MENA financialsLooking beneath the surfaceInvestor pay-out what you see is not what you get
Sector Report | May 23, 2012
S e c t o r C o v e r a g e
M a y 2 3 2 0 1 2
Jaap Meijer, MBA, CFA [email protected]
+9714 507 1744
Loubna ElHassan Michael Malkoun Nisreen Assi Jonathan Milan Christine Kalindjian Zeina Nasreddine Arqaam Capital Research offshore s.a.l.
MENA financials
Looking beneath the surface
Investor payout: what you see is not what you get
Some banks are selling dividend yields to investors, rather than setting consistent pay-out levels. A number will have to raise capital or cut their loan growth, diluting their EPS growth or fundamental upside.
Focus should shift towards tangible capital and away from capital adequacy ratios that include low quality capital such as subordinated debt. Some banks have also adopted some form of less conservative accounting relating to the valuation of real estate assets, associates or acquisition accounting (a few UAE banks), while others have substantial cushions (KSA, Egyptian & Qatari banks).
12 banks should be short in capital: ADCB, ADIB, ENBD, DIB, Bank Audi, Bank of Beirut and Ahli United are already below CET1 of 12% under Basel 3, while another 5 (CBQ, Doha, KFH, Sohar and CAE) may soon have to find fresh capital due to their high dividend pay-outs. The best capitalized banks are Qatari, Kuwaiti and Saudi banks, while the least are Omani, Lebanese and UAE banks. We initiate on 54 financial institutions and our TPs offer an average of 22% upside. We prefer to be highly selective.
We play deep value. We see deep value in UNB, FGB, and CBD, while avoiding pitfalls like capital, under-provisioning, real estate losses and concentration risk.
We also play growth with attractive valuations and strong RORWA. Loan growth in Qatar, KSA, Egypt & Oman should exceed 10%, while most banks in the UAE, Lebanon & Kuwait should grow loans by single digits only. We recommend Bank Muscat (well balanced growth and to be better positioned after 2 capital hikes in FY 12e), QNB (despite a slowdown vs. FY 11A), CIB (helped by loan demand as corporates rebuild their stocks and higher T-bill yields), Burgan (helped by the Turkish acquisition) and Al Rajhi (best KSA growth stock). We play Salama as our favorite insurance pick. We also play M&A: We see CAE and SHB as mispriced M&A candidates.
We strongly avoid DIB (large hidden losses on associates, real estate investments), Khaliji (poor quality of earnings), BOB (lowest CET1), EGB and Boubyan (both very highly valued on take-over speculation), HSBC Oman (high valuation, despite merger synergies), Shuaa (a break-up not likely in the short-term), KFH (poor quality of earnings, weak capital base), Gulf bank (elevated valuation, below average fundamentals), DFM (valuation prices in a substantial improvement in volumes), Mashreq (premium valuation unwarranted) and Medgulf (higher claims in health care, very expensive).
Company Ticker UNB UH
Price Target AED 4.6
Upside (%) 57.1
Company Ticker FGB UH
Price Target AED 13.4
Upside (%) 53.4
Company Ticker BKMB OM
Price Target OMR 0.9
Upside (%) 51.2
Company Ticker SALAMA UH
Price Target AED 0.93 Upside (%) 51.2
Company Ticker CBD UH
Price Target AED 4.2 Upside (%) 49.1
Company Ticker BURG KK
Price Target KWD 0.6 Upside (%) 45.3
Company Ticker AAAL AB
Price Target SAR 38.3 Upside (%) 41.9
Company Ticker QNBK QD
Price Target QAR 189.2 Upside (%) 41.6
Company Ticker COMI EY
Price Target EGP 35.6 Upside (%) 39.3
Company Ticker RJHI AB
Price Target SAR 100.5 Upside (%) 35.8
Company Ticker CIEB EY
Price Target EGP 12.0 Upside (%) 32.2
© Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice.
Core Buy Portfolio
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 2
Table of Contents
Investment recommendation ......................................................................................... 3
Core Portfolios ............................................................................................................... 22
We introduce our Core portfolio ............................................................................... 22
We introduce our Avoid portfolio .............................................................................. 31
Picks by country ............................................................................................................. 37
Valuation: P/tNAV12e of 1.5x and P/E13e of 9.8x ........................................................ 47
20% MENA banks undercapitalized .............................................................................. 67
Potential Disruptions in Strait of Hormuz - GCC is a sweet spot ................................... 85
Hidden deficits and values in balance sheets................................................................ 88
Solid credit growth outlook ........................................................................................... 90
Strongest project-related loan growth in Qatar ........................................................... 97
Fees and commissions ................................................................................................. 115
Investment income: We do not include bond gains ................................................... 117
Stress testing: .............................................................................................................. 133
MENA banks – more resilient to any liquidity shortage scenarios ............................. 135
M & A: Banks to become more confident: What to play? .......................................... 145
RORWA: The true strengths of a franchise ................................................................. 152
Insurance ..................................................................................................................... 157
Credit Quality Screen................................................................................................... 171
Arqaam Valuation Approach: ...................................................................................... 180
Recent results & Previews Q2 12 ................................................................................ 185
Credit analysis ............................................................................................................. 207
Key upside and downside risks .................................................................................... 214
Appendices .................................................................................................................. 222
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 3
Investment recommendation
What you seen is not what you get. Regional investors are too focused on reported capital
adequacy ratios which include low quality capital such as subordinated debt, rather than
tangible equity ratios. Furthermore, capital ratios are not reported in a consistent way among
banks. We harmonize reported Tier-1 ratios and look at tangible equity under Basel 3 by
stripping out preference shares and subordinated debt, fully deducting associate interests, and
including retained earnings, while deducting cash dividends. We are setting a minimum of 12%
CET1 under Basel 3. ADCB, ADIB, ENBD, DIB, Bank Audi, Bank of Beirut and Ahli United fail to
meet this 12% minimum under Basel 3, and may have to reduce their pay-out, cut their growth
or raise common equity to address this shortfall.
Exhibit 1: Core Equity Tier 1 FY 12e
Source: Company Data, Arqaam Capital Research
Capital conundrum: Beware the bank selling dividend yield
A lot of banks are paying dividends that are too high when compared to their growth in capital
requirements, with the purpose of appeasing retail investors. For most banks such as QIB,
MARK, Khaliji, QIIB, HSBC Oman, Egyptian Gulf Bank, we welcome these high dividends to
address their very high capital base. However, for 5 banks, i.e. CBQ, Doha, KFH, Sohar and
Credit Agricole Egypt, this is eroding their already reasonably tight capital base. As a result of
their high dividend pay-outs, these banks will soon need to find fresh capital, or alternatively
cut back their loan growth substantially. As a consequence, a number of banks will have to
come to the market with capital increases, or will have to cut back their loan growth, both of
which could dilute their EPS growth or fundamental upside.
0%
5%
10%
15%
20%
25%
30%
ALI
NM
AQ
NB
KTA
MW
EEL
BO
UB
YAN
QIIK
QIB
KR
AK
BA
NK
NB
KA
LBI
SIB
CK
CB
KC
BD
RJH
IM
AR
KEG
BE
SAM
BA
RIB
LM
ASQ
SAB
BG
BK
CO
MI
AR
NB
NSG
BFG
BB
JAZ
UN
BO
IBB
BU
RG
BSF
RD
HB
KA
AA
LN
BA
DB
YBB
LOM
CB
QK
KFI
NB
KM
BA
DC
BEN
BD
CIE
BA
UB
DIB
HD
BK
AU
DI
BK
SBA
DIB
BO
B
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 4
Exhibit 2: FY 11-15e CAGR Capital vs. RWA Growth
Source: Company Data, Arqaam Capital Research
We have factored in a capital increase of 10% for Doha bank and for Al-Jazeera, which we view
as a relative certainty, while Bank Muscat unveiled capital increase plans for FY 12e. An
alternative for CAE could be a new strategic investor and we see the bank as an attractive M&A
target, even though Gulf banks (i.e. QNB, Burgan) have turned to Turkey as a new growth
market. The best capitalized banks are the Qatari, Kuwaiti and Saudi banks, the least, Omani,
Lebanese and UAE banks.
