financials - Bank Audi

COVERED BANKS 

Samba Financial Group Buy 

Current Price (SAR) 47.6 

Fair Value (SAR) 62.4 

Upside Potential 31% 

Al Rajhi Bank Buy 




Saudi British Bank Accumulate 




Banque Saudi Fransi Accumulate 




Riyad Bank Accumulate 




Arab National Bank Accumulate 




Saudi Hollandi Bank Accumulate 




Bank al Bilad Hold 




Bank al Jazira Hold 




Alinma Bank Accumulate 




SECTOR COVERAGE 

Wael Chalak, CFA 

Associate 

Wael.Chalak@asib.com 

Ghida Barbari 

Ghida.Barbari@asib.com 

Youssef Nizam, CFA 

Head of Equity Research 

Youssef.Nizam@asib.com 

August 24, 2012 

EQUITY RESEARCH 

ENTITY OF AUDI SARADAR GROUP SAUDI BANKS 

SAUDI BANKS: GROWTH OUTMATCHES VALUATIONS 

Despite a tougher global environment, Saudi banks fundamentals have improved since our initiation 

report on September 2011, with higher than expected loan growth and non-interest income 

feeding into rising ROEs. The implied sector sustainable ROE by the market now stands at 15.0%, 

which is even lower than our 2012 expected average, where benchmark interest rates remain at 

the lower end of the cycle. If we assume that the market is adopting a rational risk premium (12% 

average), it implies that either interest rates are seen to hold at current levels in perpetuity or that 

the industry is expected to fully mature in over 5 years, 2 outcomes that are highly improbable in 

our opinion. Given their strong fundamentals, we believe the banks are waiting for a risk-on window 

that will lead to a re-rating in valuations. 

With Europe’s issues weighing on the global banks, we have seen the local banks stepping in as 

the internationals deleveraged. Fundamentally, the KSA banks are fairly defensive to Europe’s crisis, 

with the sector’s loan exposure to Europe standing at 0.5% of total loans. Asset quality remains 

intact while lending is largely supported by a momentum in project finance, mortgage lending, 

and strong retail activity. We view the KSA banks approaching their valuation floors, offering a good 

entry/accumulation point. 

LOAN GROWTH STRONGER ON SYNDICATIONS AND MORTGAGES 

Saudi lending is expected to continue its robust momentum with global banks pulling out of the 

kingdom and government spending channeling into the retail sector. The recent approval of the 

mortgage law will also provide a credit boost over the medium to long term. We expect loan growth 

to reach 16.7% and 14.3% for 2012 and 2013 respectively. 

NET INTEREST MARGINS BOTTOMING 

The KSA banks have been facing downward pressure on their NIMs driven by the re-pricing of the 

old high yielding portfolio. The negative impact from the re-pricing will be mostly offset by higher 

loan growth, skew into retail lending and higher proportion of demand deposits (though limited). 

We expect sector NIM to contract by a further 5bps in 2012 before rebounding in 2013. 

ASSET QUALITY REMAINS SOLID 

The sector asset quality trends have stabilised, with its NPL ratio already declining to 2.1% and a 

coverage ratio above 147%. Exposure to Europe can only cause a material effect in the event of a 

total write-off, which we deem as unlikely. Locally, single name exposure remains the key risk. 

VALUATIONS ATTRACTIVE POST CORRECTION 

Saudi banks valuations have declined by an average of 18% from their recent peak. The sector, 

excluding Rajhi, currently trades at 1.46x 2012E book value on an expected 2012 ROE of 15.6%. Valuation 

is in line with Emerging Markets banks (trading at 1.39x PB 2012E), however the sector trades 

at a steep discount to its historical PB levels. In our opinion, the valuations for the Saudi banks are 

again attractive. 

TOP PICKS AND COVERAGE ADDITIONS 

Our top picks are Al Rajhi Bank, Arab National Bank and Samba. We favor banks with strong loan 

growth potential, attractive valuation and robust capital base. We also add Al Bilad, Al Jazira and 

Alinma to our universe. 

VALUATIONS 

Price 2012E Div Yield PB 12E PE 12E PE 13E ROE 12E 2012 EPS Growth 2013 EPS Growth 

Samba 47.6 3.8% 1.39 9.3 8.2 15.5% 7% 14% 

Rajhi 73.5 4.8% 3.27 13.5 11.9 24.5% 19% 14% 

SABB 32.9 3.0% 1.63 9.8 8.6 17.1% 16% 14% 

BSF 32.9 3.6% 1.33 9.5 8.2 15.3% 6% 16% 

Riyad 23.0 5.0% 1.10 9.4 8.1 11.6% 17% 15% 

ANB 29.0 3.4% 1.40 9.5 8.4 14.6% 19% 13% 

SHB 27.5 3.6% 1.36 9.0 7.9 13.6% 16% 15% 

Al Bilad 31.0 0.0% 2.15 11.0 14.0 21.7% 42% 42% 

Al Jazira 28.3 1.9% 1.60 16.0 11.7 10.1% 75% 37% 

Alinma 13.5 0.0% 1.24 31.0 21.9 3.9% 52% 42% 

1

August 24, 2012 

TABLE OF CONTENTS 

INVESTMENT CASE 


SAUDI BANKS 

Improved Fundamentals on Low Valuations 3 

Retail Oriented Market Could Cap Short Term Upside 4 

Summary of Fair Value Changes and Coverage Additions 4 

Relative Valuations 4 

Valuation Catalysts 5 

Valuation Methodology 6 

Valuation Key Risks 6 

How We Differ from Consensus 6 

Top Picks 6 

SECTOR OUTLOOK 

Exposure to Europe : How Immune are the KSA Banks ? 8 

Loan Growth Benefits From Global Deleveraging 9 

Mortgage Law Approval Boosts The Longer Term Outlook 10 

Retail Lending Still Gaining Pace 13 

Favorable Liquidity Adds Support to Lending Momentum 14 

Loan Growth Projections 14 

The Effect of Brokerage and Proprietary Trading 15 

Net Interest Margins Bottoming 17 

Asset Quality Stays Solid 18 

BANKS SECTION 

Samba Financial Group 19 

Al Rajhi Bank 22 

Saudi Arabian British Bank 25 

Banque Saudi Fransi 28 

Riyad Bank 31 

Arab National Bank 34 

Saudi Hollandi Bank 37 

Bank Al Bilad 40 

Bank Al Jazira 43 

Alinma Bank 46 

2

August 24, 2012 

INVESTMENT CASE 

IMPROVED FUNDAMENTALS ON LOW VALUATIONS 


SAUDI BANKS 

Over the last 4 months, the Tadawul Banking Index PE multiple declined by 18% from its recent peak 

on Europe’s economic concerns. At the same time, sector fundamentals have in fact improved with 

banks ROEs lifted by a rising lending momentum and stronger non-interest income. 

Chart 1: Tadawul Banking Index P/E 

Source: Bloomberg 

Sector fundamentals have re-rated as lending picked up, asset quality stabilized and NIMs approached 

their floors. Saudi banks are now replacing the international banks in the project finance 

space, as global banks face pressure on their capital ratios in the midst of concerns over a European 

crisis. Government spending and the recent approval of the mortgage law are also backing up retail 

lending as consumers capacity to borrow increases. As of Q1-12, the sector NPL has reached 2.1% 

with an NPL coverage ratio of 147%, reaffirming the sector’s solid asset quality. Pressure on NIMs has 

also eased, with most of the high yield investment portfolio already re-priced on new terms. We do 

not expect major pressure from loan re-pricing as corporate lending in KSA is 80% driven by working 

capital needs and project finance share of total lending is only starting to become significant. 

In our view, a widening gap between valuations and ROE coupled with a sounder sector outlook 

creates an opportunity for entry /accumulation point. We note that the gap between the sector’s 

price to book and its ROE is the largest since March 2009 lows. 

Chart 2: Saudi Banking Sector PB - ROE 

Source: Bloomberg, ASIB research 

3

August 24, 2012 

RETAIL ORIENTED MARKET COULD CAP SHORT TERM UPSIDE 


SAUDI BANKS 

During the first half of 2012, the risk-on trade has pushed the Tadawul volumes into levels not seen 

since 2007, with many investors accessing sizeable leverage positions. Heavy buying has certainly 

supported the market on the upside with a 25% rise in the first 3 months of the year. On the flip side, 

leverage has also triggered heavy selling on the correction, leaving speculators and short term 

traders financially scarred. This recent experience could cap the upside for the banks over the short 

term; however with robust fundamentals in place, Saudi banks are well placed for an upturn. 

SUMMARY OF FAIR VALUE CHANGES AND COVERAGE ADDITIONS 

In general fair values have been adjusted upwards on higher growth and better ROEs (with the 

exception of Riyad Bank and Banque Saudi Fransi). Saudi Hollandi Bank has witnessed a major rerating 

since last year, mainly on improved asset quality and better NIMs. We add 3 banks to our 

coverage universe, being Bank Al Bilad , Bank Al Jazira and Alinma Bank. 

• We initiate on Al Bilad with a Hold rating. Al Bilad has shown superior strength in retail growth 

and in the remittance business. However trading at 2.15x PB 2012E, we believe the bank’s 

upside is capped relative to peers. 

• Bank al Jazira is skewed to investment banking activities, with Al Jazira Capital holding the 3rd 

largest brokerage market share in KSA and making a significant contribution to the bank’s 

earnings. Al Jazira is well positioned to outperform in a risk-on environment. However given 

current market uncertainty and the fact that it trades at 1.60 times 2012E book value, we 

initiate on Al Jazira with a Hold rating. 

• Alinma Bank is an upcoming Islamic bank that managed to capture 3.1% lending market share 

since it started operating. In a similar way to Al Rajhi, the bank enjoys a cheaper than peers cost 

of funds, allowing it to price competitively. The bank is trading at 1.24x 2012E book value and 

PE13E of 21.9x, which in our view is partially capturing its upside; hence our Accumulate rating. 

Table 1: Fair Value Changes and Earnings Comparison to Consensus 

Old Fair 

Value 

New Fair 

Value 

% Change Upside/ 

Downside 

ASIB 12E 

EPS 

ASIB 13E 

EPS 

ASIB 14E 

EPS 

Cons. 12E 

EPS 

Cons. 13E 

EPS 

Cons. 14E 

Samba 59.8 62.4 4% 31% 5.09 5.80 6.56 5.00 5.70 6.70 

Rajhi 91.2 95.8 4% 30% 5.46 6.20 7.08 5.30 6.24 7.12 

SABB 36.8 38.7 5% 18% 3.36 3.83 4.45 3.13 3.66 4.26 

BSF 42.2 41.2 -2% 25% 3.44 3.99 4.57 3.30 3.95 4.41 

Riyad 29.3 28.4 -3% 23% 2.45 2.83 3.27 2.30 2.70 3.20 

ANB 35 36.4 4% 26% 3.03 3.43 3.88 2.80 3.50 4.00 

SHB 25.1 32.1 28% 17% 3.15 3.56 4.03 3.00 3.30 3.70 

Bilad na 31.2 na 1% 2.80 2.21 2.52 3.03 2.31 2.72 

Jazira na 30.8 na 9% 1.77 2.42 3.00 1.62 2.11 2.68 

Alinma na 15.6 na 16% 0.43 0.62 0.94 0.42 0.68 1.07 

Source: Bloomberg, ASIB estimates 

RELATIVE VALUATIONS 

Excluding Al Rajhi Bank, the Saudi banks currently trade at a PB 2012E of 1.46x, PE 2012E of 9.8x and 

PE 2013E of 8.5x with a sector ROE of 15.6%. If we were to include Al Rajhi bank, sector valuation 

reaches a PB 2012E of 2.25x, PE 2012E of 11.6 x and PE 2013E of 10.8x with a sector ROE rising to 

19.1%. 

We are of the opinion that current valuations for the Saudi banks do not reflect their robust 

fundamentals. We acknowledge the rationale behind the recent de-rating for KSA banks as risk 

premiums have increased on global concerns. However, we believe the KSA banks ROEs have 

achieved stability and we are witnessing a widening gap between valuation and profitability that 

creates buying opportunities. 

EPS 

4

August 24, 2012 


SAUDI BANKS 

Due to stronger capital adequacy and higher operational profitability, the Saudi banks have traded 

at a premium to their emerging markets counterparts in the past. However, valuation differentials 

have narrowed recently. 

Chart 3: Relative Banking Sector Valuations 


The Saudi banks are now trading at a steep price to book discount to their 5 year historical average of 

3.4x, which in our opinion is not justified, notwithstanding a recent increase in global risk premium. 

We note that Saudi banks ROEs have turned the corner with fees and commissions rising on surging 

lending and trading volumes, while net interest margins seem to have stabilised. 

