Want to bet on the Gulf’s rising stars? Saudi Arabian banks might be your ticket.
They’re positioned to leave their UAE rivals trailing, say Goldman Sachs analysts, after starting coverage of four lenders with a “buy” rating.
Riyad Bank, Saudi Awwal Bank and Saudi National Bank are Goldman’s top picks, with returns of around 40% expected for these lenders. And it’s not just Goldman: not a single analyst covering those stocks has a “sell” rating, according to LSEG data.
Goldman analysts led by Kazim Andac see net interest income –– a key metric for banks –– growing at an annual rate of 9% between now and 2027, easily outperforming the 5% of UAE banks.
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Meanwhile, UAE lenders are facing tax headwinds, slower net income growth and higher provisioning requirements. The UAE’s days as a sunny tax haven ended after it raised its corporate tax for multinational biz to 15%.
Goldman also expects mega-projects like Neom and the Saudi Expo 2030 to drive low double-digit growth in loan volumes for Saudi lenders. That’s a little better than projections for a strong single digit rise among UAE banks.
It’s not just growth: The quality of lending is a key difference. Saudi banks boast non-performing loans of just 1% on average, compared to the UAE’s 4% rate, Goldman analysts say.
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Bargain buys
Still, the Wall Street bank has a buy rating on the likes of EmiratesNBD and ADCB. Goldman notes recent press talk over ENBD looking to buy a significant stake in India’s IDBI, and says the Dubai bank has enough capital to do so.
Both the UAE and Saudi banks trade at discounts to American peers. On a forward price-to-book-value basis, these banks trade at a 40% discount to the likes of JPMorgan, the world’s largest bank, according to LSEG data.
With net interest income growing faster than US rivals, these Middle East banks are a steal.
Edited by Thyagu Adinarayan and Tim Hume. If you have any tips, ideas or feedback, please get in touch: talk-to-us@moniify.com
