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Saudi Banks Offer ‘Buying Opportunity’ on Valuation, Arqaam Says

Banks in Saudi Arabia, the Arab world’s biggest economy, offer a “buying opportunity” after underperforming the benchmark stock index, Arqaam Capital said.

Saudi Arabian banks have a price-to-earnings ratio of 11.8 times compared with 14.3 times for the benchmark Tadawul All Share Index (SASEIDX) and more than 16 for the MSCI World/Financials Index. (MXWOOFN) Saudi Hollandi Bank (AAAL), Samba Financial Group, Arab National Bank (ARNB) and Riyad Bank (RIBL) offer the highest upside in Saudi Arabia, Jaap Meijer, Dubai-based Arqaam analyst, said in an e-mailed note today. The banks “have de-rated and now offer compelling value,” he said.

Shares of Saudi banks have underperformed the benchmark index even as loan growth in the country climbs at the fastest pace in more than three years. Profit growth at the nation’s banks probably slowed to 8.7 percent in the third quarter, Arqaam said. Cumulative profits expanded 23 percent in the first quarter and 15 percent in the second, according to central bank data.

The Saudi banking index decreased 1.3 percent in the third quarter compared with a 1.9 percent advance for the Tadawul All Share Index. The banking gauge fell 0.6 percent at the close in Riyadh today.

Saudi Arabia’s $597 billion economy will grow 5.1 percent this year, the second-fastest pace in seven years, according to the median forecast of 17 economists compiled by Bloomberg. Credit growth increased almost 15 percent in August as banks extended loans to real estate and petrochemical projects amid government plans to invest more than $500 billion on infrastructure.

Arqaam has a buy rating on Samba Financial Group (SAMBA), Saudi Hollandi Bank, Arab National Bank and Riyad Bank, according to data compiled by Bloomberg. Al-Rajhi Bank (RJHI), the country’s biggest bank by market value, and Bank Albilad (ALBI) are also rated buy at Arqaam, while Alinma Bank (ALINMA) has a hold recommendation.

To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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