CI Capital Research reported that the banking prospects of the UAE are “upbeat” in the short- to mid-term with “favourable macroeconomic conditions and solid bank-level fundamentals” driving momentum.
Although Saudi Arabia gains momentum, the report on the GCC banks’ strategy points to elements that are burdening the kingdom in the short term, such as increasing fiscal deficits, project rationalization, declining oil prices, and liquidity compression in the system.
The report indicated that, unlike the UAE, the majority of Saudi banking stocks “are trading at or near historical valuation lows,” which is probably due to apprehension regarding the growth and profitability outlook.
Recent valuations seem to reflect a too-pessimistic scenario, with risk-reward alignment of Saudi banks “is increasingly skewed towards upside rather than downside catalysts for the sector.”
The report added that the recent political upheaval in Venezuela and the unfolding geopolitical scenario in Iran introduce an additional risk, leaving the future of oil prices ambiguous.
Despite these worries, the report still projects a positive outlook on Saudi Arabia in the long-term, with Saudi banks taking six spots out of their top seven names in the scorecard.
Out of the leading GCC lenders, the report mentions ADCB in the first position regarding a “superior growth profile and undemanding valuation.”
It also makes the list in the UAE, where the First Abu Dhabi bank has been ousted by the Emirates NBD, on the basis of the former’s compelling “compelling risk-return profile and near-term margin tailwinds from Turkey.”
The Saudi lenders in the top few are SNB, which CI Capital Research ranks as its “top fundamental pick in both MENA and Saudi Arabia.”
The Al Rajhi Bank in the kingdom is also included in the list, with the report stating that the lender is the biggest beneficiary of the Foreign Ownership Limit (FOL) repeal on the Saudi Exchange (Tadawul), an initiative by the government to do away with past restrictions on foreign ownership in listed companies.
Thus, other GCC banks that cut the cut include Saudi Awwal Bank, which is an affiliate of HSBC, and NBK of Kuwait.
