Qatar Bank Stocks Expensive Even After Losing $7 Billion in 2017

  • Banks’ estimated P/E multiple higher than Saudi, U.A.E. peers
  • Qatar banks’ growth seen slowing amid diplomatic standoff

Qatari bank stocks are more expensive than their Saudi or Emirati peers, even after suffering their biggest year-to-date loss in more than a decade.

The nation’s nine lenders trade at almost 11 times projected earnings, according to data compiled by Bloomberg. That compares with 10.5 and 9 for peers in Saudi Arabia and the United Arab Emirates, which cut diplomatic and trade ties with the Gulf nation in early June over alleged support of terrorism.

Some overseas banks withdrew funds from Qatar in the wake of the spat, fueling a 12 percent drop in a Bloomberg generated stock index of Qatar’s nine lenders this year and wiping out about $7 billion from their total market capitalization.

The valuations aren’t “justified” and the shares “have further room to correct downward,” said Jaap Meijer, the head of research at Dubai-based investment bank Arqaam Capital Ltd.. The risks may not have reflected in the banks’ results yet, but “funding costs are rising -- that will put pressure on margins and loan growth will be a lot slower.”

The gauge is a market capitalization weighted index of Qatari lenders generated by Bloomberg.

The row has aggravated a liquidity squeeze for banks in the world’s biggest liquefied natural gas exporter, where foreign cash accounted for nearly a quarter of deposits. It sent the country’s three-month interbank offered rate in July to a record.

The Qatar banking gauge’s loss this year contrasts with an almost 10 percent gain for a measure of Saudi lenders and a 22 percent advance for a MSCI Inc. index of emerging-market lenders.

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Still, second-quarter earnings were resilient, given the circumstances. Qatar National Bank reported a 2 percent rise in profit to 3.45 billion riyals ($934 million), while Qatar Islamic Bank SAQ posted an 8 percent increase and Doha Bank QPSC a 1 percent decline.

Higher valuations in Qatar might be explained by low active foreign institutional ownership in the shares, while local institutions have also supported the market since June, said Elena Sanchez-Cabezudo, a managing director at brokerage EFG-Hermes U.A.E. Ltd. in Dubai.

Average shareholding of foreigners in Qatari banks is about 10 percent compared with about 15 percent in the U.A.E., according to data compiled by Bloomberg.

If the standoff with a Saudi-led coalition persists, Qatari banks “should suffer valuation downgrades,” said Sanyalak Manibhandu, the head of research at Abu Dhabi’s NBAD Securities LLC, adding he may cut his ratings on market leader Qatar National Bank and four other lenders later this month.

Read More: Phone Call Meant to Ease Qatar Crisis Sparks a New Problem

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