Exhibit 3: Core Equity Tier 1 FY 15e
Source: Company Data, Arqaam Capital Research
Audi BLOM
BYBLOS
BOBQNB
DOHA
QIB
CBQ
MARK
Khaliji QIIB
NBK
Burgan
GULF BANK
KFH
BOUBYAN
MUSCAT
SOHAR
OIB
CIB
CAE
NSGB
HDBEGB
ADCB
ADIB
NBAD
FGBUNB
ENBD
DIB
CBDMASQ
RAKBANK
TAMWEEL
SAMBA
RIYAD
RJHI
BSFR
SABB
ANBSHB
SIB
ALBI
BJAZ
AUB
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20% 25%
Capital Absorption
Capital Generation
0%
5%
10%
15%
20%
25%
ALI
NM
AQ
NB
KTA
MW
EEL
RA
KB
AN
KQ
IBK
BO
UB
YAN
QIIK
NB
KR
JHI
ALB
IC
BD
SIB
CSA
MB
AM
AR
KK
CB
KM
ASQ
RIB
LG
BK
EGB
EC
OM
IU
NB
SAB
BN
SGB
BU
RG
AR
NB
FGB
OIB
BB
SFR
BJA
ZA
AA
LN
BA
DB
LOM
BYB
DH
BK
AD
CB
KFI
NA
UD
IEN
BD
BK
MB
AU
BC
BQ
KC
IEB
DIB
BK
SBH
DB
KA
DIB
BO
B
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 5
Checking what’s behind the numbers
Next to that, some banks have adopted some form of less conservative accounting relating to
the valuation of real estate assets, associates or acquisition accounting, while others have
substantial hidden reserves. We fully take those hidden losses into account. Most prominent
are our negative adjustments for FGB (AED3.8bn on real estate, though the bank remains well
capitalized even after taking those impairments), DIB (AED 1.3bn on associates, AED 1.2bn on
real estate, AED 0.9bn negative FV adjustments) and ENBD (AED 1.3bn on real estate), UNB
(AED 0.7bn on real estate), ADIB (AED 561mn on real estate investments, AED 151m on FV
adjustments), ADCB (AED 198m, AED 432m FV adjustments), Tamweel (AED 194mn) and CBD
(AED 87mn).
On the other hand, we believe KSA banks, mainly Riyad, Bank Al-Jazira and SIB, are still sitting
on substantial unrealized gains related to their real estate investments that could be unlocked
if the properties are sold, as was illustrated by the capital gains reported by Albilad in Q1 12A.
Qatari and Egyptian banks also have substantial risk reserves, which are being deducted from
their capital ratios.
Exhibit 4: Impact of Accounting Adjustments on CET1
Source: Company Data, Arqaam Capital Research
We also adjust for potential underprovisioning as some banks have not yet fully bitten the
bullet, such as ENBD (AED 2.0bn) and again DIB, (AED 1.5bn) and Tamweel (AED 0.6bn) being
the most affected. Conversely, we believe that KSA banks are significantly overprovisioned as
illustrated below. All of these adjustments are reflected in our valuations.
-6%
-4%
-2%
0%
2%
4%
6%
8%
EGB
EQ
NB
KA
AA
LA
LBI
BJA
ZB
OU
BYA
ND
HB
KSA
BB
AU
BB
KM
BK
FIN
HD
BK
MA
RK
RIB
LN
BA
DC
EIB
CO
MI
AR
NB
KC
BK
QIIK
BYB
AU
DI
NSG
BN
BK
BLO
MC
BD
BK
SBG
BK
SIB
CB
OB
RJH
IB
UR
GA
DC
BC
BQ
KO
IBB
UN
BSA
MB
AA
LIN
MA
QIB
KM
ASQ
AD
IBEN
BD
BSF
RFG
BTA
MW
EEL
RA
KB
AN
KD
IB
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 6
Exhibit 5: Over/Under provisioning as % RWA
Source: Company Data, Arqaam Capital Research
Questioning zero risk-weighted assets for sovereign bonds
We also ran a stress test of a potential risk-weighting for risk weighting of Treasury bills.
The debt crisis also is leading some regulators, particularly European, to question rules that
allow lenders to apply zero risk-weightings to government bonds issued in a bank’s home
currency when calculating capital ratios. Under current guidelines, banks do not need to hold
any capital against the securities, even after the cost of insuring government bonds against
default are high and clearly the risk of holding the securities is no longer zero. Many corporate
issuers can borrow at narrower spreads than governments. We therefore would not be
surprised by further adjustments to the Basel III rules.
In the calculations below we calculate the potential impact of applying 10% risk weighting
Kuwait, UAE, KSA, Qatar and Abu Dhabi (rated AA to AAA), for 20% risk-weighting for Oman
(rated AA), 50% for Bahrain (rated BBB) and 100% risk-weighting for Lebanese, Egypt (both not
investment grade) and Dubai banks (not rated). This more or less is in line with S&P’s capital
model.
The impact would be the largest for the ENBD (AED 2.33% negative effect on CET1), Egypt
(NSGB 2.29%, CIB 2.04%, CAE 1.93%) and Lebanese banks (Byblos 2.35%, Blom 2.37%, Audi
1.85% and BOB 0.62% (partly offset by the fact that USD government bonds are already risk
weighted at 100%).
-6%
-4%
-2%
0%
2%
4%
6%
SIB
CA
LBI
AR
NB
EGB
EB
JAZ
BO
UB
YAN
KFI
NSA
BB
BK
MB
SHB
CIE
BR
JHI
AU
BSA
MB
AH
DB
KC
OM
IN
BK
RIB
LD
HB
KQ
NB
KN
BA
DB
SFR
BU
RG
BYB
ALI
NM
AC
BQ
KN
SGB
KC
BK
MA
RK
BLO
MG
BK
BK
SBA
UD
IQ
IIKB
OB
FGB
QIB
KA
DIB
ENB
DA
DC
BO
IBB
CB
DM
ASQ DIB
UN
BR
AK
BA
NK
TAM
WEE
L
% RWA (reported) % RWA (Basel 3)
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 7
Exhibit 6: Weighting Treasury Bills
Source: Company Data, Arqaam Capital Research
We also run a stress test of a potential 35% haircut on the holdings of sovereign bonds and loans, in a theoretical default. This is particularly a huge impact on the Lebanese, Egyptian banks and ENBD.
Exhibit 7: Sovereign Haircut on CET1
Source: Company Data, Arqaam Capital Research
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
QIB
KM
AR
KK
FIN
BO
UB
YAN
EGB
EA
DIB
UN
BD
IBC
BD
RA
KB
AN
KTA
MW
EEL
ALB
IA
UB
FGB
AD
CB
SIB
CB
KM
BB
JAZ
NB
AD
BK
SBB
SFR
RIB
LC
BQ
KB
UR
GD
HB
KG
BK
AA
AL
SAB
BN
BK
AR
NB
RJH
ISA
MB
AB
OB
OIB
BK
CB
KQ
IIKA
LIN
MA
MA
SQH
DB
KC
IEB
AU
DI
QN
BK
CO
MI
NSG
BEN
BD
BYB
BLO
M
0%
50%
100%
150%
200%
250%
BO
BA
UD
IB
LOM
BYB
ENB
DQ
NB
KC
IEB
NSG
BO
IBB
CO
MI
KC
BK
DH
BK
AR
NB
AA
AL
SAM
BA
RJH
ISA
BB
HD
BK
CB
QK
GB
KQ
IIKB
UR
GN
BK
NB
AD
MA
SQB
SFR
EGB
EB
JAZ
ALI
NM
AR
IBL
BK
MB
AD
CB
SIB
CFG
BB
KSB
QIB
KM
AR
KK
FIN
BO
UB
YAN
AD
IBU
NB
DIB
CB
DR
AK
BA
NK
TAM
WEE
LA
LBI
AU
B
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 8
Exhibit 8: Cap on Dividend Distribution given 7% minimum CET1
Source: Company Data, Arqaam Capital Research
We see the GCC as a potential beneficiary if tensions in the Gulf resurface, with KSA and to a
lesser extent, Oman, as the key beneficiaries. Kuwait and Qatar are more vulnerable, while the
UAE is in a middle position. This may hamper the already sluggish global growth since we view
the GCC as a sweet spot. Iran has threatened retaliation in the form of a blockade of the Strait
of Hormuz, a channel for 20% of the global flow of oil and gas out of the Gulf, in response to
tougher sanctions, including a boycott of Iranian oil exports by the EU from 1 July 2011 over
Iran’s nuclear program. This has been aggravated by a visit to one of the three UAE islands
occupied by Iran since 1971. These threats have been verbal and are most likely to remain in
check. The US has expressed it is hopeful that it could resolve the issues in a peaceful manner.
However, we view that a plausible scenario would be the slowdown of shipping through the
Strait of Hormuz, while we expect such tension to keep oil prices at their currently high level as
markets would increasingly view the vision of military confrontation as a realistic possibility.
Due to the very low price elasticity, the high oil prices are boosting the GDP and fiscal balances
of the GCC, despite potential disruptions in exports. However, the weak growth prospects in
the advanced economies and the ramification of the euro zone crisis could lead to a
pronounced decline in oil prices if regional geopolitical risks subside, although we think OPEC is
committed to an oil price of USD 100.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
RA
KB
AN
KC
OM
IC
BD
NSG
BU
NB
ALB
ISA
MB
AQ
IIKR
IBL
AR
NB
QN
BK
SIB
CFG
BB
LOM
RJH
ITA
MW
EEL
MA
RK
SAB
BN
BK
MA
SQA
AA
LB
YBQ
IBK
KC
BK
CIE
BD
HB
KEG
BE
BSF
RB
UR
GN
BA
DB
KM
BA
DC
BA
UD
IC
BQ
KO
IBEN
BD
GB
KB
JAZ
ALI
NM
AK
FH DIB
AU
BH
DB
KB
KSB
BO
UB
YAN
AD
IBB
OB
New potential yield Current yield
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 9
Exhibit 9: Loan growth by country for banks under our coverage
Source: Central Bank, Arqaam Capital Research
Qatar, Egypt, Oman and KSA are best positioned for future loan growth, while we see the
lowest growth in UAE, Lebanon and Kuwait. Growth is still mainly coming from the public
sector: We play QNB, but we also like more balanced growth such as Bank Muscat, CIB & Al
Rajhi.
