bank’s shares have added 3.33 percent so far since the start of the year. Qatar’s index rose 0.24 percent during Thursday’s trading.

“Although the earnings growth was strong and it was a beat to our estimate, we perceive it as a modest result,” Ghosh said, adding that the bank’s balance sheet growth was disappointing, although he expects most Qatari banks to report balance sheet contraction in the fourth quarter of 2018.

On the other hand, he said that net interest margin expansion and fee income growth were both positive, but he said he anticipates that with the balance sheet contraction he expects to see pressure on QIB’s “banking services-related fee income book.”

The bank’s board of directors has recommended a cash dividend of 5 riyals per share, the same payout as in 2017.

“QIB impressed with a 19 percent YoY jump in Q4 profits driven by double-digit growth in financing income and very benign provisions,” Akber Khan, senior director of asset management at Al Rayan Investment told Zawya by email. "However there was disappointment that both loans and deposits contracted QoQ and dividends did not increase, leading to a lower payout."

According to data from Eikon, one analyst has a ‘hold’ rating on the bank’s stock, three analysts have a ‘sell’ rating, and two analysts have recommended a ‘strong sell’.

Elsewhere in the region, Dubai’s index rose 0.64 percent on Thursday, Saudi Arabia’s index added 0.49 percent, Kuwait’s premier market index edged 0.23 percent higher, Bahrain’s index climbed 0.11 percent higher, Abu Dhabi’s index was flat and Oman’s index dropped 0.5 percent. Egypt’s blue-chip index EGX30 dropped 0.20 percent.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

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