Download Company: Arab Bank Group Date: Oct 12, 2011 Stock Code on: ASE

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Company: Arab Bank Group
Date:
Oct 12, 2011
Stock
Code on:
ASE:
ARBK.AM
Bloomberg:
ARBK.JR
Current Price:
7.49
No. of Shares
550,203,143
Market Capitalization
In JOD 4,401 million
In USD 6,208 million
EPS (ttm):
P/E (ttm)
0.42
16.8
P/E(ttm)-(PS)*
20.1
Ownership Structure
Local
Companies 21.0%
Individuals 21.8%
Foreign Companies 41.5%
Individuals 15.7%
Share Liquidity
Free Float
45%
Closely Held
55%
Av. Daily Value
61,027,424
(3 months)
Av. Daily Volume 7,254,270
(3 months)
2011 Mid Year Update
Outlook
2011 is expected to be another difficult year for ARBK. The unrest in several regional countries were ARBK
operates, is expected to result in lower business activities and a hike in non-performing loans (NPL). Although
as of mid-2011 no such impact was reflected on the Group’s profitability or asset quality. Most likely however,
ARBK will be compelled before year end to build further credit provisions in order to protect its credit ratings.
Credit provisions for 2011 is expected to range between $450-$500 million, which will bring projected net
income to$ 320-$350 million, a marginal improvement of 4%-14% from last year, but still 39%-44% lower than
the 2009 level of $576 million.
Significant exposure in the region. The group’s collected exposure to countries such as Egypt, Tunisia, Libya,
Yemen, Syria, Lebanon, Palestine, Algeria and Sudan is around 34% of total assets in 2010. ARBK total Net loan
exposure at mid-year is at $21.8 bn, 68% of which is in large corporates. As of 2010, the Group’s credit
exposure to Arab Countries excluding Jordan is at 64% of gross loans, with the largest regional concentrations
are in its wholesale banking operations in Bahrain, (covering Kuwait, Saudi Arabia and Oman), UAE and Egypt.
Noting that net credit exposure as of 2010 at its subsidiaries in Syria, Tunisia & Libya (ARBK portion) is at $1.6
bn. However credit exposure at its branches in Egypt & Yemen is unavailable and is estimated at around $
1.0-1.3 bn. Noting that historically, ARBK is known for its conservative credit policy, whereby extension in
traditionally riskier areas in the region has regularly been collateralized overseas, which is expected to
partially mitigate the risk, especially in places like Yemen.
ARBK’s Credit Exposure to Subsidiaries in Risky
Countries in the Region as of 2010
Country
Syria
Tunisia
Libya
% Ownership
ARBK Portion
49%
Estimate of ARBK’s Credit
Exposure to some Countries in
the Region
UAE
$ 1.8-2.0 billion
$1.09 billion
Lebanon
$ 0.9-1.1 billion
64.24%
$0.24 billion
Egypt
$ 0.8-$ 1.0 billion
19%
$ 0.28 billion
Palestine
$1.0-$1.2 Billion
Yemen
$0.2-0.3 billion
Bahrain
$ 1.8-2.0 billion
*Pertaining to Shareholders
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European Subsidiary is back on track. Europe Arab Bank (EAB), which suffered significant losses since establishment, as a result of credit problems, is
now fully provisioned for, and is reported by Fitch to be “marginally profitable” as of mid-2011.
Non Performing Loans (NPL) improves to 6.3% of gross loans as of Mid-Year. NPL loans dropped to $ 1,6 bn (including interest in suspense) at midyear as compared to $ 1,7 bn at year end 2010. On the other hand, Loan Loss Provision (LLP) stayed at nearly same level of $ 1.1 bn, bringing credit
coverage ratio as of mid year to acceptable levels of 67% and 79% when interest in suspense is excluded.