Table 2: Saudi Banks Valuation Summary 

Price Fair 

Value 

Upside 

Potential 

2011 Div. 

Yield 

PB 12E PE 12E PE 13E ROAE 

12E 

2012 E EPS 

Growth 

2013 E EPS 

Growth 

Samba 47.6 62.4 31% 3.8% 1.39 9.3 8.2 15.5% 7% 11% 

Al Rajhi 73.5 95. 30% 4.8% 3.27 13.5 11.9 24.5% 19% 12% 

SABB 32.9 38.7 18% 3.6% 1.63 9.8 8.6 17.4% 16% 14% 

BSF 32.9 41.2 25% 3.6% 1.33 9.6 8.2 15.3% 6% 16% 

Riyad 23.0 28.4 23% 5.0% 1.10 9.4 8.1 11.6% 16% 15% 

ANB 29.0 36.4 26% 3.4% 1.40 9.6 8.5 14.3% 19% 13% 

SHB 27.5 32.1 17% 3.6% 1.36 9.1 7.9 13.6% 16% 15% 

Al Bilad 31.0 31.2 1% 0.0% 2.15 19.9 14.0 12.1% 42% 42% 

Al Jazira 28.3 30.8 9% 1.9% 1.72 16.0 11.7 10.1% 75% 37% 

Alinma 13.5 15.6 16% 0.0% 1.24 31.0 21.9 2.7% 52% 42% 


VALUATION CATALYSTS 

Going forward, the key catalysts in our opinion will be: 

• Return to risk-on environment triggered by a better outlook on global markets. This will lower 

the market’s implied discount rate and improve KSA banks profitability through brokerage 

income and profits on equity investments. 

• Saudi banks accelerating their pace in the syndications space. KSA banks have largely replaced 

international banks in financing projects since the beginning of the year. We believe a stronger 

foothold in this domain will push loan growth above our base case scenario. 

• An increase in the access to long term funding markets, allowing banks to be well placed from 

an asset-liability management perspective for project finance and mortgage lending. 

5

August 24, 2012 


SAUDI BANKS 

VALUATION METHODOLOGY 

We value the Saudi banks using the sustainable ROE approach cross-checked with the dividend 

discount model with the exception of Alinma Bank, where we rely solely on the sustainable ROE 

model. Our estimates have a five year forecast period with a terminal value in the fifth year. We 

derive the cost of equity by using the capital asset pricing model while taking into account the 

political and socio-economic environment. Our discount rate of 12% takes into account the current 

state of global markets, leading to a higher investor risk premium . We apply a perpetual growth rate 

of 5% on the terminal value. 

VALUATION KEY RISKS 

Key risks to our fair value estimations for the covered banks are: 

• Further deterioration in Europe’s debt crisis. The direct impact on the KSA banks is limited given 

the modest exposure on the books, however the indirect repercussions will result in heavier 

consequences. 

• Slower than foreseen global growth from the rest of the world (mainly US and BRICS), hence 

causing a slowdown in commodities demand (including oil). 

• A blow up in any large single name exposure. 

• A faster than expected mortgage penetration is an upside risk to our valuations. 

HOW WE DIFFER FROM CONSENSUS 

Our earnings estimates are relatively in line with consensus. In terms of loan growth we are less 

bullish on growth emerging from the mortgage law. Our NIM estimates are slightly more bullish, 

however our ROEs are at the low end of consensus as we assign higher capital ratios in general. 

TOP PICKS: AL RAJHI, ANB AND SAMBA 

Al Rajhi: superior profitability more than justifies premium valuation 

Al Rajhi Bank is the most profitable bank within KSA with a 2012E ROE of 24.5%, well above the 

average ROE of 15.6% for the rest of the Saudi peers. Al Rajhi enjoys a cheap funding base with short 

term deposits constituting about 90% of its total deposit base. With 2 thirds of its total loans in retail, 

Al Rajhi’s yield on assets is evidently higher than the rest of the Saudi banks, which carry a more 

corporate skewed loan book. We expect the recent strength in retail lending to continue to support 

Al Rajhi’s profitability. Over the last 2 years, Al Rajhi’s liquidity remained adequate with its current 

loan to deposit ratio reaching 85%, providing itself with a strong platform for future growth. Al Rajhi 

trades at a PB 2012E of 3.27x, a premium of 42% to the Saudi market weighted average PB 2012E of 

2.25x. Al Rajhi’s premium valuation, in our opinion, is more than justified by its superior profitability 

and strong growth outlook. 

Arab National Bank: attractive valuation / growth profile 

ANB is within top players in the retail Saudi market which has supported its NIM over the years. The 

bank has largely addressed its previous asset quality concerns with its NPL now declining to 2.13% 

on an NPL coverage of 159%. The bank is well established to grow in both the retail and corporate 

space, now that asset quality concerns have been dealt with. Y-o-Y the corporate book has grown 

by12% while the retail book has grown by 20%. We forecast earnings growth for ANB of 19% and 

13% for 2012 and 2013 respectively. The bank trades at a PB2012E of 1.40x, 10% below its 2 year 

average. On a PE basis, the bank is valued at 9.6x 2012E a 6% discount to peers. We raise ANB’s fair 

value to SAR 36.4 given its improved fundamentals. 

6

August 24, 2012 


SAUDI BANKS 

Samba: widening valuation discount 

In our opinion, Samba’s valuation remains discounted. The stock underperformed its local peers 

mainly due to weak loan growth. Samba’s results revealed solid strength on many aspects however, 

the bank is leading on asset quality improvement with its NPL ratio dropping from 3.70% to 2.45%. 

Growth is below sector average, nonetheless the bank managed to deliver a 6.8% increase in gross 

loans and advances over the last 6 months. The liquidity profile has certainly improved with the loan 

to deposit ratio increasing from 59% to 68% Y-o-Y. Samba’s loan exposure to Europe is not higher 

than its peers (at 0.5% of total assets), however the bank holds 2.8% of total assets under European 

investments. The bank’s discount to the sector has recently widened with the bank trading at a PB 

2012E of 1.39x, a 7% discount to the comparable Saudi banks despite comparable ROEs. 

7

August 24, 2012 


SAUDI BANKS 

EXPOSURE TO EUROPE : HOW IMMUNE ARE THE SAUDI BANKS? 

KSA lending exposure to Europe accounts for 0.5% of system total lending. The majority of these 

loans were granted to established corporates with solid financial health. According to the pillar 3 

disclosure, the Saudi banks are also exposed to Europe through the investment portfolio with Riyad 

bank, Samba and Arab National Bank being the most exposed. While the combination of the above 

is less than 3% of system’s total assets, the KSA banks may need to raise capital in the event of heavy 

write-downs on European exposures. 

Table 3: Banks Portfolios Exposure to Europe (% of Total Assets) 

Loans Investments Total 

BSF 0.5% 0.5% 1.0% 

Samba 0.5% 2.8% 3.3% 

SABB 0.0% 0.3% 0.3% 

SHB 0.0% 0.2% 0.2% 

ANB 0.3% 3.0% 3.3% 

Riyad 0.5% 5.3% 5.8% 

Jazira 0.0% 0.3% 0.3% 

Source: Saudi Banks 2011 Financial Reports (Pillar III) 

We analyze below the percentage of equity needed to be raised on 10%, 20% and 30% write-downs 

of European exposure. We have excluded Al Rajhi, Al Bilad and Alinma from the analysis below as 

there are no direct European exposure on their lending or investment books. 

Chart 4: Percentage of reduction in equity to be on write down of European Exposure 


We note that the latest disclosures available on this topic are as of 31 December 2011. Since then, 

exposures may have changed, especially when considering that certain banks have reduced their 

investments. 

8

August 24, 2012 


SAUDI BANKS 

LOAN GROWTH BENEFITS FROM GLOBAL DELEVERAGING 

In spite of global economic concerns, net loan growth in KSA has accelerated from an annual 

10.4% in 2011 to 16.4% in June 2012. The pick up in lending was driven by a step-in from the KSA 

banks to replace internationals as deleveraging persists. The share of KSA banks of total project 

finance has increased from a 5th of the pie to almost a third. Data from the Bank of International 

Settlements (BIS) reveals that there remains $44bn of lending in KSA by European banks, equating 

to approximately 18% of KSA banks lending, hence providing a sizeable opportunity in the event 

of further deleveraging. The banks in KSA were the biggest loan arrangers in the MENA region 

accounting for approximately 45% of total loans. 

Subsidized loans are also retracting, lending by the kingdom’s Public Investment Fund and the 

Saudi Industrial Development Fund dropped 16% and 40% respectively in 2011, according to data 

published by SAMA. 

The projects portion financed by KSA banks in 2012 and 2013 is estimated at 4.5% of current Saudi 

banks lending. We note below the list of upcoming projects which the Saudi banks will be partially 

financing: 

Table 4: List of Upcoming Saudi Projects for 2012 and 2013 

Project Owner Expected Financing Value ($bn) Amount Financed By Local Banks 

Sadara Aramco 2012 20 2.7 

Yanbu Refinery Aramco 2012-2013 10 2.1 

Al khabra Phosphates Maaden 2013 6 1.1 

Elastomers Project SABIC 2012-2013 5 1.1 

KAEC Heavy Steel Complex Al Rajhi Steel 2012 4 0.9 

Medina Airport GACA Jun-12 1.5 0.15 

Clean Fuels Project Aramco - Mobil 2012-2013 na na 

Lube Oil Refinery Luberef 2nd Half 2012 na na 

Mecca Hotels and Shops Jabal Omar 2012-2013 1.3 1.3 

Source: MEED, Bloomberg, ASIB Analysis 

We apply below some sensitivities revealing the potential growth for KSA banks stemming from 

market share gains in the project finance market. 

Chart 5: Loan Growth Sensitivity to Project Finance Share 


9

August 24, 2012 


SAUDI BANKS 

MORTGAGE LAW APPROVAL BOOSTS THE LONGER TERM OUTLOOK 

Specifics in regards to the mortgage law are yet to come, nevertheless the recent approval paves 

the way for banks to diversify their lending over the long term. We are not expecting a rush from 

the banks into mortgages, as many obstacles remain in place for a robust framework to formulate. 

We note the below factors that are likely to delay a major short term jump in mortgage lending: 

• Most real estate developers currently target high end customers that are not dependent on 

mortgages. Moving to a lower tier will require a new construction cycle which will take time. 

• The new demand will cause a lift in property prices, hence capping affordability. 

• Banks funding is short term while mortgage lending is long term, hence creating an assetliability 

mismatch. A solution would be the creation of a real estate SPV structured by the banks. 

• The banks will need some time to test the new model on the ground. 

• KSA home buyers targeting home purchases beyond their affordability. 

Currently, mortgage loans only equate to approximately 3.5% of total loans and 12.5% of retail 

loans, nevertheless the banks have witnessed decent growth levels in housing loans post the Global 

Financial Crisis ( 20% CAGR from 2008 to 2011). 

The opportunity in mortgage lending remains sizeable for the Saudi banks with penetration levels 

deemed largely low in a global context. 

Chart 6: Mortgages to GDP 

Source: Central Banks, ASIB estimates 

Currently Al Rajhi Bank and SABB dominate the current mortgage lending market, while Arab 

National Bank and Saudi Hollandi Bank can largely improve their market shares. 

Table 5: Saudi Banks - Mortgage Market Share (2011) 

Bank Mortgage Market Share 

Al Rajhi 30.1% 

SABB 16.8% 

Riyad 12.9% 

Samba 11.4% 

Al Jazira 8.1% 

BSF 7.2% 

Al Bilad 4.9% 

ANB 2.7% 

SHB 0.8% 

Alinma 0.0% 

Source: Financial Reports, ASIB estimates 

10

August 24, 2012 


SAUDI BANKS 

With mortgages making a small portion of total loans, growth in mortgages will need to be sizeable 

in order to have a material effect on the banks total loan growth, as seen below at different scenarios: 

Table 6 : Total Loan Growth Sensitivity to Mortgage Growth 

At 20% growth At 50% growth At 100% growth 

Al Bilad 1.92% 4.81% 9.61% 

Al Jazira 1.89% 4.73% 9.46% 

Al Rajhi 1.16% 2.91% 5.82% 

SABB 1.08% 2.70% 5.40% 

Samba 0.72% 1.81% 3.61% 

Riyad 0.66% 1.66% 3.32% 

BSF 0.43% 1.09% 2.17% 

ANB 0.21% 0.52% 1.05% 

NCB 0.19% 0.46% 0.93% 

SHB 0.11% 0.29% 0.57% 

Total 0.70% 1.71% 3.51% 

Source: Financial Reports, ASIB estimates 

The sensitivities above demonstrate that the Islamic banks benefit more than the conventional 

banks from every 1% rise in their mortgage portfolios more, with Al Bilad and Al Jazira leading due 

to their mortgage skewed loan book. 

ASSESSING THE LIKELY IMPACT ON LOAN GROWTH AND PROFITABILITY 

While the impact of the mortgage law will take time to become fully effective, we provide a base 

case scenario on the incremental lending and profitability emerging from the law’s approval. Our 

core assumptions for this base case scenario are: 

• 175 thousand units built each year. 

• Average unit value of SAR 750k. 

• Two from every 3 units will require finance from the banks. 

• Average loan to value ratio of 80%. 

• An average NIM of 2.5%. 

• Cost of Risk of 30bps. 

Should such a scenario materialise, our analysis shows that system lending could increase by an 

incremental 7.9%, while earnings will be lifted by an additional 3.9%. We note that as non-mortgage 

loans grow, the effect of the mortgage law on total loan growth becomes of decreasing scale. 

On the individual level, we assess the incremental earnings growth under 2 scenarios: 

• Scenario 1: If new loans emerging from the mortgage law are shared across all banks according 

to their current mortgage lending market shares. 

Chart 7: Incremental EPS Growth Based on Maintaining Mortgage Market Share 


11

August 24, 2012 


SAUDI BANKS 

• Scenario 2: If new loans emerging from the mortgage law are shared across all banks according 

to their current total lending market shares. 

