Saudi banks to post strong profit growth in H2: SICO

Saudi banks are expected to report profit growth between 22 and 25 percent year-on-year (YoY) in H2 2017, backed by robust core performance due to higher net interest margins (NIM) and a decline in provisioning charges, Bahrain-based SICO said in a report on Tuesday.

All banks under coverage are likely to maintain the current level of dividends, which increased to 45 percent in H1 2017 from 29 percent in the same period last year.

"We expect banks to sustain a dividend payout ratio of 50-55 percent, especially in the current environment of modest balance sheet growth," said Chiradeep Ghosh, analyst at SICO.

Meanwhile, the strong reliance on core income would ensure lower earnings volatility.

In the medium term however, stable asset quality, deleveraged balance sheet, and favorable interest rate environment present a strong case for the medium term, the investment bank added.

SICO recommended a "buy" rating on Arab National Bank (target price: SAR 30), the National Commercial Bank (target price: SAR 60) and The Saudi British Bank (target price: SAR 30), naming them as its top picks in the sector.

Meanwhile, it assigned a "sell" rating on Samba Financial Group and Alinma Bank, setting their price targets at SAR 25.5 and SAR 17.5, respectively.