Samba, SABB, ANB top picks among banks, says Saudi Fransi Cap

The Saudi banking sector underperformed Tadawul All-Share Index (TASI) in Q4-2015, due to investor concerns about liquidity and credit, Saudi Fransi Capital said in a recent report on Wednesday.

The brokerage affirmed its “buy” rating on Samba Financial Group, The Saudi British Bank and Arab National Bank (ANB) at the same target price, naming them as its top picks in the sector though unfairly priced by the market.

In addition, it maintained “hold” recommendation on Bank Albilad, Alinma Bank, Al-Rajhi Bank, National Commercial Bank (NCB) and Saudi Hollandi Bank (SHB).

It kept a “sell” rating on Bank AlJazira, Riyad Bank and The Saudi Investment Bank (SAIB) with the target price unchanged.

Local banks are facing challenges of lower net interest margin (NIM) and higher cost of risk. However, since NIMs will likely see growth over the next years, the market is under-valuing the sector, the report said.

Deposits will continue slowdown in the fourth quarter. Credit growth is forecast to be dampened by tightened lending amid tough economic conditions and slumping oil prices along with higher provisions for the same period, the brokerage added.