Chart 8: Incremental EPS Growth Based on Gaining Market Share Proportionate to Total Book 


We believe that banks with strong retail franchise will also hold a comparative advantage in 

mortgage lending. We compare the retail scale and efficiency of the Saudi banks: 

Table 7: Saudi Banks Retail Efficiency Comparison 

Number of 

Branches 

Retail Portfolio 

(SAR mn) 

Retail Loans / 

Branch 

Retail / 

Total loans 

Al Rajhi 454 85,327 188 60% 

NCB 295 39,623 134 28% 

Riyad 248 26,295 106 23% 

ANB 142 20,451 144 28% 

BSF 83 10,399 125 11% 

Al Bilad 82 5,515 67 40% 

SABB 80 16,051 201 19% 

Samba 69 17,188 249 19% 

Al Jazira 51 7,261 142 31% 

SHB 44 4,128 94 11% 

Alinma 37 4,270 115 17% 

Source: SAMA 

In reality, none of the scenarios above is likely to materialise exactly, but we believe that banks with 

scale, high existent mortgage market share and strong retail franchise are likely to build most on the 

new law. We highlight Al Rajhi, Al Jazira, Al Bilad from the islamic banks, SABB and Riyad Bank from 

the conventional banks. 

12

August 24, 2012 

RETAIL LENDING STILL GAINING PACE 


SAUDI BANKS 

Retail credit growth has been gradually recovering since the second half of 2009, post heavy 

deleveraging caused by the Global Financial Crisis. The government spending measures taken in 

2011 have boosted retail growth from 11% to nearly 20% in less than a year. This was due to increased 

salaries, higher borrowing capacity and ability to spend, lower rates as well as more Saudisation. 

The banks appetite for credit risk is also naturally increasing as NPLs decline and provision coverage 

ratios rise. 

Chart 9: Retail Loan Growth Has Outpaced Corporate Growth 


Chart 10: KSA Retail Loans to GDP vs Other Countries 

Source: Financial Reports, ASIB Estimates 

We believe that government spending, the potential approval of the mortgage law and improved 

lending appetite pave the way for retail credit to grow at higher than historical rates. We also see 

the retail window as an opportunity for banks to improve their NIMs in a period of sustained low 

benchmark rates. It’s worth noting that so far retail competition in KSA has capped this opportunity 

to a certain extent, with many banks pricing their new retail loans on low margins. 

13

August 24, 2012 

FAVORABLE LIQUIDITY ADDS SUPPORT TO LENDING 

MOMENTUM 


SAUDI BANKS 

Sector loan to deposit ratios (LDRs) remain low in a global context, leaving large room for Saudi 

banks to increase lending, with minimal need to access the wholesale markets or securitisation. 

LDRs in Saudi Arabia are lower than average LDRs in the UAE and Europe and well below the levels 

attained in the UK and Qatar. 

Chart 11: MENA and DM LDRs 


LOAN GROWTH PROJECTIONS 

We forecast a loan growth of 16.7% in 2012 declining to 10.0% by 2016. While new loans are expected 

to remain solid, we expect the percentage Y-o-Y growth to decline gradually as we do not factor 

sharp rises in new loans at this stage. Further deleveraging from the global banks and strong intake 

of mortgage lending are upside risks to our loan projections. On the other side, a deterioration in 

asset quality on any single name exposure would cause a drag on lending. 

Chart 12: Loan Growth Projection 


14

August 24, 2012 


SAUDI BANKS 

THE EFFECT OF BROKERAGE AND PROPRIETARY TRADING 

Rising volumes and rallying equity prices in Q1-12 raised the question of the impact of brokerage 

and proprietary trading on KSA banks profitability. Saudi banks dominate the local brokerage 

market, offering low commission rates in return for strong banking relationships. The biggest 

players are Al Rajhi Capital, NCB Capital and AL Jazira Capital. 

Chart 13: Brokerage Market Shares 

Source: SAMA, Tadawul , ASIB Estimates 

As at 31 December 2011, brokerage contributed to 2.75% of total operating income on average for 

the KSA banks , however for Al Jazira the contribution is substantially higher at 11.89%. We note that 

we expect the contribution of brokerage income to be higher going forward, given the volumes 

that we have witnessed so far in 2012. 

Table 8: Brokerage Income % of Total Operating Income 

Bank % 

Al Jazira 11.89% 

Samba 5.89% 

BSF 4.25% 

SHB 2.59% 

SABB 2.37% 

ANB 2.24% 

NCB 2.14% 

Al Rajhi 2.01% 

Al Bilad 1.68% 

Riyad 0.23% 

System 2.75% 

Source: Financial Reports 

Besides brokerage, the banks hold equity positions under their available-for-sale and held for 

trading portfolios. Changes in available-for-sale investments are recorded under equity unless 

realised, where they hit the income statement. Changes in held for trading investments feed directly 

into the P&L. 

15

August 24, 2012 


SAUDI BANKS 

We analyse below the effect on the banks earnings emerging from a 10% rise in the TASI as well as 

10% rise in traded volumes. 

Table 9: Effect on Earnings Assuming 10% Rise in Volumes and Prices 

Brokerage HFT investments Realisation of 10% AVS Securities Combined 

Al Jazira 9.96% 9.67% 9.83% 29.46% 

Al Bilad 1.47% 0.00% 8.25% 9.72% 

Samba 1.89% 0.23% 7.02% 9.13% 

ANB 0.98% 0.00% 4.00% 4.99% 

SABB 0.84% 0.00% 3.60% 4.44% 

BSF 1.34% 0.00% 2.64% 3.98% 

Riyad 0.10% 0.00% 3.78% 3.88% 

Al Rajhi 0.71% 1.07% 0.00% 1.78% 

SHB 1.06% 0.00% 0.39% 1.44% 

Alinma 0.00% 0.08% 0.74% 0.83% 

Source: ASIB Analysis, Financial Reports 

Al Jazira is the most correlated to equity markets, where a 10% rise in market prices and volumes 

adds on about 20% of EPS accretion (excluding any realisation on AVS securities). 

16

August 24, 2012 

NET INTEREST MARGINS BOTTOMING 


SAUDI BANKS 

Saudi banks yields continue to face downward pressure, but reduced cost of funds has minimized the 

impact on NIMs, as banks continue to shed their excess liquidity and increase the proportion of demand 

deposits. With most of the re-pricing already done, we believe NIMs have reached a stage of stability. 

Chart 14: Demand Deposits Proportion of Total Deposits 

Source: ASIB Analysis; Financial Reports 

While re-pricing of asset yields is unlikely to have a negative effect on NIMs going forward, KSA banks 

now have little room to witness a margin uptick coming from lower cost of funds. Most banks used their 

cheap sources of funding with demand deposits jumping from 47% of total funding in 2010 to 60% 

in June 2012. We also view the increased penetration in syndications as a negative catalyst on NIMs 

(syndications typically carry lower yields). Nevertheless, with change in the balance sheet mix into more 

lending and retail momentum still occurring, we expect NIMs to be supported from further contraction. 

Chart 15: Historical NIM 


Saudi Banks margins can be supported on the upside should lending keep on exceeding deposit 

accumulation. With sector’s loan to deposit ratios at 82% and liquid assets to total assets for most 

banks below 15%, we believe higher lending provides support for net interest margins. 

Table 10: Saudi Banks Liquidity Metrics 

LDR Cash & Net interbank to Total Assets 

Al Rajhi 82% 12% 

BSF 87% 12% 

Samba 66% 11% 

SABB 82% 14% 

SHB 84% 8% 

ANB 83% 1% 

Riyad 81% 7% 

Inma 129% 14% 

Al Jazira 72% 16% 

Al Bilad 66% 40% 


17

August 24, 2012 


SAUDI BANKS 

ASSET QUALITY STAYS SOLID 

The banks in KSA enjoy one of the best asset quality metrics regionally and globally with the 

sector average NPL ratio at 2.1% and the NPL coverage ratio at 147%. The majority of the decline 

in provisions has already occurred, paralleled with a sharp drop in past due loans. We believe asset 

quality has little room for improvement and is unlikely to be a major catalyst. Risk of asset quality 

deterioration is minimal, however there is a possibility of a rise in retail NPLs post the recent high 

growth period. 

Chart 16: Sector NPL and NPL Coverage 


We compare below the Saudi banks NPL ratios and NPL coverage ratios. 

Chart 17: NPL and NPL Coverage ratios 


We forecast the average Saudi banking sector NPL to decline to 1.9% in 2012 and 1.8% in 2013. A 

key risk to our projections is a deterioration in cash flow metrics in any high single name exposure. 

The current lending limit to a single party is at 25% of invested capital and reserves (previously at 

50%), which remains high in global standards and could cause a material effect in the event of any 

default. 

18

CURRENT PRICE SAR 47.6 

FAIR VALUE SAR 62.4 

RATING BUY 

Stock Data 

Ticker SAMBA AB 

Price 47.6 

Consensus Median Target 

Price (SAR) 

64.0 

Fair Value 62.4 


Market Cap (SAR m) 42,840 

Market Cap (USD m) 11,328 

Number of Shares (m) 900 

August 24, 2012 

HIGHLIGHTS 

Free Float 51% 

Av Monthly Liquidity (SARm) 228 

52 week High (SAR) 57.0 

Major Shareholders 

Name Holding 

Public Investment Fund 22.9% 

Public Pension Agency 15.0% 

GOSI 11.4% 

Public 

Source: Zawya 

50.7% 

Relative Share Price Performance 


SAUDI BANKS SAMBA 

SAMBA: MARKET VALUATION IMPLYING LOWER THAN FORESEEN ROE 

Samba’s valuation discount appears excessive if we take into account the recent recovery in loans. We 

believe that the share price did not fully reflect the loan growth recovery, nor the upcoming potential. 

LOAN GROWTH LAGS THE SECTOR BUT REMAINS STRONG 

Samba’s loan growth for the first 6 months of 2012 stood at 7.7% against an average of 10% for the 

Saudi peers. Samba has lost market share of new loans over the last 6 months, mainly to NCB, SABB 

and Arab National Bank. Y-o-Y however, the bank recorded a loan growth of 16.6% in line with peers 

average of 16.4%. We expect the bank’s focus on big ticket transactions to keep it among the main 

beneficiaries from the improved banking intermediation, especially in the building and construction 

sector. Samba can take advantage from its strong corporate relationships, with global banks leaving 

a lending supply gap in KSA. With 11% of current mortgages, the bank can also strengthen its growth 

with the latest approval of the mortgage law. We expect Samba to grow near the sector average at 

15.2% for 2012 and 13.3% for 2013. 

EASING PRESSURE ON NIM 

Samba’s re-pricing of its investment book has been a major drag in the past on its net interest margin. 

NIMs have recently stabilized now that most re-pricing has already occurred. We believe this provides 

Samba with an opportunity to generate strong EPS growth as lending picks up and margins bottom. 

STRONG FOOTHOLD IN BROKERAGE AND INVESTMENT BANKING 

Tadawul’s value traded has fallen by 20% in Q2-12 compared to Q1-12, nevertheless it remains 103% 

higher than average levels achieved in 2011. Samba Capital has a strong foothold in brokerage with 

9.7% market share. The investment banking arm is also very robust and has competed with global 

banks in M&A and ECM transactions. 

PROGRESS ON ASSET QUALITY 

Recent disclosures have shown an improving asset quality picture. Samba lifted its coverage ratio from 

121% in Q2-11 to 130% in Q2-12. The bank’s NPL has been showing improving trend since Q2-11, It 

decreased from 3.7% in Q2-11 to 2.4% in Q2-12. Despite this progress, the bank’s NPL is still above the 

sector’s average of 2.2%.This said, we believe that asset quality trends are broadly positive. 

OPTIMIZED LIQUIDITY/ LENDING MIX 

Samba is one of the most liquid banks in the MENA region, with a loan to deposit ratio at 68%. The 

bank is being active on optimizing its asset-liability structure. We note that the LTD ratio has moved 

from 59% to 68% in one year by mid 2012. Investments as % of total assets decreased from a high of 

37% to 28% between Q2-11 and Q2-12. 

VALUATION REMAINS CHEAP; REITERATE BUY 

In our view, Samba’s valuation gap to the sector average is overdone. The bank now trades at a PB2012E 

1.39x and a PE 2012E of 9.3x while generating a return on equity of 15.5%. The market has been harsh 

on Samba over the last year and a half, as management’s conservatism has led to lower than peers 

loan growth. With this issue now addressed to a certain extent, we believe the bank offers an attractive 

risk-reward profile. We re-iterate our buy rating on Samba, and revise our fair value upward from 

SAR 59.8 to SAR 62.4. 

