Higher margins to boost earnings of Saudi banks: NCB Cap

Saudi Arabia's banking sector is witnessing a turnaround, as bottom lines will remain strong supported by increasing net interest margins (NIMs) and macro-economic recovery, NCB  Capital said in its latest report on Monday.

"We believe the sector’s near-term profitability will be a function of better margins," it added.

Last year, the Saudi Arabian Monetary Authority (SAMA), the Kingdom's central bank, raised interest rates by 100 basis points following the moves of the US Federal Reserve.

"SAMA is expected to continue mirroring the Fed's rate direction, with at least one more rate hike of 25 basis points anticipated in 2019. This would be positive for Saudi banks' NIMs given the higher contribution of NIB deposits," the report said.

The consultancy expects NIMs to expand in the range of 18-36 basis points this year.

Al Rajhi remains the major winner in the long-run due to ample availability of NIBs, while Samba and Banque Saudi Fransi (BSF) may see faster book repricing, due to their larger exposure to the corporate sector.  It, however, believes that all the three will manage to keep their cost of funds low due to lower loan-to-deposit ratios

NCB Capital assigned "overweight" rating to Al Rajhi, Samba and BSF, setting target prices at SAR 111.3, SAR 40.6 and SAR 39.8 respectively, while Alinma was given a "neutral" rating with a target price of SAR 23.8.