MENA Banks10Apr2011

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  • 8/7/2019 MENA Banks10Apr2011


    Middle East United Arab EmiratesBanking

    10 April 2011

    MENA Banks

    Q1 11 preview - core GCC

    markets remain resilientRahul ShahResearch Analyst

    (+971) 4 4283-261

    Ryan AyacheResearch Analyst

    (+971) 4 428-3781

    Egypt, Lebanon banks most affected by recent events; Qatar, UAE resilientWe present our Q1 11 forecasts and our assessment of the key issues facing thesector. We believe Qatar and UAE bank results should be largely immune to theevents that have engulfed the region. Saudi banks should also be minimallyaffected, save for the one-off salary boost given to workers. The Egyptianeconomy was disrupted in Q1, although better times are likely ahead; theLebanese banks (and NBAD) may provide the earliest indicators of how events inthe country have affected local banks. Top picks: ENBD, FGB, MAR, QNB, Rajhi.

    Deutsche Bank AG/London

    All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from loca

    exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

    Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firmmay have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

    factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

    MICA(P) 007/05/2010

    Industry Update

    Top picksQatar National Bank (QNBK.QA),QAR142.80 Buy

    First Gulf Bank (FGB.AD),AED16.45 Buy

    Al Rajhi Bank (1120.SE),SAR77.25 Buy

    Masraf Al Rayan (MARK.QA),QAR24.10 Buy

    Emirates NBD (ENBD.DU),AED3.47 Buy

    Banks Cur (m) Net income (Q1 11)

    Riyad Bank SAR 67

    Bank Aljazira SAR 1

    Saudi Investment Bank SAR 18

    Saudi Hollandi Bank SAR 20

    Banque Saudi Fransi SAR 68

    Saudi British Bank SAR 51

    Arab National Bank SAR 49

    Samba Financial Group SAR 104

    Al Rajhi Bank SAR 160

    Bank Albilad SAR 1

    National Bank of Abu Dhabi AED 101

    Abu Dhabi Commercial Bank AED 51

    First Gulf Bank AED 101

    Emirates NBD AED 225

    Dubai Islamic Bank AED 26

    Commercial Bank of Qatar QAR 49

    Doha Bank QAR 97

    Qatar Islamic Bank QAR 50

    Masraf Al Rayan QAR 52

    BLOM Bank* LBP 13

    Bank Audi* LBP 10

    * Figures in bn

    Source: Deutsche Bank

    Companies featuredRiyad Bank (1010.SE),SAR26.30 Buy

    Bank Aljazira (1020.SE),SAR20.05 Sell

    Saudi Investment Bank (1030.SE),SAR20.25 Hold

    Saudi Hollandi Bank (1040.SE),SAR30.80 Buy

    Banque Saudi Fransi (1050.SE),SAR50.00 Hold

    Saudi British Bank (1060.SE) ,SAR45.50 Hold

    Arab National Bank (1080.SE),SAR34.80 HoldSamba Financial Group (1090.SE),SAR56.50 Hold

    Al Rajhi Bank (1120.SE),SAR77.25 Buy

    Bank Albilad (1140.SE),SAR19.45 Sell

    Alinma Bank (1150.SE),SAR10.00 No

    Abu Dhabi Comm Bank (ADCB.AD),AED2.57 Hold

    Bank Audi (AUDI.BY),USD7.12 Buy

    Blom Bank (BLOM.BY),USD9.00 Buy

    Dubai Islamic Bank (DISB.DU),AED2.16 Sell

    First Gulf Bank (FGB.AD),AED16.45 Buy

    Emirates NBD (ENBD.DU),AED3.47 Buy

    Nat Bank of Abu Dhabi (NBAD.AD),AED10.45 Buy

    Qatar National Bank (QNBK.QA),QAR142.80 Buy

    Commercial bank (COMB.QA),QAR76.00 Buy

    Doha Bank (DOBK.QA),QAR58.00 Hold

    Qatar Islamic Bank (QISB.QA),QAR84.00 Buy

    Masraf Al Rayan (MARK.QA),QAR24.10 Buy

    CIB (COMI.CA),EGP31.58 Hold

    NSGB (NSGB.CA),EGP39.78 Hold

    EFG Hermes (HRHO.CA),EGP21.51 Hold



    Qatar earnings boosted by QCB bond and government spendingWe expect record earnings in Q1 for Qatari banks and excellent FY numbers aswell. System liquidity is at an all-time high due to peak LNG production and solidglobal energy prices. As such, funding costs continue to be favorable, whilesystem assets received a huge boost by the QCBs QAR50bn bond and sukukissuance to domestic banks in January. High levels of government spendingshould continue to provide the bulk of credit growth. Top picks: QNB and MAR.