FINANCIAL DATA 

2011 2012e 2013e 2014e 

Net Income 4,303 4,583 5,223 5,903 

EPS 4.78 5.09 5.80 6.56 

P/B (x) 1.52 1.39 1.23 1.13 

P/E (x) 9.96 9.35 8.20 7.26 

Dividend Yield 3.5% 3.8% 4.0% 4.6% 

ROAE 16.1% 15.5% 16.3% 16.9% 

NPL Ratio 3.0% 2.4% 2.3% 2.2% 

NPL Coverage 124% 132% 138% 142% 

19

August 24, 2012 

FINANCIALS 


SAMBA 

Income Statement 2010 2011 2012E 2013E 2014E 2015E 2016E 

Net Special Commission Income 4,536 4,376 4,368 4,936 5,553 6,275 7,592 

Fee and Banking Income 1,258 1,399 1,742 1,916 2,089 2,277 2,482 

Exchange Income 314 309 344 354 365 376 387 

Trading Income 690 355 479 499 519 539 561 

Other Income 102 123 133 141 149 158 168 

Non Special Commission Income 2,364 2,186 2,698 2,910 3,122 3,350 3,597 

Total Banking Income 6,901 6,562 7,066 7,846 8,674 9,625 11,190 

Operating Expenses (1,910) (1,957) (2,087) (2,191) (2,301) (2,416) (2,537) 

Operating profit before provisions 4,991 4,605 4,979 5,655 6,373 7,209 8,653 

Provision losses on loans& investments (559) (301) (399) (435) (474) (517) (563) 

Minority Interest - (1) 3 3 4 4 5 

Net Income 4,432 4,303 4,583 5,223 5,903 6,697 8,095 

Balance Sheet Summary 2010 2011 2012E 2013E 2014E 2015E 2016E 

Cash and due from banks 35,072 36,240 34,061 37,812 43,066 51,138 58,587 

Loans and Advances (Net) 80,251 89,111 102,656 116,309 129,452 142,786 156,493 

Investments 64,882 60,175 62,582 65,085 67,689 70,396 73,212 

Prorperty Plant and Equipment 970 1,169 1,227 1,289 1,353 1,421 1,492 

Other Assets 6,240 6,078 6,851 7,366 7,920 8,517 9,160 

Total Assets 187,416 192,773 207,377 227,861 249,480 274,259 298,944 

Deposits 133,463 137,257 148,238 163,803 180,183 199,102 218,017 

Due to Banks 19,801 20,628 21,659 23,392 25,264 27,285 29,467 

Debt securities 1,875 - - - - - - 

Other liabilities 6,675 6,631 6,963 7,311 7,676 8,060 8,463 

Total Liabilities 161,813 164,516 176,860 194,505 213,122 234,447 255,947 

Shareholder Equity 25,603 28,257 30,518 33,356 36,358 39,812 42,997 

Total Liabilities and Shareholders Equity 187,416 192,773 207,377 227,861 249,480 274,259 298,944 

Per Share Data 2010 2011 2012E 2013E 2014E 2015E 2016E 

EPS 4.92 4.78 5.09 5.80 6.56 7.44 8.99 

DPS 1.65 1.65 1.80 1.90 2.20 2.40 2.90 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 

Total Assets Growth 3.7% 2.9% 7.6% 9.9% 9.5% 9.9% 9.0% 

Loans Growth -14.3% 11.0% 15.2% 13.3% 11.3% 10.3% 9.6% 

Deposits Growth 9.6% 2.8% 8.0% 10.5% 10.0% 10.5% 9.5% 

EPS Growth 2.4% -2.9% 6.5% 14.0% 13.0% 13.4% 20.9% 

20

August 24, 2012 

FINANCIALS 


SAMBA 

Balance Sheet Mix 2010 2011 2012E 2013E 2014E 2015E 2016E 

Loans to Deposits 60% 65% 69% 71% 72% 72% 72% 

Loans/ Assets 43% 46% 50% 51% 52% 52% 52% 

Assets/Equity 7.32 6.82 6.80 6.83 6.86 6.89 6.95 

(Cash + Interbank) /Assets 19% 19% 16% 17% 17% 19% 20% 

Deposits/ Total Funding 82% 83% 84% 84% 85% 85% 85% 

Asset Quality 2010 2011 2012E 2013E 2014E 2015E 2016E 

NPL Ratio 3.7% 3.0% 2.4% 2.3% 2.2% 2.1% 2.1% 

NPL Coverage Ratio 118% 124% 132% 138% 142% 148% 157% 

Cost of Risk (% of Gross Loans) 0.65% 0.34% 0.40% 0.37% 0.36% 0.35% 0.34% 

Capital Adequacy 2010 2011 2012E 2013E 2014E 2015E 2016E 

Tier 1 17.8% 18.0% 18.1% 18.0% 18.1% 18.2% 18.0% 

CAR 18.9% 19.0% 19.1% 19.2% 19.3% 19.2% 19.1% 

Profitability 2010 2011 2012E 2013E 2014E 2015E 2016E 

ROAE 18.5% 16.1% 15.5% 16.3% 16.9% 17.5% 19.6% 

ROAA 2.3% 2.3% 2.2% 2.3% 2.4% 2.5% 2.7% 

NIM 2.60% 2.61% 2.64% 2.68% 2.71% 2.73% 3.03% 

Cost to Income 29.9% 29.8% 29.5% 27.9% 26.5% 25.1% 22.7% 

Operating Income Attribution 2010 2011 2012E 2013E 2014E 2015E 2016E 

Net Interest Income 66% 67% 62% 63% 64% 65% 68% 

Fee Income 18% 21% 25% 24% 24% 24% 22% 

Other Income 16% 12% 14% 13% 12% 11% 10% 

21



RATING BUY 

August 24, 2012 

HIGHLIGHTS 

Stock Data 

Ticker RJHI AB 

Price 73.5 


Price (SAR) 

87.4 





Number of Shares (m) 1,500 


Av Monthly Liquidity (SAR) 1,918 



Name Holding 

Suleiman Al Rajhi 19.9% 

Saleh Al Rajhi 15.1% 

GOSI 9.9% 

Abdullah al Rajhi 5.9% 

Public 49.2% 

Source: Zawya 


AL RAJHI: VALUATION PREMIUM IS MORE THAN JUSTIFIED 


In addition to being the largest Islamic bank in Saudi Arabia and MENA region, Al Rajhi is by far 

the most profitable bank in the region, holding the highest ROE within the Saudi Banks. With its 

dominant position in the retail market, the bank is consistently delivering strong results. Al Rajhi is 

also the best positioned to benefit from interest rates rises. 

STRONG GROWTH SUPPORTED BY DUAL NETWORK 

As of June 2012, Al Rajhi recorded the highest Y-o-Y and YTD loan growth within the top 7 banks, 

coming at 24% and 12.5% respectively. The bank’s strong retail network (more than a third of 

Saudi retail market share) has positioned him well to benefit from government spending. On the 

corporate and project finance space, the bank has been involved in several syndications such as 

Jabal Omar Mecca’s Project, Maaden and potentially a portion of Sadara project financing. On the 

downside, competition on retail lending between the banks could slowdown loan growth over the 

coming periods or reduce profitability. We forecast a loan growth of 19.3% and 14.2% for 2012 and 

2013 respectively. 

MARGINS TO REMAIN RELATIVELY STABLE 

Q2-12 results showed stable to increasing margins for the Saudi banks. We believe the exit of 

foreign banks and increased demand for retail credit has eased the downward pressure on NIMs. 

Nevertheless, retail competition remains in place and corporate syndications are in general low 

yielding. Furthermore, the loan book will witness further downward re-pricing though the majority 

is now re-priced on the new lower yields. We expect a relatively stable NIM for Al Rajhi in the absence 

of benchmark rates rises. 

FEE GENERATION WELL MANAGED 

Al Rajhi’s retail strength has led to solid fee generation. In addition to traditional banking services, 

the bank has obtained a niche position in the brokerage and remittance businesses. We believe that 

Al Rajhi can sustain strong fee income growth on strong consumer lending growth momentum, as 

well as corporate banking related fee income. This said, we expect Al Rajhi’s fees and commissions 

yield to remain above sector average. 

VALUATION PREMIUM LARGELY REASONABLE 

Al Rajhi’s valuation is at a PE 2013E of 11.9x and PB 2012E of 3.27x. While the valuation is at a large 

premium to the sector, the bank is trading at an 20% discount to its 5 year average. Driven by its 

cheap access to funding, Al Rajh’s ROE is by far the highest in the sector at 24.5% against 15.6% for 

the sector. With demand deposits forming 90% of total, the bank is well positioned in later years for 

higher ROEs driven by a widening net interest margin. The bank has no material exposure to Europe 

or the wholesale markets, hence minimizing contagion risk. In our view, given Al Rajhi’s profile, its 

valuation remains attractive, hence we reiterate our Buy rating and revise our fair value upward 

from SAR 91.2 to SAR 95.8. Key downside risks to our fair value are the extension of low interest rate 

environment and a dimmer global picture weighing on local credit demand. 


AL RAJHI BANK 

2011 2012e 2013e 2014e 

Net Income 7,378 8,187 9,297 10,623 

EPS 4.29 5.46 6.20 7.08 

P/B (x) 3.36 3.27 2.98 2.70 

P/E (x) 17.1 13.5 11.9 10.4 


ROAE 23.2% 24.5% 25.6% 26.7% 

NPL Ratio 1.7% 1.8% 1.8% 1.8% 

NPL Coverage 148% 155% 158% 160% 

22

August 24, 2012 

FINANCIALS 


AL RAJHI BANK 




Exchange Income 637 799 840 890 944 1,000 1,060 

Trading Income 250 - - - - - - 

Other Income 279 335 398 412 478 512 590 





Provision losses on loans& investments (1,909) (1,645) (1,773) (1,879) (1,992) (2,112) (2,238) 

Net Income 6,771 7,378 8,187 9,297 10,623 11,995 15,030 




Investments 28,887 38,802 37,455 40,451 43,688 47,183 50,957 

Prorperty Plant and Equipment 3,395 3,624 3,805 3,995 4,195 4,405 4,625 

Other Assets 1,901 2,973 3,152 3,341 3,541 3,754 3,979 

Total Assets 184,842 220,813 244,718 272,551 303,180 335,614 370,220 

Deposits 143,064 173,429 193,894 217,161 242,786 269,735 298,327 


Debt securities - - - - - - - 






EPS 4.51 4.60 5.46 6.20 7.08 8.00 10.02 

DPS 2.75 3.25 3.50 3.75 4.00 4.50 5.00 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 7.0% 16.9% 19.3% 14.2% 13.1% 11.8% 10.5% 


EPS Growth 0.0% 2.0% 18.7% 13.6% 14.3% 12.9% 25.3% 

23

August 24, 2012 

FINANCIALS 


AL RAJHI BANK 



Loans/ Assets 65% 64% 68% 70% 71% 72% 72% 

Assets/Equity 6.8 7.6 7.8 7.9 8.0 8.0 8.2 

(Cash + Net Interbank) /Assets 14% 13% 10% 9% 9% 9% 9% 



NPL Ratio 2.2% 1.7% 1.8% 1.8% 1.8% 1.7% 1.7% 

NPL Coverage Ratio 135.8% 148.0% 155.0% 158.0% 160.0% 163.0% 166.0% 



Tier 1 15.2% 16.3% 15.3% 15.2% 15.2% 15.2% 15.2% 

CAR 20.5% 20.5% 19.5% 19.0% 19.1% 19.4% 19.5% 


ROAE 22.5% 23.2% 24.5% 25.6% 26.7% 27.4% 31.9% 

ROAA 3.3% 3.2% 3.2% 3.3% 3.4% 3.4% 3.9% 

NIM 4.76% 4.63% 4.49% 4.45% 4.43% 4.44% 4.89% 

Cost to Income 25.6% 27.8% 27.1% 25.8% 24.5% 23.3% 20.7% 



Fee Income 14% 18% 22% 22% 22% 22% 21% 

Other Income 10% 9% 9% 9% 9% 8% 8% 

24



RATING ACCUMULATE 

Stock Data 

Ticker SABB AB 

Price 32.9 


Price (SAR) 

38.7 




August 24, 2012 

HIGHLIGHTS 




Av Monthly Liquidity (SAR) 113 



Name Holding 

HSBC Holdings 40.0% 

Olayan Saudi Investment 16.9% 

Company 

GOSI 9.5% 

Muhaidib and Sons 4.5% 

Public 

Source: Zawya 

29.1% 


SABB: RAISING FAIR VALUE ON HIGHER PROFITABILITY 


After experiencing a sharp deterioration in asset quality in 2009, SABB’s ROE has bounced back on 

lower provisioning as well as stronger lending momentum. Moreover, we are witnessing signs of 

stabilizaton in the bank’s NIM. Based on the latter, we raise our fair value on SABB from SAR 36.8 to SAR 

38.7 and keep an accumulate rating. 

ROE TURNS UPWARDS ON BETTER ASSET QUALITY 

Pressure on asset quality has eased with the NPL ratio now declining to 1.78% after it reached 4.5% 

in 2009. The bank has managed to build solid NPL coverage, rising from 100% in 2009 to 126% 

currently. We forecast an NPL ratio of 1.75% for 2013 with an 32 bps cost of risk. 

GROWTH ADDS SUPPORT TO THE TOP LINE 

SABB is amongst the best positioned to grow in KSA with its strong corporate franchise and solid mortgage 

book. Loan growth ended at 11.7% for the first 6 months of 2012 and 18.6%. Y-o-Y, corporate loans account 

for 82% of the total loans. Growth in the corporate book has exceeded the sector average recording 16% 

over the last 12 months to June 2012. The bank’s solid corporate franchise enables it to be a key player in 

the project finance area, where direct government financing is slowing while global banks are reducing 

their presence in the local market. SABB was involved in many major syndications recently (eg Maaden, 

Tasnee). We forecast a loan growth of 17.4% and 14.2% for 2012 and 2013 respectively. 