Exhibit 10: Loan growth by bank (incl. acquisitions)
Source: Company Data, Arqaam Capital Research
0%
5%
10%
15%
20%
25%
30%
Qatar Oman KSA Egypt Lebanon UAE Kuwait Bahrain
FY 11A FY 12e
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
OIB
BA
LIN
MA
MA
RK
BO
UB
YAN
SAB
BA
LBI
KC
BK
BU
RG
QIIK
BJA
ZR
JHI
AA
AL
BK
MB
BO
BD
HB
KC
BQ
KC
OM
IB
LOM
BK
SBSI
BC
QN
BK
BSF
RN
BA
DSA
MB
AB
YBA
RN
BEG
BE
HD
BK
NSG
BFG
BQ
IBK
RIB
LC
IEB
KFI
NA
UB
UN
BR
AK
BA
NK
MA
SQA
DC
BG
BK
CB
DN
BK
AU
DI
TAM
WEE
LA
DIB
DIB
ENB
D
FY 12e FY 13e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 10
Slowdown in Qatar: We expect loan growth in Qatar to slowdown due to the 2 month delay in
the budget which is now for 3 years and could involve a budget increase of 20-25% y/y, while
loan margins could put pressure on the sector’s profitability due to the banks willingness to
lend (e.g. QIB wants to recapture its lost market share in FY 11A). Nevertheless, over the next
few years, loan growth should remain in the mid double digits due to strong support from
projects, while we expect public sector loan demand to continue to outpace corporate loan
demand that mainly relates to real estate. In Qatar we prefer to play growth through QNB,
even though loan growth should only be 10-12.5% after growing by 47% in FY 11A.
Well balanced growth in Oman: We also view Oman very positively, with a strong support
from the public sector projects (10% pa), where we calculate the second highest contribution
after Qatar, while the overall loan demand is much more balanced than in Qatar due to a lower
focus on real estate lending. We view Bank Muscat as the best positioned, while HSBC Oman
should be more internally focused as opposed to focusing on external growth (illustrated by
the closing of the India and Pakistan operations), though its capital position (the strongest
among the Omani banks under our coverage) allows for strong medium term growth,
particularly if the bank increases its product suite. We also view Sohar’s capital base as very
tight.
Growth for niche banks in Egypt: While the duration of Egypt’s transitional period continues to
be uncertain, corporate loan demand is picking up, whereas higher average T-bill rates are a
welcome boost for the banks’ net interest margins, while the cost of risk increased
substantially last year, but remains in check for the private banks (except for NSGB where we
anticipate higher loan loss charges). We expect 10-13% loan growth for most banks in FY 12e,
with structural growth north of 15% if Egypt returns back to normalcy. We view CIB as the best
positioned, as the French subsidiaries face caps on their growth of 10%, implemented by their
parent companies, which both have tight capital positions due to Basel 3 and losses on Greek
exposures.
KSA banks growing loans by over 10%: We are enthused by Saudi’s renewed double digit
growth, fully driven by the trickle-down effect on the private sector, and we expect this to
remain at these levels for the next few years. However, we expect continued pressure on net
interest margins and the full extent of loan growth may not translate into revenue growth. We
are not overly optimistic about the pending new mortgage laws in the short-term, though this
could potentially create significant opportunities for the virtually non-existent mortgage loans,
while solving the housing shortage in KSA. Al Rajhi should outperform its peers with respect to
loan growth, as we expect retail growth, 60% of its loan book, to outpace corporate loan
demand.
Single digit growth in Lebanon, UAE and Kuwait
For Lebanon, we expect high single digit growth, driven by continued deposit inflows from
Lebanese expatriates and expansion abroad. Audi is the most aggressive, and plans to have
USD 5bn in loans with 50-60 branches in Turkey, while BLOM stands out because of its
conservativeness.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 11
We are cautious on loan growth in the UAE, due to what can already be regarded as very high
loan penetration, and the expected reduction in leverage of some GREs, while some projects in
Abu Dhabi have also been halted. Furthermore, we are now cautious on the loan growth of
NBAD and ENBD because of a new circular capping single party exposures including to local
governments and GREs.
Exhibit 11: UAE banks’ exposure to public sector as % of BIS
Source: Company Data, Arqaam Capital Research
We are even more cautious on Kuwait, as only a few private public finance partnerships are
coming to the market, while corporate leverage continues to be very high. The strong fiscal
surpluses are not being translated into a wave of government projects as the opposition
controls its parliament. We welcome Burgan’s move to buy Tekfen, we forecasts that the
acquisition could increase its loan growth by 3% pa, while we have a very negative view on
NBK’s plan to increase its stake in Boubyan due to its excessive valuation, making it hard to
view that this deal would be in the best interests of NBK’s shareholders.
Deposit growth to exceed GDP due to high savings rates
We forecast deposits based on national savings (33%-63% of GDP in GCC, 13-14% in Lebanon
and Egypt) and conversation rates (c. 10-50%). Based on this model we forecast deposit
growth of high single digit to mid double digits. Bank deposits should to outpace GDP growth
in the next few years.
Net interest margin to fall in most markets
We expect margins to fall in most markets, particularly in Qatar, KSA and the UAE as lowering
deposit rates has come to an end, while rivalry for new loans remains intense, despite
European banks withdrawing from the market. On top of that, we see caps by Central banks in
49%
132%
49%
1% 16% 3%
128%
35%
41%
31% 15%24%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
NBAD ENBD UNB FGB CBD ADIB
Gov. As % of BIS PSE as % of BIS
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 12
the UAE and Oman. In Egypt, we expect strongly improved margins, helped by higher yields on
treasury bills, a return to local currency lending, and a pick-up in SME lending.
We also expect pressure on net interest margins as banks prepare for Basel 3 liquidity ratios,
with pressure on asset yields due to higher required liquidity and higher cost of funding (longer
maturity deposits, raising wholesale debt). This is particularly relevant for ENBD and NBAD,
though both have increased their outstanding deposits in Q1 12A substantially.
Exhibit 12: Asset Yields
Source: Company Data, Arqaam Capital Research
Exhibit 13: Liabilities Costs
Source: Company Data, Arqaam Capital Research
Funding markets in good shape despite global slowdown; almost all banks net cash positive
Funding markets across the MENA region are in a much better shape, with interbank rates
generally still not pointing upwards due to Islamic financing options, a better overall economic
0%
2%
4%
6%
8%
10%
12%R
AK
BA
NK
HD
BK
CIE
BN
SGB
EGB
EC
OM
ITA
MW
EEL
BLO
MB
YBA
DIB
KFI
NFG
BB
OB
DIB
AU
DI
CB
DU
NB
AD
CB
CB
QK
DH
BK
RJH
IB
KM
BB
KSB
MA
SQQ
IIKEN
BD
QN
BK
QIB
KB
UR
GA
LIN
MA
NB
KA
UB
BO
UB
YAN
GB
KN
BA
DK
CB
KO
IBB
SIB
CA
LBI
AR
NB
MA
RK
AA
AL
BSF
RR
IBL
BJA
ZSA
BB
SAM
BA
FY 11A FY 14e
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
HD
BK
EGB
EN
SGB
CIE
BTA
MW
EEL
CO
MI
BYB
BO
BB
LOM
AU
DI
MA
SQB
KSB
UN
BR
AK
BA
NK
AD
CB
KFI
NC
BQ
KD
IBEN
BD
AU
BB
UR
GQ
IIKFG
BG
BK
MA
RK
BK
MB
CB
DA
DIB
QN
BK
DH
BK
KC
BK
QIB
KB
OU
BYA
NN
BA
DN
BK
SIB
CO
IBB
BJA
ZA
AA
LR
IBL
ALI
NM
AB
SFR
SAB
BSA
MB
AA
RN
BR
JHI
ALB
I
FY 11A FY 14e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 13
outlook and the cash injection provided by the ECB. Most banks are cash positive (cash and
interbank), with the exception of NBK and Al Khaliji. Banks have been addressing their liquidity
gap and redemptions by issuing new wholesale debt and even subordinated debt (SABB).
Nevertheless we expect deposit rates to move up moderately or to stabilize.
UAE banks have addressed some gaps in short-term liquidity, but more work needs to be done
in light of the Basel Committee’s stricter liquidity guidelines (we focus on its new liquidity
coverage ratio and net stable funding ratio). Basel may further tweak the key variables of the
so-called liquidity coverage ratio (LCR) that is due to take effect in FY 15e, meaning that the
liquidity gap may therefore be smaller than what we calculate.
A few banks are below an LCR of 100%, i.e. Tamweel (29%), NBAD (69%), NBK (79%), ENBD
(81%), RAKBank (82%), SIB (90%). Addressing the liquidity gap could reduce net profits by up to
9% and net interest margins by up to 17bps.
