We issue a HOLD rating on Arab Bank with a Target Price of JOD 7.72 per share as the ongoing fragile regional political situation on top of company specific risk from the terrorism financing case filed against Arab Bank may continue to pressure share performance in the short-term regardless of the bank’s healthy financial results. However, we believe Arab Bank’s share price has room to appreciate in the long-term and may become an attractive opportunity when regional uncertainty subsides, supported by a well-diversified geographic presence, good track record, healthy financial position, strong liquidity buffer and a declining trend of non-performing loans.
Arab Bank Group recorded an impressive 10.5% y-o-y surge in net income for the first 9 months of 2014 to reach $613.7 million following a diversified portfolio and strong growth in key markets. The bank’s profitability is mainly attributed to an $11.3 million growth in net interest income along with a decline in impairment provisions to $37 million compared to $70.5 million a year earlier. Going forward, we forecast continued growth in net income to reach $771 million in 2014, mirroring the expansion of the bank’s loan portfolio and the continued decline and normalization of provisions taken.
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