NIM HAS BOTTOMED 

Net interest margin for SABB is starting to improve (5bps Q-o-Q in Q2-12). Y-o-Y Net interest income 

has risen by 6.5%. The bank has targeted to contain its cost of funds by increasing its proportion of 

demand deposits from 42% as at the end of 2009 to 50% as of June 2012. Re-pricing of the long term 

corporate book is mostly done, while retail momentum will help improve asset yields. 

STRENGTH IN NON-INTEREST INCOME MAINTAINED 

Non-interest income rose by 28% over the past 12 months. SABB is benefiting from a rise in borrowing 

appetite and a strong corporate lending foothold. SABB also delivered strong brokerage income, 

benefiting from HSBC strong brand name and its track record to in the brokerage business. We note 

that previously HSBC plc merged its brokerage business HSBC Saudi Arabia with SABB’s brokerage 

arm. 

COMFORTABLE LIQUIDITY 

With a loan to deposit ratio of almost 80%, relatively in line with sector average, SABB’s balance 

sheet remains comfortable. The bank’s liquidity is sufficient to allow the bank to sustain loan growth 

momentum, on the corporate as well as on the retail side. 

VALUATION PARTIALLY REFLECTS IMPROVED FUNDAMENTALS, MAINTAIN ACCUMULATE 

Currently SABB trades at a PE 2013E of 8.6x and PB 2012E of 1.63x. SABB’s valuation is at a premium of 

12% to the sector reflecting its improved fundamentals (SABB’s ROE is at 17.1% against 15.6% for its 

peers). We keep our Accumulate rating on SABB and revise our fair value upward from SAR 36.8 to 

SAR 38.7. 


SAUDI BRITISH BANK 

2011 2012e 2013e 2014e 

Net Income 2,888 3,361 3,833 4,454 

EPS 2.42 3.36 3.83 4.45 

P/B (x) 1.91 1.63 1.45 1.30 

P/E (x) 13.6 9.8 8.6 7.4 


ROAE 16.8% 17.1% 17.4% 18.3% 

NPL Ratio 1.9% 1.7% 1.7% 1.6% 

NPL Coverage 123% 131% 138% 149% 

25

August 24, 2012 

FINANCIALS 








Other Income 30 88 55 57 59 62 64 





Provision losses on loans& investments (1,243) (469) (295) (330) (370) (397) (448) 

Profit/Loss from Associates 41 64 110 71 74 78 82 

Net Income 1,884 2,888 3,361 3,833 4,454 5,066 6,167 




Investments 24,972 22,200 26,800 29,587 32,664 36,061 39,812 

Prorperty Plant and Equipment 559 537 580 609 639 671 705 

Other Assets 3,406 4,381 4,294 4,671 5,243 5,883 6,582 

Total Assets 125,371 138,657 156,583 175,466 194,972 214,145 233,103 

Deposits 94,673 105,577 120,675 136,604 152,996 169,061 184,952 


Debt securities 5,663 4,150 4,159 4,168 4,177 4,187 4,198 






EPS 1.88 2.89 3.36 3.83 4.45 5.07 6.17 

DPS - 0.70 1.00 1.20 1.50 1.80 2.25 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 

Total Assets Growth -3.7% 10.6% 12.9% 12.1% 11.1% 9.8% 8.9% 

Loans Growth -4.8% 14.2% 17.4% 14.2% 12.3% 10.9% 9.4% 

Deposits Growth -3.8% 11.5% 14.3% 13.2% 12.0% 10.5% 9.4% 

EPS Growth -30.5% 53.3% 16.4% 14.0% 16.2% 13.7% 21.7% 

26

August 24, 2012 

FINANCIALS 





Loans/ Assets 59% 61% 64% 65% 65% 66% 66% 

Assets/Equity 8.58 8.35 8.35 8.35 8.34 8.32 8.33 




NPL Ratio 3.4% 1.9% 1.7% 1.7% 1.6% 1.5% 1.4% 

NPL Coverage Ratio 100.0% 123.0% 131.0% 138.0% 149.0% 155.0% 163.0% 



Tier 1 12.5% 11.8% 12.1% 12.2% 12.3% 12.3% 12.3% 

CAR 14.7% 14.7% 15.0% 15.1% 15.2% 15.4% 15.5% 


ROAE 12.3% 16.8% 17.1% 17.4% 18.3% 18.8% 21.2% 

ROAA 1.3% 1.9% 2.1% 2.1% 2.2% 2.3% 2.5% 

NIM 2.6% 2.5% 2.5% 2.6% 2.7% 2.8% 3.1% 

Cost to Income 36.2% 32.8% 31.0% 29.0% 27.0% 25.5% 22.8% 



Fee Income 24% 25% 25% 25% 26% 27% 26% 

Other Income 9% 13% 12% 12% 11% 10% 9% 

27




Stock Data 

Ticker BSFR AB 

Price 32.9 


Price (SAR) 

41.1 









August 24, 2012 

HIGHLIGHTS 


Name Holding 

Credit Agricole 31.1% 

GOSI 12.8% 

Rashed Al Rashed 9.8% 

Mohamed Issa 5.0% 

Public 

Source: Zawya 

30.4% 


BSF: ATTRACTIVE RETAIL - CORPORATE MIX 


With its strong corporate franchise and growing retail market share, BSF is well placed to benefit for 

the recovery in the corporate credit demand, as well as from the growing retail lending. 

FOCUS BACK ON CORPORATE LENDING 

Aside from its recent expansion in retail, BSF has managed to obtain a sizeable market share in 

corporate lending 14% of total corporate loans. The bank’s corporate loan book grew by 1% over 

the last 6 months and 10% over the last year. On the other hand, the retail book grew by 18% Y-o-Y. 

The retail loan book contribution to the total loan book (at 10%) remains well below the sector average. 

Saudi Fransi managed to ride the lending wave, growing by 9.4% over the last 6 months and 

18.5% Y-o-Y. We believe BSF will continue to leverage on its corporate franchise and benefit from 

the gradual pull-out of global banks from the Saudi market. Recently, BSF has been active in several 

major syndications with Marafiq Company, Zain KSA and potentially a portion of the Sadara Project 

financing. We forecast a loan growth of 15.4% and 13.7% for BSF for 2012 and 2013 respectively. 

SUKUK ISSUE IMPROVES FUNDING STRUCTURE 

In April 2012, BSF launched a $2 billion Sukuk program, the first program to be established by a 

Saudi bank, listed on the London Stock Exchange. Under the program, the bank launched its first 

issue of $750mn at a spread of 185 basis points over midswaps. The issuance attracted orders worth 

$4 billion. We view this as a welcomed diversification of funding, where the bank’s reliance on short 

term deposits will be reduced. The longer term nature of this funding will also serve BSF to target 

the mortgage market more aggressively, with the legal aspects of home lending now on the path 

of being resolved. 

BROKERAGE ADDS SUPPORT TO ROE 

Fransi Tadawul has 9% market share of the Saudi brokerage market. Q1-12 non interest income rose 

by 29% Q-o-Q partially due to higher brokerage fees. We believe BSF strong position in the brokerage 

market could help it improve its ROE in times of rising trading volumes. 

ASSET QUALITY REMAINS ROBUST 

The bank’s asset quality remains among the best in the sector. Provisions for Q2-12 stayed 

consistently low at SAR 23m. The NPL ratio remains the lowest in the sector at 1.23% against sector 

average NPL of 2.2%. We estimate the bank’s NPL to remain at such levels over the short to medium 

term. BSF’s NPL coverage stayed solid at 129% though lower than peers average at 133%. We believe 

BSF’s superior asset quality remains a core differentiating factor to its peers. At the same time, we 

acknowledge the fact that there’s little room for BSF to witness a major improvement in its bottom 

line from further drops in provisioning, as the bank already maintains one of the cleanest balance 

sheets in the sector. 

NON-DEMANDING VALUATION 

The bank trades at PE 2013E of 8.2x PB 2012E of 1.33x, we believe that the valuation is certainly 

tempting at this point with an 14% discount to MENA peers and 9% discount to Saudi peers. Our fair 

value on BSF to SAR 41.2 and assign an Accumulate rating. 


BANQUE SAUDI FRANSI 

2011 2012e 2013e 2014e 

Net Income (SAR million) 2,927 3,111 3,607 4,128 

EPS (SAR) 3.24 3.44 3.99 4.57 

P/B (X) 1.51 1.33 1.19 1.08 

P/E (X) 10.1 9.5 8.2 7.2 


ROAE (%) 14.9% 15.3% 15.7% 15.8% 

NPL Ratio 1.1% 1.2% 1.3% 1.2% 

NPL Coverage 147% 136% 143% 148% 

28

August 24, 2012 

FINANCIALS 





Fee and Banking Income 887 1,050 1,233 1,470 1,646 1,841 2,053 



Other Income 20 30 35 39 44 54 65 






Profit/Loss from Associates 4 - (5) - - - - 

Minority Interest - - (10) (12) (13) (17) (21) 

Net Income 2,800 2,927 3,111 3,607 4,128 4,701 5,666 




Investments 19,841 16,669 21,670 22,970 24,348 25,809 27,357 


Other Assets 5,757 5,780 6,069 6,372 6,691 7,026 7,377 

Total Assets 123,218 140,480 148,774 166,255 185,019 205,401 225,767 

Deposits 93,529 109,963 115,461 129,894 145,481 162,211 178,433 








EPS 3.10 3.24 3.44 3.99 4.57 5.20 6.27 

DPS 1.10 1.00 1.20 1.35 1.50 1.85 2.25 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 3.0% 14.0% 15.4% 13.7% 11.8% 11.0% 9.3% 


EPS Growth 13.0% 4.5% 6.3% 15.9% 14.4% 13.9% 20.5% 

29

August 24, 2012 

FINANCIALS 





Loans/ Assets 66% 66% 72% 73% 73% 73% 73% 

Assets/Equity 6.84 7.15 6.77 6.78 6.81 6.79 6.69 




NPL Ratio 1.27% 1.10% 1.18% 1.25% 1.24% 1.25% 1.21% 




Tier 1 13.9% 13.9% 14.0% 14.2% 14.4% 14.4% 14.4% 

CAR 13.7% 14.5% 14.7% 15.1% 15.2% 15.2% 15.2% 


ROAE 15.1% 14.9% 15.3% 15.7% 15.8% 16.5% 18.6% 

ROAA 1.7% 2.0% 2.0% 2.1% 2.2% 2.2% 2.5% 

NIM 2.65% 2.61% 2.64% 2.63% 2.65% 2.73% 3.01% 

Cost to Income 27.0% 28.4% 31.9% 30.1% 28.3% 25.0% 22.2% 



Fee Income 20% 23% 25% 26% 26% 26% 25% 

Other Income 10% 9% 9% 8% 7% 7% 6% 

30




Stock Data 

Ticker RIBL AB 

Price 23.0 


Price (SAR) 

28.8 




August 24, 2012 

HIGHLIGHTS 







Name Holding 


GOSI 21.6% 

Abdulrahman Sharabtly 9.7% 

AL Nahla Group 9.3% 

Mohammed Issa 8.6% 

SAMA 6.5% 

Public 

Source: Zawya 

22.6% 


RIYAD BANK: LAGGING ON LOAN GROWTH 


Riyad Bank has lagged competitors on loan growth over the last period. Loans grew by 1.9% over 

the last 6 months to June 2012 and 4.2% Y-o-Y, while peers grew by 10.0% and 16.4% respectively 

for the same periods of time. 

LOAN GROWTH LACKING MOMENTUM 

Riyad bank has failed to catch up with peers on loan growth. Among the largest 10 Saudi banks, 

the bank’s market share declined from 13.7% to 12.2%. Market share of new loans did not impress, 

with the bank only gaining 2.5% of the total pie in the first half of 2012, despite its large scale 

and sizeable retail network of 248 branches. We expect Riyad Bank to catch up with peers going 

forward as the bank has showed resilience in the past. Riyad bank was not absent from large 

syndications recently, citing Maaden and potentially the Aramco – Dow Chemical deal. In general 

retail growth has been more impressive than corporate growth by growing by 21% Y-o-Y against 

an almost flat corporate book. In fact, the bank has increased its focus on growing its consumer 

loan book, which led to market share gains in the retail lending despite a decline in market share 

in total lending. We forecast a loan growth of 8.9% and 12.7% for 2012 and 2013. 

NON INTEREST INCOME LIKELY TO REMAIN RESILIENT 

Non interest income for the first half of 2012 witnessed some potentially non-recurring items, 

such as gain on sale of AVS investments (down 14% Q-o-Q), and rising brokerage income. While 

we are not expecting a repetition of Q1-12 Tadawul’s volumes, we still believe they will exceed 

the levels achieved in 2011. In addition, the investment bank has strengthened its foothold in the 

project finance area, by advising on the mega scale Sadara project. 

HIGH PROVISIONS CAP ROE 

Provisions for Riyad Bank remained high in the first half of 2012. The bank’s NPL and NPL coverage 

stood at 1.78% and 98% respectively, however with large provisions taken in Q2-12 , it is likely 

that the bank has boosted its coverage to be more in line with peers (average of 140% for our 

covered universe). While provisions will drag ROE over the short term, we believe additional NPL 

coverage will support the bank to boost its profitability later on. However, ROE will remain below 

sector level (12% against 16%) due to the excess capital in the business. Riyad bank’s leverage is 

at 6 times vs 7 times average for the sector. 