Medium-term liquidity (Basel III) very sound overall
Most banks score well on medium-term liquidity, with Lebanese and Egyptian banks
commanding the strongest liquidity positions. This is due to the high liquidity of T-bills and
bonds, the banks’ higher share of short-term corporate loans, and the long-term nature of
outstanding term deposits. The new rules will go into effect in FY 18e but are already being
used by SAMA, the most rigorous regulator across MENA in our view, for monitoring purposes.
Al Khaliji (67%), Ahli United (67%), CBQ (71%), QIB (74%), NBAD (81%), FGB (87%), QNB (89%),
Gulf bank (90%) ADCB (92%) and ENBD (94%) are well below the 100% minimum requirement,
on our calculations.
Exhibit 14: Net stable funding ratio
Source: Company Data, Arqaam Capital Research
Maturities of deposits
We expect banks to extend the maturities of deposits to at least 1 month (helping LCR) or 12
months (supporting NSFR) by incentivizing to switch to term deposits. Boubyan, NBK, Burgan,
0%
50%
100%
150%
200%
250%
BJA
ZH
DB
KA
UD
IB
LOM
SAM
BA
AA
AL
SAB
BQ
IIKB
OU
BYA
NSI
BC
BSF
RA
RN
BC
IEB
ALB
IR
IBL
RJH
ID
IBB
UR
GM
ASQ
NSG
BC
OM
IA
LIN
MA
OIB
BM
AR
KB
YBB
KSB
AD
IBC
BD
BK
MB
TAM
WEE
LN
BK
UN
BR
AK
BA
NK
EGB
EEN
BD
KFI
NA
DC
BD
HB
KG
BK
QN
BK
FGB
NB
AD
QIB
KC
BQ
KA
UB
KC
BK
BO
B
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 14
Albilad, Bank Muscat and KSA banks greatly rely on current accounts, while UNB, FGB & Al
Khaliji have a very high share of time deposits and may be able to reduce the cost of funding.
Fees & commissions: factoring in regulatory changes
We expect growing fees and commissions for all our countries, but with the lowest growth in
the UAE, due to strict regulation capping retail charges. We expect an accelerating growth in
brokerage and asset management fees due to the improving markets, though we expect a
significant slowdown vs. the buoyant Q1 12A, though markets have fallen due to the increased
issues in the Euro zone. We also expect continued strong growth in fees related to new net
lending.
We expect acceleration in Saudi Arabia due to higher new loan growth (partly due to margin
lending) and increased trade finance, brokerage, and asset management. The increase in fees
in Lebanon is slightly subdued due to lower net new loan growth. In Qatar, the double digit
increase in fees and commissions is driven by new lending and, to a much lesser extent, higher
brokerage fees given the resumption of brokerage activities.
But growth in brokerage (we expect 50% for FY 12e) and asset management (25%) should
mainly help DFM and most Saudi banks (particularly Bank Aljazira), NBAD and Bank Audi, but
not EFG-Hermes as the company is expected to fully exit its investment banking activities
(brokerage, research, investment banking, asset management), while the brokerage activities
of the Qatari banks are unlikely to be a significant generator of revenues yet.
Exhibit 15: F&C Growth FY 12e, FY 13e, and FY 14e
Source: Company Data, Arqaam Capital Research
Investment income structurally under pressure
Banks that relied on capital gains should be impacted by a normalization of these gains. We
anticipate a (significant) negative effect on the earnings of KFH, Al Khaliji, HDB, Bank of Beirut,
CAE, Byblos and AUB. On the other hand, we would expect EGB, DIB, Boubyan, ENBD, OIB,
BJAZ, SHB and QIIB to benefit from normalization in investment returns.
-20%
-10%
0%
10%
20%
30%
40%
50%
OIB
BB
JAZ
BO
UB
YAN
ALI
NM
AA
RN
BSA
MB
ASI
BC
BSF
RQ
NB
KQ
IBK
RJH
IA
LBI
RIB
LQ
IIKTA
MW
EEL
EGB
EC
IEB
AA
AL
SAB
BK
CB
KC
OM
IB
KSB
BK
MB
BO
BH
DB
KN
SGB
NB
AD
CB
QK
NB
KD
HB
KB
LOM
BYB
BU
RG
DIB
AU
BG
BK
KFI
NC
BD
AD
IBA
UD
IEN
BD
MA
SQU
NB
RA
KB
AN
KFG
BA
DC
BM
AR
K
FY 12e FY 13e FY 14e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 15
Capital gains on fixed income securities through realizing available for sale capital gains or fair
value changes have been helpful in a falling interest rate environment, however, they are not a
sustainable source of income, and instead reduce the average yield on assets as cash is
reinvested at lower rates. We use only normalized investment returns in our forecasts, do not
include bond gains, and use 5% gains on (private) equity investments and mutual funds.
Furthermore, we expect the balance sheet de-risking trend to be reinforced due to Basel 2.5
and Basel III (tripling risk weighted assets), while expecting part of the gains on securities to
move to other comprehensive income under IFRS 9. For most banks that have adopted IFRS 9,
the picture has been mixed in terms of impact on their shareholder equity and net earnings.
Exhibit 16: Change in Investment Income to Net Profit
Source: Company Data, Arqaam Capital Research
Exhibit 17: Investment Income/Total Investments
Source: Company Data, Arqaam Capital Research
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
EGB
ED
IBB
OU
BYA
NEN
BD
OIB
BB
JAZ
AA
AL
QIIK
BU
RG
QIB
KU
NB
MA
RK
BK
MB
AR
NB
GB
KC
BD
RIB
LSA
BB
BLO
MSI
BC
BSF
RSA
MB
AFG
BA
LIN
MA
ALB
IQ
NB
KTA
MW
EEL
RJH
IN
BA
DC
OM
IB
KSB
NSG
BN
BK
MA
SQA
DIB
AD
CB
AU
DI
RA
KB
AN
KC
BQ
KD
HB
KA
UB
CIE
BB
YBH
DB
KB
OB
KC
BK
KFI
N
-4%
-2%
0%
2%
4%
6%
8%
KFI
NC
IEB
MA
RK
RA
KB
AN
KB
UR
GQ
IBK
QIIK
AU
DI
AD
IBB
OB
HD
BK
KC
BK
BYB
AU
BSA
BB
DH
BK
CO
MI
BLO
MB
KM
BC
BQ
KN
SGB
AD
CB
AR
NB
QN
BK
MA
SQB
SFR
SAM
BA
RIB
LA
LBI
AA
AL
NB
KC
BD
NB
AD
FGB
BK
SB DIB
SIB
CEN
BD
BJA
ZA
LIN
MA
TAM
WEE
LR
JHI
UN
BO
IBB
GB
KB
OU
BYA
NEG
BE
FY 11A FY 12e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 16
Loan losses to slowly come down, but underlying picture is improving
We use a very detailed granular approach, and divide loan books into 7 loan categories: We
estimate the probability of default (PD) and loss given default (LGD) for each category and
forecast the expected losses (EL). We back test our non performing loans and losses given
default with the EU stress test.
We are becoming more optimistic on the underlying provisioning trend:
Global corporate default rates have fallen substantially. Banks have substantially increased provisions to 3.57% in FY 11A of loans vs. 2.32% in FY
08A, with UAE banks at 4.61% vs. merely 1.65% FY 08A. Coverage remains high (77%) despite an increase in reported NPLs and a large number of
restructurings Net NPL formation is slowing down. NPLs decreased 0.32% in FY 11A while it increased
0.91% in FY 10A and 1.90% in FY 09A. Stabilization of residential house prices in Dubai.
However, we only expect loan loss charges to slowly taper off, putting us below consensus for
most stocks under coverage, for the following reasons:
Banks are required to build general reserves. UAE banks are required to build 1.5% of credit risk weighted assets as provisions, while SAMA implicitly demands coverage by FY 15e of 150% of NPLs, while other banks add 1% of new loans. Cut off rates have been reduced for NPLs to 90 days from 180 days past due in the UAE.
Regulators and accounting boards are strongly in favor of using expected loss models rather than a fair value approach or the backward-looking incurred loss approach.
Ongoing restructuring of loans. Some 25% of restructured loans ultimately return as non performing, while we cannot exclude a second round of restructuring on previously restructured loans. CBQ, Khaliji, CIB, RAK Bank, FGB and Mashreq have particularly high share of restructured loans
Past due but not impaired loans are relatively elevated, particularly in UAE (UNB, ADCB, ENBD, CBD and RAKBank) & Kuwait (KFH, Khaliji and Gulf Bank).
Potential new regulation forcing banks to be more lenient towards consumer credits, particularly towards nationals.
High concentration risks (single party). High exposures to Commercial Real Estate, where we see continued price pressure,
contrary to residential market, where we have witnessed stabilization.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 17
Exhibit 18: Total average LLP (bps)
Source: Company Data, Arqaam Capital Research
Cost/income convergence
We expect cost/income ratios to improve dramatically over the next 4 years for a number of
banks, mainly Aljazeera, Alinma, Egyptian Gulf Bank, and Al Khaliji due to increasing scale,
while we see sharp cost reduction plans in place for ENBD, Shuaa and HSBC Oman.
