Banking Sector 3Q-2011 - Al-Hekma For Financial Services by wuyyok

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									                  Nov 2011



 Banking Sector
Q3-2011 Update
                              P/E Regional Comparisons


The P/E of Amman Banking Index is around
the average P/E in the Region
        Banking Indices         P/E ( OCT 2011)
     Amman Banking Index              13.67
     Kuwait Banking Index             21.44
     Muscat Banking Index             12.83
     Bahrain Banking Index            15.36
      Dubai Banking Index              9.22
      Egypt Banking Index               6.9
      Saudi Banking Index             13.19
      Qatar Banking Index             13.39
    Abu Dhabi Banking Index          7.37
                              P/E Sector Comparisons at ASE


The P/E of the Banking Index at ASE is one
of the Lowest in the Market

      Sector Indices at ASE           P/E (Oct 2011)

         Banking Index                    13.67

    Telecommunications Index              14.07

        Insurance Index                   12.13

        Real Estate Index                  NA

      Hotel & Tourism Index               24.39
                       Liquidity Sector Comparisons at ASE
 The Liquidity of the Banking Sector at ASE is
 adequate
                                 Turnover Oct YTD   Turnover as % of
     Main Sub-Sectors
                                    2011 (mm)        Capitalization

          Banking                      359               4.1%
         Real Estate                   678               18%
     Mining & Extraction               146               3.2%
      Hotel & Tourism                  121               19.7%
    commercial Services                129               37.6%
Technology & Communications            17                1.2%
Diversified Financial Services         429               106%
         Insurance                     63                18%
        Total Market                  2,446              12.9%
                             Net Income Projections

• Our Forecast Methodology of Net Income:

ü Over 90% of the revenue of banks comes from core
  activities, thus figures are usually predictable
ü Natural growth of loans, deposits and general and
  administrative expenses are forecasted - taking into
  account economical outlook.
ü Credit provisions to be taken each year, is the one
  expense at banks which can largely impact the net
  income projections. Accordingly extensive research
  and fundamental methodologies are being applied by
  Al- Hekma to better forecast the needed credit
  provisions to be taken by individual banks.
                Credit Provision Projections Methodology


ü Annually banks include in their financial reporting
  information on:
• Non-performing loans
• Interest in suspense
• Under supervision loans
• Security
• Credit provisions
               CBJ Regulations on Credit Provisioning




üBanks to fully provide for unsecured NPLs
 within 1 year.
üBanks to provide 20% for secured NPLs within
 1 year.
                       2011 Estimated Provisions as of 2010


 2010 - JD millions    CABK    THBK       AHLI    BOJX    JOKB      AVG.
  Non Performing               4       261.      17                          122.
      Loans             6.3        9       4.4     86.7    42.7          4
  NPL/Gross Loans      5.3%    10.0%     14.6%    8.5%    3.5%      8.4%
  Credit Provisions    44.3    142.8      81.1     52.9    42.9         72.8
      CP/NPL           95.7%   54.5%     46.5%    61.0%   100.5%    71.6%
  Under Supervision            2    152.    20                     12        117.
        Loans           6.9      0      0.7   84.5         4.8         8
   USL/Gross Loans     3.1%    5.8%   16.8%  8.3%         10.3%     8.8%
Estimated Provisions                   4                            4.
      for 2011          2.0     1.6    22.8   12.9          9        16.4
                                      2011 Provisions as of Q3

Q3 2011 - JD millions            CABK           THBK             AHLI             BOJX     JOKB      AVG.

Non Performing Loans              48.7          236.8*          183.2*            112.1     64.8*
Change in millions from
                                  +2.4          -25.1*            +8.8            +25.4    +22.1
        2010
   NPL/Gross Loans                6.1%           8.7%             14%             10.1%     5.2%

    CP taken by Q3                 4.4            32.4            12.2             8.8       7.4
   Credit Provisions              48.7           148.1            93.3            61.6      50.3
        CP/NPL                   100%           66.8%           50.9%             55.0%    77.6%

           IIS                    11.0            51.6            53.0            11.5       4.1

      CP/(NPL-IIS)              129.2%           80%            71.6%             61.2%    82.9%
   New Estimated                                                                           ↑2       ↑2
 Provisions for 2011             ↑5.0**         S 41.6            22.8            5.0***    0.0**        16.4