BELOW SECTOR VALUATION DUE TO WEAKER GROWTH AND ROE 

Riyad bank trades at a PE 2012E of 9.4x a PB 2012E of 1.10x, due to lower ROE. Despite the fact 

that the bank has gained market share in the retail lending, we believe that ROE improvement 

will unlikely take place in a relatively slow loan growth environment. Upside risk is a strong turnaround 

in loan growth, hence catching up with peers. Given the discounted valuation, our rating 

on Riyad Bank is Accumulate with a fair value of SAR 28.4. 


2011 2012e 2013e 2014e 

Net Income 3,149 3,677 4,242 4,912 

EPS 1.96 2.45 2.83 3.27 

P/B (x) 1.14 1.10 1.06 1.00 

P/E (x) 11.7 9.4 8.1 7.0 

RIYAD BANK 


ROAE 10.4% 11.6% 12.8% 14.0% 

NPL Ratio 1.6% 1.6% 1.5% 1.5% 

NPL Coverage 106% 109% 124% 136% 

31

August 24, 2012 

FINANCIALS 


RIYAD BANK 






Other Income 65 111 53 85 97 119 145 




Operating Profit Before Provisions 3,676 3,811 4,398 4,999 5,722 6,691 8,200 


Profit/Loss from Associates - - - - - - - 

Minority Interest - - - - - - - 

Net Income 2,826 3,149 3,677 4,242 4,912 5,825 7,273 




Investments 33,822 36,616 39,421 41,589 43,877 46,290 48,836 


Other Assets 3,969 5,783 6,034 6,336 6,652 6,985 7,334 

Total Assets 173,557 180,887 187,218 207,929 230,162 252,054 274,589 

Deposits 126,945 139,822 143,400 161,038 180,041 198,045 215,869 


Debt securities 1,874 - - - - - - 






EPS 1.88 2.10 2.45 2.83 3.27 3.88 4.85 

DPS 1.30 1.30 1.15 1.35 1.55 1.85 2.20 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 10.5% 6.5% 8.9% 12.7% 11.7% 10.8% 9.3% 


EPS Growth -0.5% 11.4% 16.8% 15.3% 15.8% 18.6% 24.9% 

32

August 24, 2012 

FINANCIALS 


RIYAD BANK 



Loans/ Assets 61% 62% 64% 66% 67% 69% 69% 

Assets/Equity 6.17 6.26 6.14 6.45 6.78 6.97 7.07 




NPL Ratio 1.2% 1.6% 1.6% 1.5% 1.5% 1.5% 1.4% 




Tier 1 15.8% 14.5% 14.6% 14.8% 14.9% 14.9% 14.9% 

CAR 18.3% 18.2% 18.3% 18.3% 18.4% 18.4% 18.4% 


ROAE 11.4% 10.4% 11.6% 12.8% 14.0% 15.8% 18.5% 

ROAA 1.8% 1.7% 1.9% 2.0% 2.1% 2.3% 2.6% 

NIM 2.70% 2.50% 2.63% 2.64% 2.67% 2.70% 3.03% 

Cost to Income 38.5% 39.7% 36.8% 35.0% 33.0% 30.7% 27.5% 



Fee Income 24% 25% 29% 29% 29% 29% 29% 

Other Income 7% 8% 7% 7% 7% 7% 6% 

33




Stock Data 

Ticker ARNB AB 

Price 29.0 


Price (SAR) 

33.5 


August 24, 2012 

HIGHLIGHTS 









Name Holding 

Arab Bank 40.0% 

GOSI 10.8% 


Al Jabr Trading Company 5.6% 

Public 

Source: Zawya 

33.7% 


ANB: ATTRACTIVE COMBINATION OF GROWTH AND VALUE 


Arab National Bank remains a key player in the KSA banking sector. The bank strong retail franchise 

is supported by a broad branch network of 144 branches. ANB’s asset quality concerns have been 

dealt with and the bank has now moved to growth mode recording a loan growth of 10.8% over the 

last 6 months and 16.9% Y-o-Y as of 30 June 2012. We forecast earnings to increase by 18% and 13% 

for 2012 and 2013 respectively. 

LOAN GROWTH BACK IN LINE WITH SECTOR 

We forecast loan growth to reach 17.7% for ANB for 2012 and 13.5% in 2013. We believe the bank’s 

strong retail network and largely improved asset quality will support it to build up momentum in 

lending going forward. Recently, ANB has showed strength in the corporate lending space with 

corporate loans rising by 12% over the last 6 months and 20% Y-o-Y. ANB was involved in several 

big-ticket lending transactions such as Maaden syndication, Zain KSA refinancing and Medina 

Airport privatization project with TAV Airports of Turkey. On the retail front, the bank recorded a 

Y-o-Y growth of 15%, benefiting from increased government spending and rising employee salaries 

in KSA. The bank is capable of leveraging on its retail franchise to improve its market share 

in mortgage lending with the new approval of the mortgage loans. ANB’s current market share is 

only at 2.7% of total mortgage loans. 

NORMALIZING PROVISIONS 

ANB witnessed a major improvement in its asset quality after it incurred hefty provisions in Q4-11. 

The NPL ratio as at the end of Q1-12 stands at 2.13%, the bank has built a strong cushion of NPL 

coverage, reaching 158%. In our view, the improved asset quality profile will help ANB converge 

its ROE to be more in line with the sector going forward. We forecast cost of risk to decline to 

41bps in 2012, while we believe the NPL will level at 2.8%. 

NIM TO IMPROVE GOING FORWARD 

ANB’s net interest margin witnessed a major improvement in Q2-12 after retreating earlier on. 

The loan to deposit ratio has increased to 85% from 82% the year before. Competitive pricing on 

corporate loans has eased with the global banks reducing their exposure in the MENA region as 

pressure on capital ratios builds up. We estimate NIM to end at 2.82% for 2012 and improve to 

2.84% in 2013. 

RISING NON-INTEREST INCOME 

ANB revealed relative strength in fee and banking income, rising 12 % Y-o-Y in the first 6 months 

of 2012. While part of this is attributed to rising trading volumes, we believe a major part of the 

improvement is due to strength in fee income from banking activities (brokerage income accounted 

to 2.2% of total operating income at the end of 2011). 

VALUATION 

Arab National Bank is valued at a PB 2012E of 1.40x, a discount of 10% to regional peers. ANB 

trades at PE 2012E of 9.5x and PE 2013 of 8.4x. We assign an Accumulate on ANB with 26% upside 

potential. 


ARAB NATIONAL BANK 

2011 2012e 2013e 2014e 

Net Income 2,170 2,577 2,921 3,305 

EPS 2.55 3.03 3.43 3.88 

P/B (x) 1.44 1.40 1.27 1.16 

P/E (x) 11.3 9.5 8.4 7.4 


ROAE 11.0% 14.3% 14.6% 15.1% 

NPL Ratio 2.4% 2.1% 2.1% 2.0% 

NPL Coverage 146% 151% 150% 155% 

34

August 24, 2012 

FINANCIALS 





Fee and Banking Income 545 727 875 963 1,059 1,143 1,235 



Other Income 122 130 143 157 173 190 209 






Profit/Loss from Associates 13 22 26 27 29 33 35 

Minority Interest 3 - - - - - - 

Net Income 1,912 2,170 2,577 2,921 3,305 3,733 4,516 




Investments 32,841 26,082 25,439 26,965 28,583 30,298 32,116 


Other Assets 2,351 2,439 2,549 2,663 2,783 2,909 3,039 

Total Assets 116,034 117,574 131,005 146,783 161,716 177,720 194,530 

Deposits 84,199 87,859 99,523 110,968 123,175 136,108 149,719 








EPS 2.25 2.55 3.03 3.43 3.88 4.38 5.30 

DPS 0.60 0.75 1.00 1.10 1.25 1.40 1.85 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 

Total Assets Growth 5% 1% 11% 12% 10% 10% 9% 

Loans Growth -1.0% 10.0% 17.7% 13.5% 11.8% 11.3% 10.1% 

Deposits Growth 2% 4% 13% 12% 11% 11% 10% 

EPS Growth -19% 13% 19% 13% 13% 13% 21% 

35

August 24, 2012 

FINANCIALS 





Loans/ Assets 57% 62% 65% 66% 67% 68% 69% 

Assets/Equity 7.54 7.03 8.12 7.93 8.27 8.31 8.43 




NPL Ratio 2.8% 3.0% 2.8% 2.6% 2.5% 2.5% 2.5% 

NPL Coverage Ratio 75% 108% 110% 112% 111% 112.% 110% 



Tier 1 15.1% 15.0% 15.1% 15.1% 15.2% 15.3% 15.3% 

CAR 17.0% 16.5% 16.4% 16.3% 16.2% 16.3% 16.3% 


ROAE 11.0% 11.0% 14.3% 14.6% 15.1% 15.9% 17.9% 

ROAA 1.4% 1.5% 1.8% 1.8% 1.9% 1.9% 2.1% 

NIM 2.90% 2.80% 2.82% 2.84% 2.83% 2.85% 3.13% 

Cost to Income 36.5% 39.1% 39.3% 37.7% 36.2% 34.8% 32.0% 



Fee Income 12% 16% 18% 18% 18% 18% 17% 

Other Income 18% 14% 14% 14% 13% 13% 12% 

36




Stock Data 

Ticker AAAL AB 

Price 27.5 


Price (SAR) 

31.1 









August 24, 2012 

HIGHLIGHTS 


Name Holding 

ABN Amro 39.9% 

Olayan Saudi Investment 

Company 

20.8% 

GOSI 9.6% 

Public 

Source: Zawya 

29.7% 



SHB: ADJUSTING FAIR VALUE ON IMPROVED ASSET QUALITY AND MARGINS 

Saudi Hollandi Bank delivered a remarkable progress in improving its profitability over the last 

year and a half. With asset quality concerns receding, the bank’s focus has shifted to delivering 

strong double digit loan growth. 

DECLINING NPL SUPPORTS ROE 

NPLs have declined from 2.60% in December 2010 to 1.77%, while increasing its NPL coverage 

from 124% to 144% over the last 2 years. We expect cost of risk to decline to 45 bps in 2012 and 

40 bps in 2013. Recently the bank seems to have benefited from some provision recoveries as it 

recorded an exceptionally low cost of risk in its Q2-2012 results (annualized at 13bps). We expect 

Saudi Hollandi ROE to increase to 13.6% by the end of the year largely up from 11.7% in 2010. 

CORPORATE FRANCHISE PROPS UP SOLID LENDING 

Over the second half of 2011, SHB managed to capture 6% market share of new loans despite 

having an initial market share of 4.3%. Loan growth bounced back impressively, with the bank 

targeting corporate customers and tapping into the project finance area. Recent major lending 

transactions include Jabal Omar Development for its Mecca project and Tasnee for its factories. 

Saudi Hollandi managed to exceed sector loan growth by lifting its loan book to 11% in the first 

6 months of 2012 and 20% Y-o-Y. We expect Saudi Hollandi to remain a major beneficiary in the 

project finance field. 

While scale doesn’t support the bank to fund big projects, the bank can work this into its advantage 

by gaining market share. We note that total loans for SHB stand at SAR 42bn while the project 

finance market is estimated to add about SAR 15bn per annum. 

NIM REVERSES DOWNWARD TREND 

Net interest margins have improved by 6bps from the beginning of the year, as the bank shed 

some of its low yielding investments while targeting a cheaper cost of funds. The expansion of the 

loan book has also added to NIM support, while the bank targeted higher yields on its corporate 

book. 

BIG UPLIFT IN NON-INTEREST INCOME 

Non interest income grew by 19% Y-o-Y in the first 6 months of 2012 on the back of strong loan 

book. The bank has improved its efficiency on fees and commissions while also benefiting from 

the rising volumes on Tadawul (though Saudi Hollandi only owns a 2% market share of total brokerage). 

The bank’s work on improving cross-selling of its retail product to its corporate customers 

has supported the fee income growth and lead to better profitability. 

GROWTH AND PROFITABILITY COMPENSATE THE RISE IN VALUATION 

Saudi Hollandi share price rallied by 30% over the last 18 months. At the same time ROE has adjusted 

upwards, bridging the gap with peers (current ROE at 13.6%) The bank trades at a PE 2013E 

of 7.9x, a PB 2012E of 1.36x with expected EPS growth of 16.4% and 14.5% for 2012 and 2013 respectively. 

Given the profitability turnaround, we adjust our fair value upwards to SAR 32.1 while 

keeping our Accumulate rating. Key risks are slower growth and pressure on net interest margins. 