NPL Ratios
2008
2009
2010
Mid 2011
CP/NPL
67.5%
43.4%
60.8%
67.4%
CP/(NPL-IIS)
92.4%
50.2%
68.9%
78.6%
De-consolidation of Libyan Subsidiary as of mid-year. The drop in total assets of the Group as of mid-year, and the downward re-stating of the total
assets by $5.8 bn as of yearend 2010, is a result of the de-consolidation of Wahda Bank (19% ownership). The decision to de-consolidate was on the
basis that the Group is unable to manage & control its subsidiary following the unrest in Libya.
ARBK share to remain under pressure, price may not rise in the short run. Global and regional environments are not in favor of ARBK. The financial
crises in Europe and it’s still unquantifiable repercussions on the global banking industry and the unrest in several countries where ARBK operates in
the Middle East is making ARBK share unappealing for investors. The expected hike in NPLs and the resultant shortfall in credit provisions mean that
ARBK share will continue to be under pressure this year and probably next year, until credit coverage is back to its historical levels of 80%-90%. Once
this is behind ARBK, ARBK share will start to quickly appreciate, especially that when credit provisions are excluded, ARBK’s net income can easily
exceed $600 million
Price of share still higher than its peers. When compared to its peers, ARBK’s current P/E of 16.8 and expected future P/E of 16.6x-18.2x are still
higher than average regional peer of 13.5x and are also high when compared with most banks at ASE. However P/BV continues to be attractive.
Moreover ARBK is expected to maintain its low dividend distribution level of 20%, which will bring dividend yield to 2.25%. Price of share is expected
to continue to be under pressure and is not expected to rise in the short run.
Uncontrollable predicaments. Until the U.S litigations against ARBK are fully settled, the amount of damages which ARBK may incur and the
sufficiency of the provisions remain unclear. Also the dimension of the negative impact of the regional disturbances on ARBK is hard to predict.
Financial Performance Overview $ Million
Net Income
Net Income Pertaining to Shareholders
Total Assets
Net Credit Facilities
Customer Deposits
EPS
Dividends per Share
Dividends Yield
P/E (x) TTM
Private & Confidential
2009
2010
Q2-2011
576
528
50,525
22,026
31,472
0.99
25%
2%
16.38
308
251
51,097
22,490
32,110
0.47
20%
2%
25.15
327
319
46,215 *
21,780*
27,931*
0.60
19.7
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P/E (x) TTM Pertaining to shareholders
P/B
17.31
1.16
30.9
1.01
21.7
0.81
Credit coverage=(LLP/(NPL –IIS)
* ARBK’s subsidiary in Libya (Wehda Bank) figures were de-consolidated from the Group.
Arab Bank Group
(USD)
National Bank of
Kuwait (USD)
National Bank of
Qatar (USD)
Arab National Bank
(USD)
11.81
4.19
38.07
7.84
776
1,182
1,075
2,266
46,214
49,502
71,173
29,071
7,773
7,925
10,356
4,304
Net Credit Facilities
21,780
28,426
40,642
18,419
Customer Deposits
27,931
23,472
52,995
22,533
319
530
488
186
Credit Provisions
1,063
NA
NA
597
Non-Performing Loans
1,576
NA
NA
551
67%
NA
NA
92%
0.6
1.34
0.86
0.22
PE
20.34
14.99
14.6
13.4
PB
1.18
2.14
3.76
1.65
H1 - 2011 ( in million USD)
Price
Capital
Total Assets
Equity
Net Income
Credit Coverage
EPS
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DEFENITIONS
P/E: Price/Earnings Ratio is calculated as Market Price Per Share / ttm Earnings Per Share, ttm is trailing twelve months)
P/E Price Annualized is calculated based on the current Market Price over annualized earnings
P/BV: Price/Book Value Ratio is calculated as (Market Price Per Share / Book Value of the Company), where the book value of the company is
calculated as (Owner's Equity / Outstanding Shares), and Market Price Per Share is the current market price.
Y: The Yield is calculated as percent of cash dividend/market price.
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