We anticipate a deterioration of efficiency ratios for FGB, CBD, NBAD, and QNB as we expect
modest upward pressure on their cost/income ratios, despite their relatively low cost bases
due to continued expansion of branch networks and systems (and a new headquarters for
QNB) and continued business expansion to cope with increased activity levels and salary hikes
in FY 11A. For KSA banks, we expect a positive base effect, since KSA banks paid a 2 month
bonus to all employees in FY 11A, which may not be recurring.
Exhibit 19: Cost/Income: FY 12e vs. FY 15e
Source: Company Data, Arqaam Capital Research
0
50
100
150
200
250
DIB
RA
KB
AN
K
AD
CB
CB
D
ENB
D
TAM
WEE
L
KFI
N
MA
SQ
GB
K
AD
IB
FGB
UN
B
BU
RG
BO
UB
YAN
HD
BK
QIB
K
NB
AD
CIE
B
BLO
M
BYB
AU
DI
NSG
B
RJH
I
NB
K
EGB
E
QIIK
AU
B
BO
B
CO
MI
CB
QK
MA
RK
BK
MB
KC
BK
BK
SB
OIB
B
ALB
I
DH
BK
SIB
C
AR
NB
SAB
B
RIB
L
SHB
BSF
R
QN
BK
SAM
BA
BJA
Z
ALI
NM
A
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
KFI
NM
ASQ FG
BD
HB
KA
DIB
CB
QK
RA
KB
AN
KQ
NB
KA
DC
BB
UR
GK
CB
KB
YBQ
IIKSI
BC
AU
DI
DIB
NB
AD
UN
BC
BD
NB
KM
AR
KB
KM
BA
RN
BR
IBL
SAM
BA
SAB
BQ
IBK
BSF
RR
JHI
BLO
MB
KSB
ENB
DA
AA
LA
UB
ALB
IG
BK
BO
BO
IBB
TAM
WEE
LN
SGB
CIE
BA
LIN
MA
CO
MI
BO
UB
YAN
BJA
ZH
DB
KEG
BE
FY 11A FY 15e Change
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 18
Looking at underlying returns and what is driving them
We strongly prefer to focus on RORWA (net profit/risk weighted assets) rather than on ROE as
the latter could easily be distorted by the banks’ capital position. A strong capital position – a
source of value as this allows for dividend payments or loan growth - reduces ROE, while high
leverage, which caps future growth and dividend payments, boosts ROE and gives an inflated
view on the underlying performance. Our RORWA rankings reveal that RAKBank, Al Rajhi Bank
and QNB should consistently be the most profitable franchises within our coverage. When
comparing countries, it is clear that the Qatari banks are doing the best, followed by the
Egyptian banks despite the sharp increase in the cost of risk that we anticipate for FY 12e. The
least profitable markets are the UAE (due to lower net interest margins and the highest cost of
risk) and Lebanon (due to sharply increased capital requirements for treasury bonds in foreign
currencies under Basel 2).
Exhibit 20: FY 12e: Adjusted RORWA
Source: Company Data, Arqaam Capital Research
We also compare ROE on a reported basis with an adjusted ROE. We have adjusted the
reported ROE to a theoretical situation where a given bank would be perfectly adequately
capitalized, i.e. core equity would equal 12% of risk-weighted assets + 100% for its (financial and
non-financial) stakes.
The reported ROE particularly understates banks that have very solid capital positions coupled
with already reasonably high ROE. In the UAE the largest upward corrections are for Rakbank,
CBD and FGB, while we see a negative adjustment for ADIB, DIB, and ADCB. In Qatar all banks
are understating their profitability (particularly QNB), with CBQ being the only exception. In
Egypt, NSGB’s ROE is understated, while EGB’s underlying RoE is much weaker than reported
due to its already low ROE. In Lebanon, only Bank of Beirut is heavily affected due to its very
poor capital ratios and weak underlying profitability, which would be worse if it would address
its undercapitalization. In Saudi the largest uplift is for Al Rajhi, while most banks would also
0%
1%
2%
3%
4%
5%
6%
RA
KB
AN
KR
JHI
QN
BK
ALB
IC
OM
IQ
IIKN
SGB
AU
DI
DH
BK
SAM
BA
FGB
MA
RK
QIB
KB
LOM
CB
DN
BK
CIE
BSA
BB
BSF
RN
BA
DA
AA
LA
RN
BO
IBB
RIB
LB
UR
GU
NB
BK
MB
CB
QK
SIB
CG
BK
EGB
EK
CB
KB
OB
BJA
ZB
YBA
UB
ALI
NM
AB
OU
BYA
NA
DIB
AD
CB
BK
SBM
ASQ
TAM
WEE
LD
IBK
FIN
HD
BK
ENB
D
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 19
enjoy a higher ROE if they would address their overcapitalization. Oman banks’ ROE would fall
if they shore up capital ratios, while the same applies for Bahrain.
Exhibit 21: FY 12e ROaE vs. Adjusted RoE
Source: Company Data, Arqaam Capital Research
Exhibit 22: Takeover targets
Source: Arqaam Capital Research
Attractive sector valuation: even more so by being selective
The MENA banking sector offers attractive value at an average P/tNAV12e of 1.4x and P/E13e
of 9.6x according to our estimates. Our estimates point to an average RORWA of 2.0%-2.1%
and RoE of 13.5–14.7% (pre provision RoE of 19.3%-20.7%).
We value leverage adjusted returns, growth and adjusted earnings, with amendments for
social contribution levies, goodwill amortization, Zakat, coupons on Tier-1/Tier-2 debt. We
value capital surpluses/deficits. Our core capital ratios deviate from those published by the
banks as we include hidden reserves, such as general banking reserves, available-for-sale
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
RJH
IC
OM
IA
LBI
AU
DI
RA
KB
AN
KN
SGB
CIE
BQ
NB
KB
LOM
BO
BSA
BB
NB
AD
DH
BK
MA
RK
SAM
BA
FGB
BK
MB
AA
AL
AU
BQ
IIKB
SFR
AR
NB
NB
KA
DIB
CB
QK
BU
RG
CB
DB
KSB
RIB
LB
YBU
NB
BJA
ZQ
IBK
OIB
BK
FIN
SIB
CG
BK
DIB
EGB
EA
DC
BK
CB
KM
ASQ
BO
UB
YAN
HD
BK
ENB
DA
LIN
MA
TAM
WEE
L
ROaE Adjusted ROE
SELLER BUYER
CAE CASA QNB, QIB, FGB, NBK
NSGB SG QNB, QIB, FGB, NBK
Egypt Gulf Bank MISR, Al Naeem
Deniz Bank Dexia QNB
Credit du Maroc Credit Agricole QNB
40% Saudi Hollandi stake RBS Barclays, STAN, FGB, QNB, NBK
Beltone Shareholders
Amlak Dubai gov ENBD, DIB
Anything in Africa & GCC EFG
Boubyan NBK
Maltese bank Burgan
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 20
reserves, and special reserves, and include the current year’s earnings. We adjust for other
hidden balance sheet strengths and weaknesses such as real estate assets and level 3 assets.
Catalysts include MSCI inclusion for Qatar and the UAE, and elections for Egypt, but NBK
faces regulatory risk
The UAE and Qatar may be upgraded to emerging market status in June as both countries may
lift the ban on short selling as well as certain other restrictions such as constraints on foreign
ownership. Currently, MSCI still has both countries under review for classification. Another
element that could increase liquidity is a merger of the UAE bourses. We think ADCB, FGB, and
NBAD could be MSCI candidates in the UAE, while QNB, QIB, CBQ, and MARK could be
candidates in Qatar. We expect Egyptian banks to recover, particularly if a new democratic
government takes control after the parliamentary and presidential elections with a moderate
program, at least initially, to secure aid packages. However, NBK may suffer from a new
regulation that has been passed and which is going into effect by June 2012 that limits funds’
holdings of a particular stock to 10%, which may affect some local funds.
Exhibit 23: MSCI candidates: Qatar and the UAE
Source: Bloomberg, Arqaam Capital Research
We are below street on a small majority of our stocks, but we do not play earnings surprises
We are below the street on the majority of stocks as we generally are more conservative and
consistent with respect to loan loss charges and do not include bond gains in our forecasts.
Nevertheless we see an average of 22% upside in the sector. Despite having above consensus
forecasts for Albilad and Aljazira, we believe they are fully valued.
With respect to ENBD and CBD we are more conservative than consensus relating to our
conservativeness regarding loan loss charges. For OIB we are below, due to the EPS dilution
from the merger with HSBC. With respect to bank Muscat, this reflects the anticipated capital
increase. Despite expecting positive earnings surprises for Albilad, HDB, DFM and Aljazeera, we
believe those share area already fully valued.