SAUDI HOLLANDI BANK 

2011 2012e 2013e 2014e 

Net Income (SAR million) 1,034 1,203 1,378 1,552 

EPS (SAR) 2.61 3.03 3.47 3.91 

P/B (X) 1.23 1.36 1.23 1.11 

P/E (X) 10.5 9.0 7.9 7.0 


ROAE (%) 12.8% 13.6% 13.9% 14.1% 

NPL Ratio 1.9% 1.8% 1.7% 1.6% 

NPL Coverage 145% 147% 150% 155% 

37

August 24, 2012 

FINANCIALS 





Fee and Banking Income 455 519 605 685 736 788 851 



Other Income 5 5 18 21 24 28 32 

Non Special Commission Income 666 715 845 947 1,020 1,095 1,183 


Operating Expenses (772) (818) (839) (902) (947) (994) (1,054) 


Provision losses on loans & investments (398) (171) (165) (220) (252) (290) (310) 

Profit/Loss from Associates 6 18 - - - - - 


Net Income 790 1,034 1,203 1,378 1,552 1,733 2,163 




Investments 11,752 11,503 11,456 12,029 12,630 13,262 13,925 


Other Assets 1,288 1,230 1,294 1,361 1,475 1,613 1,710 

Total Assets 53,882 57,549 66,783 75,386 84,454 93,113 101,897 

Deposits 41,604 45,024 52,273 59,330 66,687 73,689 81,058 








EPS 1.99 2.61 3.03 3.47 3.91 4.37 5.45 

DPS - - 1.00 1.15 1.30 1.40 1.80 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 

Total Assets Growth -9.0% 6.8% 16.0% 12.9% 12.0% 10.3% 9.4% 

Loans Growth -3.0% 7.7% 17.2% 14.3% 12.2% 11.0% 9.9% 

Deposits Growth -7.0% 8.2% 16.1% 13.5% 12.4% 10.5% 10.0% 

EPS Growth nm 30.9% 16.4% 14.5% 12.6% 11.6% 24.9% 

38

August 24, 2012 

FINANCIALS 





Loans/ Assets 65% 66% 66% 67% 67% 68% 68% 

Assets/Equity 8.44 7.77 7.87 7.91 7.91 7.95 7.99 




NPL Ratio 2.7% 1.9% 1.8% 1.7% 1.6% 1.6% 1.5% 




Tier 1 12.7% 12.7% 12.8% 12.9% 13.1% 13.1% 13.1% 

CAR 16.4% 16.4% 16.5% 16.6% 16.6% 16.7% 16.7% 


ROAE 11.7% 12.8% 13.6% 13.9% 14.1% 14.4% 16.8% 

ROAA 1.3% 1.4% 1.6% 1.7% 1.7% 1.7% 2.0% 

NIM 2.3% 2.4% 2.5% 2.5% 2.6% 2.7% 3.1% 

Cost to Income 39.5% 40.8% 38.0% 36.1% 34.4% 33.0% 29.9% 



Fee Income 23% 26% 27% 27% 27% 26% 24% 

Other Income 11% 10% 11% 10% 10% 10% 9% 

39



RATING HOLD 

August 24, 2012 

HIGHLIGHTS 

Stock Data 

Ticker ALBI AB 

Price 31.0 


Price (SAR) 

26.2 










Name 

Mohamad Al Subai 11.6% 

Ibrahim Al Subai 11.1% 

First Investment Company 7.4% 

Abulrahman Rajhi 19.9% 

Public 

Source: Zawya 

50.0% 


AL BILAD: VALUATION PRICING GROWING EARNINGS 


Recently established, Albilad is the smallest bank in Saudi Arabia with 1.4% lending market share 

and 2.1% deposit market share. An Islamic bank, the bank enjoys significant funding cost advantages 

over its peers. To overcome its size disadvantage, the bank focused on its retail segment, as well 

as its remittance business. However, the bank still suffers from high operating costs. A sustainable 

loan growth would allow the bank to benefit from higher economies of scale and accelerate its 

expansion plans. 

CORPORATE AND RETAIL GROWTH ABOVE SECTOR AVERAGE 

Albilad’s loan growth has steadily climbed up; the retail loan book surged by an impressive 26% in 2011, 

reflecting a combination of higher employment and wages rise. We believe that the bank will continue 

to achieve high loan growth given its efforts to tap more aggressively the retail market. Albilad has 

also demonstrated strong corporate lending growth with corporate loans increasing by 13% in H1-12. 

Backed by improving corporate profitability, rising capacity utilization and capital expenditure, this 

momentum is expected to continue. With its high cost to income ratio of 54% compared to the sector’s 

average of 32.4%, Albilad’s earnings are sensitive to higher business volumes. 

STRONG FEE GENERATION FROM REMITTANCES 

Reflecting its roots in the money exchange business, remittances generate 24% of the bank’s operating 

income. Given the increasing rates of expatriates, the value of their remittances has almost doubled in 

the past 5 years. In addition to the low rates the bank offers to Pakistan, India and Phillipines, the bank 

is building partnership with external parties, such as Seylan Bank, the National Bank of Pakistan, Axis 

Bank to further explore their advantage in this field. 

PROGRESS ON ASSET QUALITY, BUT RISK STILL EXISTS 

Albilad’s rapid loan growth has potentially contributed to higher impaired loan volumes than the 

sector’s average. Notwithstanding the fact that it still has the one of the worst asset quality metrics, 

recent disclosures show an improving asset quality picture. Albilad lifted its coverage ratio from 

130% in 2011 to 150% in H1-12, under regulatory pressure. Backed by improving quality of its 

corporate book, the NPL ratio declined from 5.5% in 2011 to 3.8% in Q2-12, still above the sector’s 

average of 2.1%. Going forward, we expect a lower NPL ratio as well as lower provisioning costs, 

which could support the bank’s bottom line. 

NET INTEREST MARGINS HOLDING UP 

The high liquidity of the bank (LTD of 66%) and Tier1 ratio of 13.8% show Al Bilad’s ability to support 

higher volumes growth. The bank’s participation in new project finance loans represents an 

opportunity for the bank to park its liquidity in higher yielding assets. The high portion of demand 

deposits (77% of total deposits) and the cheap funding structure of the bank helped offset yield 

pressure. In spite of the recent increase in SAIBOR, we expect NIMs to be stable around 3.6%. The 

persistence of high competition, high liquidity, as well as low rates continues to pressure margins. 

FAIR VALUATION 

Al Bilad trades at a PB 2012E of 2.15x above the sector’s average of PB 2012E of 1.46x, and at a PE 

2013E of 14.0x. In our view, Albilad valuation discounts the strong growth we are expecting. We 

initiate coverage on Al Bilad by assigning a Hold rating, with a fair value of SAR 31.2. 

FINANCIAL 

BANK AL BILAD 

2011 2012e 2013e 2014e 

Net Income (SAR million) 330 841 664 757 

EPS (SAR) 1.10 2.80 2.21 2.52 

P/B (X) 2.72 2.15 1.93 1.73 

P/E (X) 28.2 11.0 14.0 12.2 


ROAE (%) 10.1% 21.7% 14.5% 14.9% 

NPL Ratio 4.3% 4.3% 4.0% 3.9% 

NPL Coverage 129% 134% 139% 147% 

40

August 24, 2012 

FINANCIALS 


BANK AL BILAD 


Net Special Commission Income 625 703 827 978 1,133 1,289 1,644 




Other Income 0 5 8 10 11 13 16 

Non Special Commission Income 474 671 813 927 1,019 1,106 1,194 


Operating Expenses (717) (792) (876) (968) (1,078) (1,169) (1,299) 

Operating Profit Before Provisions 382 582 763 938 1,075 1,227 1,538 

Gain on sale of land - - 373 - - - - 


Net Income 92 330 904 699 797 911 1,184 




Investments 1,611 951 351 448 389 496 426 

Prorperty Plant and Equipment 342 328 339 - 339 356 374 

Other Assets 344 378 426 849 592 660 719 

Total Assets 21,117 27,727 30,414 35,188 39,814 44,564 48,651 

Deposits 16,932 23,038 24,651 28,743 32,623 36,635 39,933 

Due to Banks 382 422 464 510 551 590 631 


Other liabilities 698 851 979 1,126 1,272 1,425 1,581 





EPS 0.31 1.10 2.80 2.21 2.52 2.88 3.75 

DPS - - - 1.09 1.25 1.90 3.09 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 12% 12% 25% 18% 15% 13% 11% 


EPS Growth -137% 257% 155% -21% 14% 14% 30% 

41

August 24, 2012 

FINANCIALS 


BANK AL BILAD 



Loans/ Assets 58% 50% 57% 58% 59% 59% 60% 

Assets/Equity 6.81 8.12 7.04 7.32 7.42 7.54 7.48 




NPL Ratio 4.67% 4.29% 4.30% 4.00% 3.90% 3.80% 3.70% 




Tier 1 16.6% 15.5% 15.7% 15.8% 15.8% 15.8% 15.9% 

CAR 17.5% 18.3% 18.5% 18.5% 18.5% 18.5% 18.7% 


ROAE 3.0% 10.1% 21.7% 14.5% 14.9% 15.3% 18.1% 

ROAA 0.5% 1.3% 2.9% 2.0% 2.0% 2.1% 2.4% 

NIM 3.34% 2.96% 2.92% 3.06% 3.10% 3.13% 3.61% 

Cost to Income 65.3% 57.6% 53.5% 50.8% 50.1% 48.8% 45.8% 



Fee Income 31% 33% 36% 37% 37% 36% 33% 

Other Income 12% 15% 13% 12% 11% 10% 9% 

42



RATING HOLD 

Stock Data 

Ticker BJAZ AB 

Price 28.3 


Price (SAR) 

23.6 






Free Float 52 




Name 


UBDC 6.5% 

National Bank of Pakistan 5.8% 

Saleh Kamal 5% 

Public 

Source: Zawya 

60.5% 


August 24, 2012 

HIGHLIGHTS 

AL JAZIRA: PROMISING EARNINGS MAINLY PRICED IN 


In terms of balance sheet size, Al Jazira is one of the smallest banks in KSA, with a market share of 

almost 3% in lending as well as deposits. After it completed its conversion to an islamic bank in 2007, 

the bank was continuously investing in its retail banking infrastructure. Strong loan growth and 

high brokerage income caused re-rating of fundamentals. 

STRONG LOAN GROWTH 

Bank Al Jazira is making steady progress in developing its core banking, which lead to a considerable 

balance sheet growth of 80% for the past 5 years. Al Jazira has demonstrated robust retail lending 

growth with retail loans rising by 60% over the 12 months to December 2011, while its corporate 

book surged by 7% last year. Resurgence in trading volumes at Tadawul should lead to an increased 

appetite for margin loans. The bank’s management recently announced that a credit card product will 

be established. We expect Al Jazira’s loan to remain strong, with a growth of 30% and 19% in 2012 and 

2013. On the liquidity front, the bank is still well positioned for growth with the loan to deposit ratio of 

76%, against 83% for the sector. 

FEE INCOME TO REMAIN ROBUST 

With a brokerage market share of 17%, Bank Al Jazira will benefit the most from the increasing 

trading volumes at the Tadawul. We believe Al Jazira’s high dependence on volume remains a core 

differentiating factor to its peers; the contribution of broking income to total income increased to 

11.8% last year. The rising trading volumes has a two-fold impact on the bank’s profitability: increasing 

brokerage commissions as well as rising demand for margin lending, which will feed into higher loan 

growth. Despite that monthly traded value dropped from their high of SAR 270 billion in March to 

SAR138 billion in June, we expect that earning momentum will still be lead by brokerage income, but 

at a slower pace than the first quarter of 2012. 

LAGGING ON ASSET QUALITY 

Al Jazira still lags its local peers on asset quality despite the improvement in NPL coverage achieved 

during 2011 and the first half of 2012. The bank’s non performing loans in percentage of gross loans 

have been showing improving trends after peaking in 2009. It fell from its high of 7.4% in 2009 to 

3.93% in Q1-12. The NPL coverage ratio remains one of the lowest in the sector at 121%. The bank will 

likely push through to improve its NPL coverage, to be in line with the sector’s average of 147%. 

NIM TO RECOVER 

Despite its effort in improving and diversifying its income sources, the growth in core banking revenues 

hasn’t been totally reflected in earnings and NIMs. Going forward, sustained loan growth in consumer 

lending, supported by growing demand for margin lending will push the bank’s margins upwards. We 

expect the bank’s NIM to reach 2.35% and 2.47% in 2012 and 2013 respectively. 

VALUATION 

The bank’s earnings growth, as well as its advantage in brokerage is partially reflected by its high 

valuation. Al Jazira trades at a PB 2012E of 1.60x a premium of 10% to the Saudi banking sector . The 

bank trades at PE 2013E of 11.7x. We initiate coverage on Al Jazira by assigning an Hold rating, with 

a fair value of SAR 30.8. 


