Samba needs to dance to a different rhythm

What's Down: Samba Financial Group is dancing to a different tune than some investors would like these days, with analysts saying the Saudi bank needs to step up the tempo.

Investors in Samba Financial Group are finding little to dance about in the bank's latest earnings figures.

The bank reported profits of 944 million Saudi riyals for the final quarter of last year, an increase of 4.8 per cent on a year earlier.

The results were a disappointment to analysts polled by Bloomberg News, who had been hoping for quarterly profits of 1.04 billion riyals. The full-year profits also represented a 2.9 per cent dip from the bank's earnings in 2010.

Samba shares fell 0.4 per cent in trading yesterday, at 44.3 riyals. The shares fell 23.9 per cent during last year, lagging many of Saudi Arabia's big lenders.

The bank's earnings offered scant detail, leaving many investors in Samba on their toes.

It delivered a "mixed set of results" and remained cautiously positioned, with its loan book representing only 65 per cent of total deposits, said Munira Mukadam, an analyst at NBK Capital. "Weak" operating income and a cooling-off of loan growth were to blame for Samba's disappointing numbers, she wrote in a research note.

The bank's conservative management had been a boon during the financial crisis. But now analysts are wondering whether Samba needs to up the tempo."The steady dividends are commendable, but need to be weighed against share underperformance," analysts from Riyad Capital wrote. "Excessive conservatism without a tangible rationale may remain a hindrance to share performance."

In addition, Riyad notes that commission income has been ebbing from the bank's bottom line, and despite an improvement in the fourth quarter - most likely attributable to investments - performance could remain weak.

"We have highlighted a troubling trend in weakening commission income over the past several quarters, and remain unconvinced that a reversal is under way," the note said.

But Riyad is encouraged by high levels of coverage for bad loans, which could indicate a decline in provisioning in months to come.