Bank MSCI candidate Country Average daily volume (USDmn) Free float market cap (USDbn)
CBQK Yes QATAR 4.1 0.4
MARK Yes QATAR 8.6 4.6
QIBK Yes QATAR 2.2 4.2
QNBK Yes QATAR 5.6 12.8
DHBK No QATAR 2.2 2.7
ADCB Yes UAE 0.8 1.7
ADIB No UAE 0.3 1.1
FGB Yes UAE 2.2 2.0
NBAD Yes UAE 1.0 2.7
UNB No UAE 0.5 0.8
EMIRATES No UAE 0.5 1.6
DIB No UAE 1.6 1.2
CBD No UAE 0.1 2.3
TAMWEEL No UAE 4.6 0.1
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 21
Exhibit 24: EPS: Arqaam Estimates vs. Bloomberg Consensus
Source: Company Data, Arqaam Capital Research
-100%
-50%
0%
50%
100%
150%
HR
HO
ALB
I
AU
DI
CIE
B
CO
MI
BLO
M
FGB
AD
CB
NSG
B
AA
AL
BYB
RIB
L
RJH
I
NB
K
MA
RK
SIB
C
BJA
Z
NB
AD
KFI
N
AR
NB
BU
RG
QN
BK
BSF
R
SAM
BA
UN
B
ALI
NM
A
BK
MB
DH
BK
CB
QK
AD
IB
TAM
WEE
L
OIB
B
DIB
BK
SB
SAB
B
HD
BK
CB
D
QIB
K
ENB
D
DFM
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 22
Core Portfolios
We introduce our Core portfolio
Our TPs offer 22% upside on average, which is already very respectable, in our view; we see
even more upside by being selective. Our Core Buy portfolio offers a 45% upside. The Core Buy
portfolio comprises UNB, FGB, CBD, CIB, CAE, Bank Muscat, Salama, QNB, Al Rajhi, SHB and
Burgan and offers an average of 45% upside.
We prefer a 3 way strategy:
We play deep value stocks. We see strong value in names such as UNB, CBD & FGB, which are
trading at around or below book value and are offering very low P/E multiples. UNB has
strongly improved its pre-provisioning earnings by reducing the cost of funding (while its share
price has not adjusted to this very positive development, which should absorb a substantial
expected increase in loan loss charges), while FGB and CBD are strongly overcapitalized and
are generating very solid returns. FGB’s share price has recently been weak due to impatience
over a pending share buy-back and concerns over the regulatory impact (retail caps, credit
card, concentration) which we believe to be very manageable. Next to that, we also see strong
value in CIB (which is also a good growth story as CIB expands its domestic market share while
other banks shy away from lending to the corporate sector given their tight capital positions or
prefer to buy Treasury bills and bonds). We also view BLOM as a deep value play; however, FY
12e should be a transitional year and is therefore not included as a Core Buy. We do not
recommend DIB or ENBD due to their capital deficits and continued high loan loss provisions,
which should absorb a large share of pre-provisioning profits. Salama is our favorite insurance
pick on its very low valuation (P/tNAV12e of 0.5x), while we expect Salama to be able to
increase its RoE thanks to increase in underwriting profits (growth in family Takaful), increased
investment yields, a fall in expense ratios and growing gross written premiums.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 23
Exhibit 25: P/E15e vs. P/TNAV12e
Source: Company Data, Arqaam Capital Research
Exhibit 26: P/tNAV12e vs. RoRWA12e
Source: Company Data, Arqaam Capital Research
ADCBADIB
CBD
DIB
EMIRATES
FGBNBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEBCOMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABB
AAAL
ALBIBJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BKMBBKSB
OIBB
AUB
HRHO
SALAMA
QATI
TAWUNIYA
MEDGULF
3.0x
5.0x
7.0x
9.0x
11.0x
13.0x
15.0x
0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x
Expensive
Cheap
ADCBADIB
CBDDIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBKQIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGBEGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMBBKSB
OIBB
AUB
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
0% 1% 2% 3% 4% 5% 6%
Expensive
Cheap
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 24
And we play value growth stocks with high RORWA
We see the best growth in Qatar, Oman, KSA and Egypt with loan growth in excess of 10%. We
play strong growth if coupled with above average capital adjusted returns and attractive
valuations. QNB and Al Rajhi are offering the best combination of the strongest RORWA and
the highest growth. Furthermore, their growth is fully self-funded, as both banks should not
need to bolster their capital base to finance their strong growth, while dividends are set in a
consistent manner. We also highlight CIB as a solid growth stock as other banks are not lending
to the corporate sector as they prefer buying treasury bills or are constrained by their parent
companies that are tight in capital. We also recommend Bank Muscat, as the best bank to play
growth in Oman, and it should be better positioned after two capital hikes and the conversion
of the mandatory convertible where a successful completion should be a strong positive
catalyst for the shares. Burgan Bank is our only Buy recommendation in Kuwait. Burgan Bank
offers strong organic growth (7% sequential growth in Q1 and 12% y/y), while the acquisition
of the Turkish bank Tekfen should boost outstanding loans by 15% and support the group’s
loan growth by 3% pa. Naturally, the sector offers other strong growth stocks, such as Alinma,
Aljazeera, QIB, Masraf Al Rayan, and Boubyan, but we do not recommend them because of
their (very) high valuations.
We think the national banks are best positioned to capture public sector growth, which should
continue to outpace private sector growth. We play QNB and Bank Muscat, but not NBK as
growth momentum should remain lackluster in Kuwait and NBAD, as the new circular may
impact its growth in the public sector.
Exhibit 27: RoRWA12e vs. FY 12-15e Loan CAGR
Source: Company Data, Arqaam Capital Research
ADCBADIB
CBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGB
EGBEAUDI
BLOM
BYBBOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBKBURG
BOUBYAN
BKMB
BKSB
OIBBAUB
0%
1%
2%
3%
4%
5%
6%
0% 5% 10% 15% 20% 25% 30% 35%
High returns, low growth
Low returns, high growth
Low returns, low growth
Sweet Spot
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 25
Exhibit 28: RoRWA15e vs. EPS FY 12-15e CAGR
Source: Company Data, Arqaam Capital Research
Exhibit 29: FY 11-15e Loan CAGR
Source: Company Data, Arqaam Capital Research
ADCBADIB
CBD
DIB
EMIRATES
FGB NBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGB
EGBEAUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABBAAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBKBURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
0%
1%
2%
3%
4%
5%
6%
-10% 0% 10% 20% 30% 40% 50% 60%
High growth & returns
0%
5%
10%
15%
20%
25%
30%
35%
ALI
NM
AO
IBB
MA
RK
KC
BK
QIIK
BJA
ZQ
NB
KSA
BB
ALB
IC
OM
IC
BQ
KB
KM
BC
IEB
RJH
ID
HB
KN
SGB
BO
UB
YAN
BO
BEG
BE
BK
SBA
UD
IA
AA
LB
YBSA
MB
AA
RN
BQ
IBK
KFI
NN
BA
DB
LOM
HD
BK
BU
RG
BSF
RR
IBL
SIB
CFG
BTA
MW
EEL
AU
BA
DC
BN
BK
GB
KU
NB
RA
KB
AN
KM
ASQ
AD
IBC
BD
DIB
ENB
D
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 26
We see CAE and SHB as mispriced M&A candidates
We highlight Credit Agricole Egypt, Boubyan and Egyptian Gulf Bank as potential take-over
targets. Boubyan’s trading at over 4.1x P/tNAV12e is already extremely expensive, and we
think that after NBK acquires the 12.7% it is allowed to buy, the shares should fall substantially,
as the implicit valuation support from NBK buying up shares would fall away.
Egyptian Gulf Bank is also too expensive for a take-over to succeed and, as a consequence, is
unlikely to Outperform. A nil premium offer would result in an ROI of only 7% and would
require substantial goodwill to be paid. On the other hand, we see Credit Agricole Egypt as an
attractive take-over target given its valuation (we calculate an ROI 17% in year 1 and 20.8% in
year 2) and the tight capital base of Credit Agricole SA. The potential sale by CASA is highly
dependent on the lobbying efforts with the EU Committee to allow double counting of
insurance capital. If double counting would not be allowed, we expect CASA to sell assets.
EFG-Hermes should enjoy a capital gain with the tie up with Qinvest. We expect EFG-Hermes
to exercise its put option after 12 months and divest its remaining stake of 40% in the
investment banking platform for c. USD165m. Tangible NAV is only EGP 8.6 ps. However,
valuing CL at P/E13e 7x, EGP 4.7 ps may be recoverable of the goodwill. On top of that, EFG has
a Private Equity business that we could value at EGP1.4 ps (7x EGP 144m in fees in FY 11 minus
5% of assets under management as a capital requirement). Together with the capital gain of
EGP 2.1, the potential Fair Value could be c.EGP16.6, 42% above the current share price. But it
highly depends on the potential exit price of CL and Private Equity. The sale of the remaining
40% in the investment bank and the distribution of a further cash dividend after the EGP 4 may
take a while. We therefore think the stock could continue trading below its fair value.
We also expect the French banks to be willing to sell other assets such as Credit du Maroc (77%
owned by Credit Agricole SA, Not rated) or Union Internationale de Banq in Tunisia (57%
owned by SocGen, Not Rated) and we also expect NBG to divest Finansbank, its Turkish
subsidiary, with QNB being the most likely buyer of it fails to acquire Denizbank, or potentially
NBK.
