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Saudi Banks Sector<br />
Banks –Finance<br />
6 April 2017<br />
demand deposits and 4% of time deposits. Thus, even if the Saudi government issues<br />
domestic bonds, the banking system would have the ability to absorb it without squeezing<br />
liquidity.<br />
c) Moreover, Banks have sufficient liquid assets (in the form of investments) over and above<br />
the required 20% of deposits they are required to maintain.<br />
Valuation and risks: After moving up sharply in Q4 2016 on news of Govt payment of dues,<br />
the banking <strong>sector</strong> has thereafter declined in Q1 2017, (down 4.1% sequentially). In terms of<br />
valuations, the <strong>sector</strong> is currently trading at 1.2x FY2016 book value. However, if the<br />
government starts to pay its outstanding dues to companies, it could lead to repayment to<br />
banks, which may result in reversal of provisions and act as a catalyst for the banking <strong>sector</strong><br />
stocks.<br />
Figure 3 Performance of Bank <strong>sector</strong> vs. TASI<br />
Figure 4 ROE (avg. last 4 quarters) vs. P/B (12m forward)<br />
110.0<br />
105.0<br />
100.0<br />
95.0<br />
18.0%<br />
16.0%<br />
Title:<br />
Source:<br />
NCB<br />
Al Rajhi<br />
Please fill in the values above to have them entered in your report<br />
90.0<br />
85.0<br />
80.0<br />
75.0<br />
14.0%<br />
12.0%<br />
SABB<br />
ANB BSF Samba<br />
Aljazira<br />
Albilad<br />
70.0<br />
65.0<br />
60.0<br />
10.0%<br />
8.0%<br />
SIB<br />
Riyad<br />
Alawwal<br />
Alinma<br />
Banks TASI<br />
6.0%<br />
0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2<br />
Source: Bloomberg, Al Rajhi Capital<br />
Source: Bloomberg, Company data, Al Rajhi Capital<br />
Disclosures Please refer to the important disclosures at the back of this report. 3