    Saudi banks one-off salary boost to hit bottom line in Q1We believe the Saudi banks will likely seek to emulate the recently announced twomonth extra salary being awarded to public sector employees. While this shouldhave a limited impact on FY results, the effect in Q1 could be more material. Yet,we believe investor sentiment should be more closely driven by loan volumegrowth; we see momentum slowly improving. Announced stimulatory measuresshould lift corporate credit demand; the anticipated Mortgage Law could boost

    demand for housing loans. Al Rajhi, Saudi Hollandi, Riyad are Buy rated.UAE banks lower risk costs to fuel earnings growthWe believe the pace of the new NPL formation is likely to slow significantly,reflecting a sharp moderation in real estate price deflation and improvingeconomic activity. Volume trends are likely to be muted, although Abu Dhabibased banks should continue to pick up market share. Top picks: FGB, ENBD

    Lebanese banks growth still likely despite hitting Egyptian speed bumpPolitical uncertainty is likely to have had a dampening effect on deposit growth inthe domestic business, but the main consequences of recent regional turmoil islikely to have been felt in the Egyptian operations, where we saw minimal volumegrowth and a pick-up in provisions. However, we continue to expect decent(double-digit) earnings growth this year. We have Buy ratings on Audi and BLOM.

    Valuation and risksWe value the MENA banks using a two-stage Gordon Growth Model that basestarget prices on discounted terminal value and adds back the discounted value ofinterim dividends. Median inputs across MENA banks include a 5% risk-free rate,7% equity risk premium, 1.0 beta, 4% terminal growth and 19% mid-cycle ROE.Key risks include: the possibility of further significant asset quality deterioration,potentially arising from political/economic uncertainty; the prospect of restrictedaccess to wholesale funding markets; regulatory pressure to increase provisioning,solvency or liquidity; and the scope for margin erosion due to enhancedcompetition.

  • 8/7/2019 MENA Banks10Apr2011


    10 April 2011 Banking MENA Banks

    Page 2 Deutsche Bank AG/London


    Main investment themes

    The QAR50bn QCB bond will likely boost earnings and asset growthThe QCBs January issue of QAR50bn of conventional and Islamic paper (5% coupon, three

    year tenor, zero RW) should be a major theme underlying earnings and assets growth in

    FY11. The biggest relative gainers are MAR (QAR10bn allocation) and QIB (QAR9bn

    allocation), which will see assets rise significantly in Q1: 31% QoQ growth for the former,

    19% QoQ growth for the latter. The allocations should also boost earnings and again the

    same two banks will likely be key beneficiaries, though DHB should also see a nice boost to

    its bottom line. The smallest allocation was given to CBQ (QAR1.5bn), and consequently, we

    expect it to derive comparatively smaller benefits in terms of its assets and earnings growth.

    Government spending remains the defining feature of the market

    High levels of government spending, channeled through various means such as semi-

    government agencies, will likely remain the defining source of credit demand in the domesticmarkets for the foreseeable future. While we believe that private sector and retail credit

    demand is likely to improve from FY10 levels on a YoY basis, this should still account for a far

    smaller share of growth than the public sector at large. The key beneficiaries are banks with

    proportionally higher share of government ownership, QNB and MAR, and banks whose loan

    book has a high historical bias toward the public sector, again QNB and MAR.

    Record liquidity supports low funding costs, but should eventually pressure margins

    Peak LNG production capacity was reached in Q4 last year. Combined with rising energy

    prices in Q1, this means that state liquidity levels are exceptionally high. Deposit growth is

    therefore likely to remain exceedingly solid, given the high share of public sector funding in

    the banking system at close to 30%. Deposit costs have already fallen substantially YoY in

    FY10 between 50bps and 150bps at our banks and are likely to remain subdued this year.

    It is therefore only a matter of time before asset yields also come under pressure. Thus, we

    expect NIMs to remain broadly flat YoY as the asset pricing lag effect begins to weigh on

    margins by H1.

    Asset quality remains solid; DHB and CBQ will likely charge lower risk costs

    NPLs have never been a defining issue for Qatari banks, with QNB, QIB and MAR at or below

    1% NPL. CBQ and DHB, on the other hand, did see a rise in non-performing loans in FY09/10,

    and have paid the price in terms of risk costs. CBQs risk costs already dropped significantly

    in FY10, but we see scope for the bank to further lower these by around 10bps to 40bps of

    net loans. Investment provisions should also fall, contributing to better earnings. For DHB this

    trend is likely to be more pronounced we expect it to lower its risk costs by around 20bps

    to 90bps of net loans. Lower investment provisions should also help to boost earnings

    further. We believe lower risk-cost dynamic will not impact QNB, MAR or QIB, as we thinkthese names are elsewhere on the asset quality cycle.

    What has changed?