We don’t play cost cutting or improved efficiency
We do not play the merger between HSBC Oman and OIBB, as cost savings are more than fully
priced, and we do not play the potential merger between ADX and DFM, as 35% cost synergies
would only increase DFM’s market valuation by c. 5%.
We also expect cost/income ratios to improve dramatically over the next 4 years for Aljazeera,
Alinma, Egyptian Gulf Bank, Shuaa and Al Khaliji, but all these stocks are already fully valued or
overvalued.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 27
We do not play the normalization in cost of risk yet: For us it is too early to play a full recovery
in the cost of risk (ENBD, DIB) as we expect additions to loan loss reserves to remain high for
the next two years. Nevertheless we are witnessing an underlying improvement as banks not
only set aside provisions for specific risks, but also add to general reserves. Instead we expect
consensus to continue to move downward for a majority of stocks, particularly in the UAE.
Nevertheless we factor in a drop of 40% in FY 15e as compared to our asset quality screen
outcome that calculates the average expected loan loss for FY 11-14e. We would see further
upside in the UAE if loan loss charges would normalize beyond the 40% drop.
Exhibit 30: P/PPP vs. LLP as % of Operating Profits
Source: Company Data, Arqaam Capital Research
ADCB
ADIB
CBD
DIBEMIRATES
FGB
NBAD
UNB
TAMWEEL MASQRAKBANK
CBQKDHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEBCOMI
HDBKNSGB
EGBE
AUDI
BLOMBYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBA
SABB
AAAL
ALBIBJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BKMB
BKSB
OIBBAUB
0x
5x
10x
15x
20x
25x
30x
35x
0% 10% 20% 30% 40% 50% 60% 70% 80%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 28
Exhibit 31: Core Portfolio
Source: Bloomberg, Arqaam Capital Research
UNB: Very solid capital and liquidity positions
UNB is trading at very compelling multiples of a P/E13e of 5.0x (despite taking into account
conservative loan loss forecasts) and P/tNAV12e of 0.6x as asset quality concerns have been
blown out of proportion (we use cumulative NPLs similar to the total of NPLs, all past due, but
not impaired and restructured loans in our asset quality screen) and underlying improvements
in profitability are being ignored. Given the bank’s strongly improved PPP/RWAs, adequate
liquidity position (NSFR of 100% and LCR of 144%) and robust net capital generation (CET1 of
13.3% in FY 11A), we believe the stock should offer a 57.1% upside potential. Its growth should
be further facilitated by solid margins and cost efficiency as the bank currently enjoys the
second lowest position in C/I ratio after FGB. Furthermore, UNB is expected to be a major
contributor to the Abu Dhabi Economic Vision 2030, enabling it to benefit from secured low
risk businesses. The bank may not offer the best loan growth as compared to NBAD, but we
believe that UNB has room to further decrease its deposit rates (UNB could reduce the amount
of time deposits towards current accounts and cheaper savings accounts) and enjoy high net
profit growth of at least 7% after FY 12e. We also do not expect negative repercussions from
the new circular capping single party exposures.
FGB: Substantially low cost base driving bottom line profitability: buyback still possible
We value FGB at AED 13.4 offering 53.4% upside, and put the name in our core Buy portfolio.
FGB is offering high returns, but has been partially penalized by the new regulations capping
both retail and credit card lending activity. FGB’s returns remain very high thanks to its retail
focus and strong cost efficiency, as the bank currently enjoys the lowest C/I ratio in the UAE of
19.4% in Q1 12A. FGB targets 6-8% net profit growth despite the regulatory headwinds and
loan growth of 10-12%, but may revise the latter downward to 6-8% after Q2 12. Moreover,
even after writing down its real estate investment portfolio by 50%, FGB would remain well
capitalized. FGB has put the share buyback on hold until the bank gets clarity on the applicable
caps, as a share buyback would effectively reduce the single borrower limit. The stock offers a
very attractive entry point after the recent sharp fall, which is probably because of
disappointments over the timing of a potential buyback, regulatory changes (retail charges,
credit card interest rates, single party circular) and the purchase of a small real estate
subsidiary (Emirates Green Properties) issues we believe should not be blown out of
proportions.
Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case
CBD AED 4.2 49% 6.8x 0.8x (3.4%) Share buy-back of potentially 35% of market cap
FGB AED 13.4 53% 5.9x 1.0x 14.1% Good entry point after pull back due to impatience on buy back
UNB AED 4.6 57% 5.0x 0.6x 3.2% Offers deepest value, higher NIMs absorbing higher loan losses
QNB QAR 189.2 42% 9.9x 2.0x (3.9%) Best LT growth, strong RORWA & capital, Denizbank acquisition unlocking value
CAE EGP 12.0 32% 5.9x 1.3x 14.2% Take-over target, positive outlook FY12 after transitional FY11
CIB EGP 35.6 39% 6.0x 1.5x 34.4% Growing when others do not, helped by higher NIMs, and very low valuation
Al Rajhi SAR 100.5 36% 15.4x 4.2x 6.9% Best geared to benefit from retail growth, strong RORWA to be maintained
SHB SAR 38.3 42% 8.7x 1.7x 9.8% Very cheap, potential to cut C/I, new potential core shareholder a positive catalyst
Muscat OMR 0.88 51% 7.4x 1.2x (12.0%) Two capital increases should bolster its growth outlook, cheap entry point
Burgan KWD 0.60 45% 8.7x 1.9x (7.3%) Best Kuwait growth story. Tekfen could add 12% to EPS and 3% to loan growth CAGR
Salama AED 0.93 52% 5.8x 0.5x 11.9% Deep value. RoE to improve due to growing GWP, improve underwriting margins & yields
Average 45% 7.8 1.5 6.2%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 29
CBD: Best Dubai bank on strong returns and very strong capital base: Share buyback possible
CBD is delivering very solid pre-provisioning income, allowing for the absorption of high loan
loss charges. We anticipate RORWA to remain over 2%, but the ROAE has been diluted to
11.6% because of CBD’s very solid capital base. However, we expect earnings to fall by 8% in
FY12e on the back of pressured margins and continuing additions to loan reserves; followed by
tempered growth in FY13. We however expect double digit bottom line growth to resume in FY
14e (16.7%). CBD’s key attractiveness is a hidden jewel: We expect CBD’s Basel III CET1 to be
16.9% in FY 12e and to increase further thanks to limited RWA growth and strong ROAE. We
would welcome a share buyback or higher pay-out to address the overcapitalization. It could
finance up to 35% buyback or bonus dividends in cash of AED 0.92 if it were to go back to 12%
CET1, a key differentiator compared to the tight capital positions of DIB and ENBD. The bank
has an adequate liquidity position as we calculated a NSFR of 102% and LCR of 100%.
Moreover, the bank enjoys a solid net cash balance of 18% despite an LTD ratio of c. 100%.
CBD is trading at attractive multiples of a P/E13e of 6.8x (on our conservative forecasts) and
P/tNAV12e of 0.8x, with an expected RoE of 11.6% in FY 12e. The valuation ignores the bank’s
solid asset quality, robust capital position that allows for buybacks or bonus cash dividends and
its solid liquidity position. However, CBD is not open to foreign investors.
CIB: Growing when others do not & very cheap
CIB’s valuation indicates a 39% upside fuelled by the expected substantial hike in margins from
already elevated levels, an upturn in corporate loan demand as public banks are focused on T-
bills and French banks are tight in capital, coupled with an improvement in cost efficiency. We
forecast a 24% FY 12-15e CAGR in net profits supported by the bank’s comfortable capital
buffer (CET1 forecasted at 14%), controlled provisioning with the highest forecasted coverage
among peers at 117%) and a resilient structure. Even a 10-20% devaluation of EGP vs. the USD
would not dent CIB’s asset quality. The stock trades at attractive multiples with P/tNAV12e of
1.5x, P/E13e of only 6.0x with a ROAE of 22%.
CAE: Take-over target & improving fundamentals
We find CAE attractive on different levels; the stock currently trades at cheap multiples with a
P/E13e of 5.9x, P/tNAV12e of 1.25x and RoE of 18.6% which gives it a 32% potential upside
based on our valuation. We expect the bank to shift back from the contraction it witnessed in
FY 11A and revert to bottom line growth in the near term with a forecasted 19.5% FY 11-15e
net earnings CAGR and lower loan loss charges. In Q1 12A the bank reported a 10% YTD loan
growth and a fall in NPLs from 1.9% to 1.6% with a reduction in the cost of risk to just 53bps of
loans and a very strong cost containment. We also view the bank as a potential take-over
target given parent Credit Agricole’s restructuring plan in response to the financial crisis.
France’s 3rd
largest bank already started trimming its balance sheet by selling its stake in life
insurance provider BES Vida SA and CAE could be next as Credit Agricole targets compliance
with new capital rules by FY 13e. It also depends on proposals by the EU commission on
whether double counting of insurance capital would be allowed and French banks are strongly
lobbying the commission (double counting is not allowed under the new Basel III regulation).
