Better year may be ahead for Saudi bank shares

Updated 24 January 2013
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Better year may be ahead for Saudi bank shares

DUBAI: A weak performance by bank shares was one of the big surprises of Saudi Arabia's stock market last year, but the shares may pick up this year as strong economic growth finally provides a general boost to profits.
Last year should have been ideal for bank shares. Saudi Arabia's economy expanded 6.8 percent, the population continued to grew, and bank lending surged; outstanding loans to the private sector jumped 14.9 percent from a year earlier in November, the fastest pace since March 2009.
Expansionary government spending, with a focus on welfare and infrastructure development, helped drive loan growth for banks listed on the stock market to 17.4 percent last year, investment bank EFG-Hermes estimated.
But share price performance was less than spectacular; the banking sector index was flat in 2012, underperforming a 6.0 percent rise by the overall market index.
Analysts said a range of factors pressured profit margins last year, including regulators' decision to encourage banks to make large provisions for loan losses in the third quarter as a precaution, and stiff competition between banks.
"Banks are going toward retail financing but one of the key characteristics of the segment is price competition," said Abdullah Alawi, head of research at Aljazira Capital in Jeddah. "That's one of the reasons top-line margins are being squeezed."
The pressure on margins could be seen in a mixed bag of earnings reported by Saudi banks over the past couple of weeks for the fourth quarter of 2012.
For example Riyad Bank, the country's third-largest listed bank by market capitalization, posted a rise in fourth-quarter net profit of just 4.1 percent from a year earlier, to SR 810 million ($ 216 million). It missed the average forecast of nine analysts surveyed by Reuters, who had predicted SR 822 million.
Net profit at Samba Financial Group, the second-largest listed bank, actually fell 7.8 percent, even though its loan portfolio expanded 18 percent. There are reasons to think this year will be kinder to bank shares, however.
One is that loan loss provisions tapered off last quarter as regulators apparently became satisfied with the banks' precautions. Now that the precautions have been taken, banks may be freer to offer more loans in the relatively risky but lucrative consumer sector.
The positive surprises in banks' fourth-quarter earnings often came from institutions with substantial exposure to retail consumer lending, including Bank Albilad and Saudi British Bank.
"Loan growth in 2013 will be in the low teens - that is already priced into share prices. But if margins improve, it will be a catalyst for the sector," said Mahmoud Akbar, a banking analyst at NCB Capital.
"The consumer lending side did very well in 2012, and building on that is still a possibility." A key constraint on banks could be regulatory limits on such loans, he added; the central bank limits most consumer lending to 33 percent of the borrower's salary.
But even if consumer lending growth slows, the volume which banks added to their overall loan portfolios in the past year should filter through to their bottom lines in coming months, analysts said.
"These loan growth trends are encouraging and suggest that the broader fundamental story for Saudi banks remains intact," sid Murad Ansari at EFG-Hermes.
Also, precisely because of their weak performance last year, bank shares are not pricey. The sector is trading at about 10.4 times analysts' estimates of earnings for this year, while the overall market index is at 11.3 times.
"Banks are not expensive - we're happy with the asset growth in the banking sector as a whole," said Farooq Waheed, senior portfolio manager at Riyad Capital.
"This year, we will see the full impact of that growth. We expect the sector to lead the market in 2013. There were some earnings disappointments but I think there is room for earnings growth."
Some investors may already be acting on such expectations. The banking sector of the stock market is up 4.4 percent so far in January, compared to a 2.9 percent gain for the overall index.


Iran rial plunges to new lows as US sanctions loom

Updated 24 June 2018
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Iran rial plunges to new lows as US sanctions loom

  • The dollar was being offered for as much as 87,000 rials, compared to around 75,500 on Thursday
  • The currency has been sliding for months because of a weak economy

DUBAI: The Iranian rial plunged to a record low against the US dollar on the unofficial market on Sunday, continuing its slide amid fears of returning US sanctions after President Donald Trump in May withdrew from a deal on Tehran’s nuclear program.
The dollar was being offered for as much as 87,000 rials, compared to around 75,500 on Thursday, the last trading day before Iran’s weekend, according to foreign exchange website Bonbast.com, which tracks the unofficial market.
Iran’s semi-official news agency ISNA said the dollar had climbed to 87,000 rials on Sunday from about 74,000 before the weekend on the black market, and several Iranian websites carried similar reports.
The currency has been sliding for months because of a weak economy, financial difficulties at local banks and heavy demand for dollars among Iranians who fear the pullout by Washington from the nuclear deal and renewed US sanctions against Tehran could shrink the country’s exports of oil and other goods.
The fall of the national currency has provoked a public outcry over the quick rise of prices of imported consumer goods.
Merchants at the mobile phone shopping centers Aladdin and Charsou in central Tehran protested against the rapid depreciation of the rial by shutting down their shops on Sunday, the semi-official news agency Fars reported.
A video posted on social media showed protesters marching and chanting “strike, strike!” The footage could not be authenticated independently by Reuters.
Hours later, Information and Communications Technology Minister Mohammad Javad Azari-Jahromi said on Twitter that he visited the protesting merchants.
“I will try to help provide hard currency for (mobile) equipment (imports),” Azari-Jahromi wrote, adding: “The merchants’ activity has now gone back to normal.”
Some of the US sanctions against Iran take effect after a 90-day “wind-down” period ending on Aug. 6, and the rest, most notably on the petroleum sector, after a 180-day “wind-down” period ending on Nov. 4.
The rial has weakened from around 65,000 rials just before Trump’s announcement of the US withdrawal in early May, and from 42,890 at the end of last year — a freefall that threatens to boost inflation, hurt living standards and reduce the ability of Iranians to travel abroad.
In an effort to halt the slide, Iranian authorities announced in April they were unifying the dollar’s official and black market exchange rates at a single level of 42,000, and banning any trade at other rates under the threat of arrest.
But this step has failed to stamp out the unofficial market because authorities have been supplying much less hard currency through official channels than consumers are demanding. Free market trade simply went underground, dealers said.