BANK AL JAZIRA 

2011 2012e 2013e 2014e 

Net Income 303 530 725 900 

EPS 1.01 1.77 2.42 3.00 

P/B (x) 1.72 1.60 1.46 1.32 

P/E (x) 28.03 16.01 11.70 9.43 


ROAE 6.1% 10.1% 12.7% 14.3% 

NPL Ratio 4.2% 3.7% 3.5% 3.4% 

NPL Coverage 117% 131% 142% 145% 

43

August 24, 2012 

FINANCIALS 




Net Special Commission Income 717 781 950 1,157 1,359 1,574 1,964 


Non Lending Fees and Commissions 106 144 316 348 382 421 463 



Other Income 48 36 5 6 6 8 9 

Non Special Commission Income 438 427 729 837 951 1,063 1,184 


Operating Expenses (764) (835) (952) (1,043) (1,143) (1,252) (1,359) 

Operating Profit Before Provisions 391 373 728 951 1,167 1,385 1,788 




Net Income 29 303 530 725 900 1,073 1,429 




Investments 4,546 5,397 7,710 10,479 11,343 12,288 13,288 


Other Assets 1,117 1,037 1,626 1,952 2,244 2,581 2,968 

Total Assets 33,018 38,898 45,583 52,549 59,814 67,169 75,507 

Deposits 27,345 31,159 36,533 42,744 49,155 55,545 62,655 

Due to Banks 389 1,306 2,220 2,442 2,637 2,822 3,019 

Other liabilities 478 497 522 548 575 604 634 





EPS 0.10 1.01 1.77 2.42 3.00 3.58 4.76 

DPS - 0.53 0.70 0.90 1.10 1.30 1.40 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 21% 25% 30% 19% 17% 15% 14% 


EPS Growth 4% 960% 75% 37% 24% 19% 33% 

44

August 24, 2012 

FINANCIALS 





Loans/ Assets 57% 60% 67% 69% 71% 72% 73% 

Assets/Equity 6.87 7.88 8.59 9.04 9.28 9.33 9.21 




NPL Ratio 6.7% 4.2% 3.7% 3.5% 3.4% 3.3% 3.2% 




Tier 1 13.4% 13.5% 12.5% 12.6% 12.6% 12.6% 12.8% 

CAR 17.1% 17.2% 15.1% 15.3% 15.3% 15.3% 15.5% 


ROAE 0.6% 6.1% 10.1% 12.7% 14.3% 15.3% 18.1% 

ROAA 0.04% 0.4% 1.2% 1.4% 1.6% 1.6% 2.0% 

NIM 2.40% 2.27% 2.35% 2.47% 2.54% 2.60% 2.89% 

Cost to Income 66.2% 69.1% 56.7% 52.3% 49.5% 47.5% 43.2% 



Fee Income 14% 18% 20% 20% 21% 21% 20% 

Other Income 15% 6% 5% 4% 4% 4% 3% 

45




Stock Data 

Ticker ALINMA AB 

Price 13.5 


Price (SAR) 

15.3 




August 24, 2012 

HIGHLIGHTS 




Av Monthly Liquidity (SAR) 8,681 



Name Holding 

Public Pension Company 10.7% 


GOSI 10.0% 

Public 

Source: Zawya 

69.3% 


ALINMA: ROBUST GROWTH PARTIALLY REFLECTED 


Alinma, which was only established in 2008, is the fastest growing bank in KSA. In the first half of 

2012, the bank surprised the market on the upside by beating consensus estimates. In spite of its 

progressing return, almost clean loan portfolio as well as strong capital base, Alinma is still in its 

development phase and faces higher expansionary costs as well as NIM pressure. We believe Alinma 

has the ability to maintain its increasing profitability, driven by its strong loan growth as it moves 

from its development phase to a mature business. 

LOAN GROWTH TOPPING SAUDI BANKS 

Alinma’s 2011 loan growth has reached 62%, the highest among the Saudi banks. Its retail book 

grew by 6.1% year to date while its corporate loans increased by 13.2%. The bank’s management 

expressed its interest in real estate development projects. The bank recently signed an agreement 

to finance the purchase of real estate units in King Abdullah Economic City. In addition to that, 

recent announcements show that Alinma has been active in corporate finance as well as advisory 

business, such as Jabal Omar Development Co. and the Sadara Chemical Co. The majority of the 

bank’s financing, which is around 82% of total, is currently extended to the commercial segment. We 

expect a loan growth of 36% and 26% for 2012 and 2013 respectively. 

LOW LEVERAGED BANK WITH A STRONG CAPITAL BASE 

Following the Central Bank requirement, the bank will have to focus on raising its general provision 

reserve to 1% of gross loans, from 0.5% as at 2011. This increase is expected to continue in 2012, and 

will be translated into a higher cost of risk in 2012. The bank reported a Tier 1 ratio of 44%, one of the 

highest in the sector, with a leverage ratio at 2.31x. As the bank continues its aggressive expansion and 

starts paying dividends in the coming years, its capital adequacy ratio will decrease. 

LIQUIDITY AND SPREAD TO BE MONITORED 

Alinma’s loan to deposit ratio is one of the highest a 142% compared to the sector average of 

85%. However, the bank’s deposits have increased by 96.2% year to date and we believe the bank 

is capable of increasing its deposits at higher rates should the need arise to support incremental 

lending. According to our estimates, Alinma’s net interest spread suffered beginning of 2012 due 

to rising funding costs. Since it was only recently established, the bank didn’t reach its optimal cost 

of capital. 

ALMOST INTACT ASSET QUALITY 

While the bank’s financing portfolio climbed up by 62.7% in 2011, the bank’s existing portfolio 

remains almost free of NPLs, with a NPL ratio of 0.04% end of 2011. As the bank accomplishes its 

expansion and its business grow, we expect that it will start realizing higher impairment charges. It’s 

worth noting that the majority of the impairment allowance that was recorded last year was against 

retail loans. Our expectations for Alinma’s NPL is to rise to 0.25% at the end of 2012 and to keep its 

NPL coverage above 100%. 

PREMIUM VALUATION 

Alinma trades at a PB 2012E of 1.24x, on a sustainable ROE of 13.5% . The bank trades at a PE 2013E 

of 21.9x due to the high growth phase. We assess Alinma’s growth potential as partially priced in. We 

initiate coverage on Alinma by assigning an Accumulate rating, with a fair value of SAR 15.6. 


ALINMA BANK 

2011 2012e 2013e 2014e 

Net Income 428 652 924 1,405 

EPS 0.29 0.43 0.62 0.94 

P/B (x) 1.27 1.24 1.20 1.14 

P/E (x) 47.3 31.0 21.9 14.4 

ROAE 2.7% 3.9% 5.4% 7.9% 

NPL Ratio 0.0% 0.3% 0.3% 0.3% 

NPL Coverage nm 174% 149% 152% 

46

August 24, 2012 

FINANCIALS 


ALINMA BANK 


Net Special Commission Income 525 1,112 1,488 1,803 2,216 2,613 3,343 



Trading Income - 6 12 13 14 15 17 

Other Income 4 (1) 0 1 1 1 1 

Non Special Commission Income 137 273 356 450 544 635 729 

Total Banking Income 662 1,385 1,844 2,253 2,760 3,248 4,073 

Operating Expenses (644) (832) (1,006) (1,107) (1,220) (1,292) (1,405) 

Operating Profit Before Provisions 18 553 838 1,145 1,540 1,957 2,667 




Net Income 15 428 652 924 1,405 1,805 2,513 




Investments 2,624 3,428 3,569 3,787 3,873 4,115 4,219 


Other Assets 678 1,301 1,686 1,939 2,230 2,565 2,949 

Total Assets 26,549 36,783 46,419 55,355 64,959 75,111 86,968 

Deposits 8,316 17,776 26,664 34,664 42,983 51,580 61,380 



Other liabilities 477 670 871 1,002 1,152 1,325 1,524 





EPS 0.01 0.29 0.43 0.62 0.94 1.20 1.68 

Growth 2010 2011 2012E 2013E 2014E 2015E 2016E 


Loans Growth 1302% 62% 36% 26% 21% 16% 16% 


EPS Growth nm 2714% 52% 42% 52% 28% 39% 

47

August 24, 2012 

FINANCIALS 


ALINMA BANK 



Loans/ Assets 59% 69% 74% 78% 81% 81% 81% 

Assets/Equity 1.71 2.31 2.84 3.27 3.64 3.95 4.21 




NPL Ratio 0.00% 0.04% 0.25% 0.30% 0.30% 0.40% 0.50% 

NPL Coverage Ratio nm nm 173% 149% 152% 116% 93% 



Tier 1 75.0% 44.0% 41.0% 40.0% 35.0% 30.0% 26.0% 

CAR 75.0% 44.0% 41.0% 40.0% 35.0% 30.0% 26.0% 


ROAE 0.1% 2.7% 3.9% 5.4% 7.9% 9.6% 12.4% 

ROAA 0.1% 1.4% 1.5% 1.8% 2.3% 2.5% 3.0% 

NIM 2.56% 3.78% 3.84% 3.79% 3.92% 3.96% 4.37% 

Cost to Income 97.3% 60.1% 54.6% 49.2% 44.2% 39.8% 34.5% 



Fee Income 19% 19% 18% 19% 19% 19% 17% 

Other Income 1% 1% 1% 1% 1% 1% 1% 

48

FAIR VALUE DEFINITION 

August 24, 2012 

RATING GUIDE 

ISSUER 

It is an unbiased estimate of the 12-month potential market price of the stock 


SAUDI BANKS 

SELL REDUCE HOLD ACCUMULATE BUY 

Downside -30% -10% +10% +30% Upside 

BUY: Upside potential in share price is more than 30% 

ACCUMULATE: Upside potential in share price is between 10 and 30% 

HOLD: Upside or downside potential in share price less than 10% 

REDUCE: Downside potential in share price is between 10 and 30% 

SELL: Downside potential in share price is more than 30% 

Audi Saradar Investment Bank 

Audi Saradar Investment Bank SAL • Lebanese joint stock company with a registered capital of 

10,000,000,000 Lebanese Pounds • Commercial Registrar in Beirut: 30812 • Holding number 33 on 

the Central Bank’s Banks List. 

Bank Audi Plaza • Bab Idriss • Beirut 2021 8102 Lebanon • P.O. Box 11-2560 • Beirut 1107 2808 • Lebanon. 

Phone: +961 1 964072 • Fax: +961 1 970403 • Email: contactus@asib.com 

49

August 24, 2012 

DISCLAIMER 


SAUDI BANKS 

“All rights reserved. This research document is prepared for the use of clients of Audi Saradar Investment Bank SAL and/or 

clients of any entity within the Audi Saradar group. 

This research document is disclosed to you on a confidential basis. Receipt and/or review of this research document 

constitute your agreement not to copy, modify, redistribute, retransmit, or disclose to others the contents, opinions, 

conclusion, or information contained in this document prior to public disclosure of the same by the Audi Saradar group or 

without the express written consent of Audi Saradar Investment Bank SAL. 

This material is not intended for dissemination, distribution to, or use by, any person or entity in any country or jurisdiction which 

would subject Audi Saradar Investment Bank SAL or any entity within the Audi Saradar group, to any registration or licensing 

requirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this material is for distribution 

solely in jurisdictions where permitted and to persons who may receive it without breaching any applicable legal or regulatory 

requirements. 

Your attention is drawn to the fact that you should not access this material if the regulations of your country of citizenship 

and/or residency or any applicable regulations prohibit it. In any case, persons who are subject to any restrictions in any 

country, such as US persons are not permitted to access information contained herein. 

Neither the information, nor any opinion expressed herein constitute an offer or an invitation, or a recommendation to make 

an offer, to buy or sell any securities or other investment products related to such securities or investments. This research 

document provides general information only, is not intended to provide personal investment advice or recommendation 

and does not take into account the specific investment objectives, financial situation and the particular needs of any specific 

person who may receive it. Investors should seek financial, legal or tax advice regarding the appropriateness and suitability 

in investing in any securities, other investment or investment strategies discussed or forecasted in this document. 

The information herein was obtained from various public sources believed in good faith to be reliable but we do not 

guarantee its accuracy nor completeness. Neither Audi Saradar Investment Bank SAL nor any entity within the Audi Saradar 

group represent that the information contained in this document is complete, accurate or free from any error and make no 

representations or warranties whatsoever as to the data, information and opinions provided herein. 

This research document and any information, opinion, and prospect contained herein reflect a judgment at its original date 

of publication by Audi Saradar Investment Bank SAL and are subject to change without notice. Audi Saradar Investment 

Bank SAL and/or any entity within the Audi Saradar group may have issued, and may in the future issue, other research 

documents that are inconsistent with, and reach different conclusions from, the information and opinions presented in 

this research document. Those research documents reflect the different assumptions, views and analytical methods of the 

analysts who prepared them; Audi Saradar Investment Bank SAL and the Audi Saradar group are under no obligation to 

ensure that such other documents are brought to the attention of any recipient of this document. 

Audi Saradar Investment Bank SAL, any entity within the Audi Saradar group, their officers and/or one or more of their 

affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments. Audi 

Saradar Investment Bank SAL and/or any entity within the Audi Saradar group may engage in securities transactions, on a 

proprietary basis or otherwise, in a manner inconsistent with the view taken in this document. In addition, Audi Saradar 

Investment Bank SAL, any entity within the Audi Saradar group and/or any of their strategists, analysts and sales staff, may 

take a view that is inconsistent with that taken in this research report. 

The price, value of and income from any of the securities or financial instruments mentioned in this document can 

fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may 

have a positive or adverse effect on the price or income of such securities or financial instruments. Any forecasts 

on the economy, stock market, bond market or the economic trends of the markets are not necessarily a guide 

to future returns. You should understand that statements regarding future prospects may not be realized. Past 

performance should not be taken as an indication or guarantee of future performance, and no representation or 

warranty, express or implied, is made regarding future returns. As a result of the preceding, you may lose, as the case 

may be, the amount originally invested. 

Audi Saradar Investment Bank SAL and any entity within the Audi Saradar group shall not be liable for any loss or 

damages that may arise, directly or indirectly, from any use of the information contained in this research document 

nor for any decision or investment made on the basis of information contained herein.” 

50

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