        *Mid-year numbers.
        ** Provisions for the year revised upwards based on mid-year provisions
        *** Provisions increased from 12.9 to 25 to cover Syrian Exposure
                                            Financial Strength

Main Financial Indicators to Determine Financial
Strength:

  2010 - JD millions        CABK    THBK    AHLI    BOJX    JOKB

     Total Assets           1,843   6,680   2,519   1,969   2,084
   Equity (shareholders)     206    920      227     236     321
    Credit Facilities        823    2,449   1,067    961    1,170
   Customer Deposits        1,336   4,809   1,664   1,483   1,305
Net Income (shareholders)   34,7    79.0    22,9    31,7    51,9
          ROE               16.9%   9.6%    10.1%   13.6%   16.3%

         ROAA               1.9%    1.4%    1.0%    1.7%    2.5%
          EPS               0.35    0.31    0.21    0.32    0.52

  Net Interest Margin       7.21%   5.7%    4.7%    7.0%    6.01%
  Financial Strength         S       S       M       S       S
    S:Strong M: Medium
                                             Financial Strength

Main Financial Indicators to Determine Financial
Strength:

Q3 2011 - JD millions       CABK    THBK     AHLI     BOJX    JOKB

     Total Assets           1,869   6,746    2,502    2073    2,164
       Change %             1.4%    1.0%     (0.7%)   10.7%   3.8%
   Equity (shareholders)     215     923      231      252    330
      Change PCT            4.4%    0.3%     1.8%     17.8%   2.8%
    Credit Facilities        905    2,529    1,172    1039    1,200
      Change %              10.0%   3.3%     9.8%     8.1%    2.6%
   Customer Deposits        1,347   4,733    1,672    1,538   1,317
      Change %              0.8%    (1.6%)   0.5%     3.8%    0.9%
Net Income (shareholders)   26.8     67.0     18.2    28.0    23.4
                                              Financial Strength

Main Financial Indicators to Determine Financial
Strength:

Q3 2011 - JD millions        CABK    THBK     AHLI     BOJX    JOKB

 Original Net Income
                             34.2    81.1     20.6     29.5    50.1
     Projections
NI Q3 2011 (shareholders)    26.8    67.0     18.2     28.0    23.4
 NI Q3 2010 (shareholders)   24.1    63.9     16.1     23.3    23.3
          ROE                12.5%   7.3%     7.9%     11.1%   7.1%
         ROAA                1.44%   1.00%    0.73%    1.39%   1.1%
        EPS                  0.268   0.266    0.144    0.18    0.234
 Mid year Net Interest
       Margin                3.71%   2.93%    2.63%    3.75%   3.05%
Updated NI Projections       ↑35.8   ↑ 89.7   ↑ 21.9   ↓25.0   ↓ 39.4
                            2011 Net Income & P/E Projections


  2011 P/E Projections:
              2011 Projections        CABK THBK AHLI BOJX JOKB
           Net Income (after tax)
   1.    excluding credit provisions- 39.2 118.9 37.9 42.4 55.2
                 JD millions
   2.       P/E excl Credit Prov.          6.8   16.8    4.6     7.8     6.6

   3.      Net Income- JD millions        35.8 89.7 21.97 25.0          39.4
   4.                 P/E                  7.5   22.4    7.9    13.3     9.2

   5.          P/E Gap: L4-L2              0.7    5.6    3.3     5.5     2.6

Conclusion: The selection process focuses on banks with a low P/E (below 12%),
provided that P/E excluding credit provisions (L2) is not lower than P/E (L4) by
more than 3. If gap is higher then it means that the bank still needs at least 1-2
years of additional provisions to fill the gap.
                              Testing Criteria on Selected Banks

       2011           CAB     THBK       AHLI       BOJX      JOKB      Criteria
Projected P/E         7.5      22.4       7.9       13.3       9.2        <12

Projected PE Gap      0.7       5.6       3.3        5.5       1.4        <3
P/BV                  1.25     2.95      0.74       1.33      1.21       <1.75
Projected Dividend
                     5.23%    3.14%     5.92%       4.7%     4.94%      >4.5%
Yield
Fin. Strength        Strong   Strong   Medium     Medium     Mediu       M-S
                                                             m/Stro
                                                              ng**
Ranking                1         x         x          x         x

*Exposure in Syria has reduced financial strength.
** Expected exposure to certain real estate and trading corporations which are
currently believed to be facing financial difficulties

								
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