Riyadh- Saudi Arabian banks' third-quarter net income will be under pressure due to the higher amount of money banks set aside to cover bad loans and on subdued fee income, Morgan Stanley said.
Saudi bank's third-quarter earnings may be flat to down sequentially, as higher provisions offset increased pre-provision income, analysts Daniel Cowan and Magdalena Stoklosa said, and forecast an average increase of 40 basis points in loan-loss provisions this quarter.
Banks' net interest margins may also come under pressure in the second half of this year as short-dated sovereign bonds roll over at lower levels, the analysts wrote in a note to clients.
Analysts Cowan and Stoklosa maintained their cautious view on Saudi banks for the near term, citing the lack of visibility on asset quality as a major concern.
Early visibility on asset quality is, however, likely in the third quarter as the potential magnitude of corporate defaults and write-downs on banks' exposure to two troubled Saudi family conglomerates, Saad Group and Ahmad Hamad Algosaibi and Bros group, come to light, analysts said.
Two Saudi bankers recently told Reuters that a Saudi government panel had brokered a deal between Saad and local creditors that excluded international banks.
The reported agreement between Saad and the local banks, while positive, is unconfirmed and sheds no light on individual banks' exposure, the analysts said, adding there was no indication that Algosaibi was close to a similar deal.
The analysts outlined their third-quarter net income estimates for Al-Rajhi Bank, Arab National Bank, Riyad Bank, Samba Financial Group and Saudi British Bank.
They named Riyad Bank, Arab National and Samba Financial as top picks among Saudi banks.
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