DUBAI: Credit Suisse upgraded six Saudi Arabian banks, including Al-Rajhi Bank and Riyad Bank, saying it expected good year-over-year net income growth from them during the second half of the year.
Credit Suisse expects a 16 percent year-over-year net income growth at Saudi banks for the second half of 2009, due to their low base aggregate earnings during the second half of 2008.
The deal between troubled Saudi conglomerate Saad Group and local banks in the region to settle all debt with these banks, is widely expected to boost the confidence of local and foreign investors, Credit Suisse said in a note to clients.
Banks across the region have been hit by the fallout from debt restructuring at the two family owned Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros. (AHAB), in what amounts to the biggest financial fiasco to hit the Middle East during the current economic crisis. On Sept. 17, Al-Arabiya TV reported that the owner of Saad Group had reached a deal to settle all debt with local banks.
Credit Suisse upgraded Al-Rajhi Bank and Riyad Bank to “outperform” from “neutral” and Arab National Bank to “neutral” from “underperform.” The brokerage named Samba Financial Group as its top pick in the sector and raised the stock to “outperform” from “neutral.”
The brokerage, however, said credit costs at Saudi banks were likely to nearly double in 2009 to SR5.1 billion, with the non-performing loans ratio reaching 2.1 percent. Balance sheet growth at these banks could be minimal and sequential net interest margin expansion is unlikely to continue in the second half, Credit Suisse added.
Meanwhile, Credit Suisse began coverage of Oman-based contractor Galfar Engineering with an “underperform” rating, saying it was cautious on the firm due to its high geographical concentration and low visibility for backlog growth.