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 30
QNB: Best long-term story in MENA
QNB is the most compelling long-term investment in the MENA region, generating exceptional
returns and high lending growth. Having an entrenched exposure to the government of Qatar,
whose economy is fast growing at an expected GDP growth of 13% for 2012, QNB is an
outperformer with extremely robust fundamentals (exceptional capital base (CET1>20%), solid
asset quality, and strong liquidity) which should all bode well for future profitability. We expect
QNB’s returns to remain high at an average 5% RORWA over our forecasted period, thanks to
the high quality of assets and low cost base. Our TP of QAR 189 offers 42% upside with
potential catalyst M&A deals (Denizbank most likely) and improved loan growth momentum in
H2 12, though unlikely to match the growth of FY 11A of 47%.
Bank Muscat: National Champion in the Sultanate: cheap because of upcoming share issue
Bank Muscat is a high return bank with highest margins among the Omani banks under
coverage. The bank has a solid asset quality, with an NPL ratio of only c. 3% in FY 11A, and a
robust liquidity position. Bank Muscat’s capital base is relatively weak, but it is working on
addressing this problem by injecting capital in Q2 or Q3. We think the shares are offering a
cheap entry point because of the share issue overhang. As such, the capital increase should be
a positive catalyst for the stock. The stock is trading at a P/tNAV12e of 1.2x (with a RoTE of
15%) and a P/E13e of 7.4x, despite taking into account the dilutive effect of two capital
increases. Our TP offers a very substantial upside.
Burgan Bank: High growth story, attractive acquisition with 10% EPS contribution
Burgan Bank should be one of the most profitable banks in Kuwait and offers also substantial
growth, mostly driven by the acquisition of Tekfen. The bank’s loan loss charges are expected
to normalize, though the bank may need to further bolster its low coverage of NPLs, even
though Burgan has strong collateral against the NPLs. Burgan bank’s recent acquisition is
expected to decrease CET1 slightly to 13.1%, which is still adequate. We expect an EPS
contribution of 12% if it manages to achieve an ROI of 10% on the acquisition. Burgan Bank
stands out among other Kuwaiti players as it offers an attractive valuation coupled with
strongest loan growth momentum (in Q1 it delivered 7% YTD growth and 12% Y/Y growth)
further enhanced by its Turkish acquisition, which should support its loan growth by 3% pa.
The stock is trading at a sharp discount to its Kuwaiti peers (P/E13e of 8.7x & P/tNAV12e of
1.9x with a RoTE of 19.3%).
Al Rajhi: High valuation fully warranted, best Saudi bank
We expect Al Rajhi, the largest Islamic bank in the world, to continue generating stellar pre-
provisioning returns of c.5% of RWA; second only to RAKBank. We forecast an FY 11-15e
earnings CAGR of 17% despite sector-wide pressure on margins. We expect Al Rajhi to
outperform the loan growth of its peers driven by its retail tilt. We calculate a core equity tier 1
capital of 16.5% for FY 12e, higher than Al Rajhi’s reported Tier-1, which does not include
current years’ earnings. We expect the CET1 to improve by 0.5-0.6% pa, driven by the banks’
very high returns, partly offset by its high pay-out and RWA growth. The stock is trading at a
P/E13e of 15.4x and an P/tNAV12e of 3.1x, both among the highest in the sector. However, we
think Al Rajhi should deserve a higher premium, driven by its very high RORWA of 3.8%, very
solid capital base and its expected growth.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 31
SHB: Potential new core shareholder catalyst
We estimate pre-provisioning returns as 2.2% of RWA in FY 12e, potentially helped by a
reduction in cost/income driven by revenue growth. We forecast an FY 11-15e CAGR of 12%,
helped by a reduction in cost/income as SHB has one of the highest in KSA, though we expect
SHB’s earnings growth to slow down after a huge recovery in FY 10A and FY 11A. We estimate
a CET1 of 12.4% in FY 12e, an improvement over the current 12.8%, primarily coming from
retained earnings. SHB offers very attractive valuation multiples: SHB is currently trading at
8.7x P/E13e, and 1.2x P/tNAV12e, both the lowest among KSA banks. We also estimate an
RoE12e of 14.3% and RORWA of 1.8%. We believe a potential catalyst should be a new
strategic investor which should accelerate SHB’s growth outlook given that RBS has earmarked
its 40% stake in SHB as non-core.
Salama: Extremely deep discount on P/tNAV
Salama is our Core Buy in insurance. We forecast a 5 year FY11-16e CAGR of c. 21% in earnings
fueled mostly by GWP growth, higher investment income and improving underwriting margins.
Salama is very well capitalized with equity as much as c. 35% of assets. Market valuation
reflects low earnings and RoE (which we expect to substantially improve), valuing Salama at
only P/tNAV12e of 0.5x and P/E13e 5.8x. We expect combined ratio to improve as Salama is
expanding in new business lines, while the low yield on its investment portfolio offers
substantial scope for improvement.
On our TP, Salama would still trade at a significant discount to NAV as RoE will remain below
average in the short-medium term due to Salama’s low leverage, conservative asset allocation
and relatively high combined ratio.
We introduce our Avoid portfolio
A lot of stocks leave (substantial) downside on our TPs
We strongly avoid DIB (large hidden losses on associates, real estate investments), Khaliji (poor
quality of earnings), BOB (lowest CET1), EGB and Boubyan (both very highly valued on take-
over speculation), HSBC Oman (mainly on high valuation, despite merger synergies), Shuaa (a
break-up not likely in the short-term), KFH (poor quality of earnings, weak capital base), Gulf
bank (elevated valuation, below average fundamentals), BJAZ (overvalued, and we expect the
pull back to continue), Mashreq (unwarranted premium valuation), DFM (option value already
fully reflected in its valuation) and Medgulf (very expensive, substantial capitalized intangibles
and vulnerable for increased rivalry in health insurance in KSA).
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 32
Exhibit 32: Avoid Portfolio
Source: Bloomberg, Arqaam Capital Research
We are also introducing a list of banks that investors should avoid, as at best our estimates
put their returns in line with the market.
We play a few issues:
1) Weak capital base or inconsistent pay-out structure: DIB & BOB
Many banks have capital ratios that are too low and/or pay-out ratios that are too high, which
should result in future capital increases. We list CBQ, ADIB, DIB, ENBD, CBQ, Doha, CAE, HDBK,
Audi, Bank of Beirut, Sohar, and Ahli United under this category. Though we are only positive
on Bank Audi and CAE (as take-over target), we only have DIB and Bank of Beirut as core sells,
as their valuations have not fully captured their weak capital base, whereas this has been more
or less already been reflected for the other banks.
2) Asset quality concerns:
We continue to apply large adjustments in our valuation, as some banks are pushing the bowl
forward, rather than biting the bullet. We list DIB and ENBD amongst others, and have large
adjustments factored into our forecasts and valuations.
3) Poor quality of earnings: A large number of banks have realized substantial capital gains
that we believe are not recurring. We do not believe capital gains on bonds are recurring,
while we use consistent total returns for equity portfolios. This makes us negative on Bank of
Beirut, Al Khaliji, Mashreq and Kuwait Finance House.
3) Poor underlying returns vis a vis valuations
We list most Kuwaiti banks (excluding Burgan), Alinma, Albilad and Aljazeera under this
category.
Bank Curr TP Upside FY 13e P/E FY 12e P/tNAV YTD Investment case
DIB AED 1.76 (7%) 7.6x 0.8x (1.6%) Substantial hidden losses on associates, real estate, provisions and fair value reserves
MASQ AED 56.97 (37%) 12.3x 0.9x (0.5%) Unjustified premium, below average fundamentals
Khaliji QAR 14.1 (17%) 14.5x 1.2x (1.0%) Low quality of earnings
EGB USD 1.09 (26%) 16.1x 1.6x (2.6%) Unjustified M&A premium
BOB USD 10.5 (45%) 9.5x 1.8x (0.6%) Weakest capital base of sector due to high reliance on preference shares
BJAZ SAR 22.0 66% 11.7x 1.2x (21.1%) Sector-worst returns and asset quality
OIB OMR 0.22 (7%) 12.3x 1.4x (17.5%) Merger synergies fully factored in its valuation
Boubyan KWD 0.28 (54%) 40.0x 4.1x 3.4% Valuation artificially high
KFH KWD 0.60 (14%) 14.3x 1.6x (16.3%) Capital gains should come down
Gulf Bank KWD 0.34 (18%) 21.4x 2.3x (10.9%) Valuation fully reflects earnings recovery
MedGulf SAR 24.6 (16%) 11.4x 3.0x 7.7% Exposed to higher claims in medical, expensive and high capitalized goodwill
Shuaa AED 0.63 (16%) -58.8x 0.7x 49.2% Break-up unlikely and upside too low to play this scenario.
DFM AED 0.74 (23%) 45.0x 3.6x 15.1% Only option value
Average (17%) 12.1 1.9 0.3%
May 23 2012
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Important Notice. 33
Core Sell
Al Khaliji: Low quality of earnings: over 1/3 of net profit FY 11A because of capital gains
Despite its decent loan growth, we expect relatively low returns for Al Khaliji (2% earnings
CAGR) due to its low net interest margins, high cost structure and normalization of capital
gains (which comprised 34% of net profits in FY 11A). Al Khaliji needs to address its liquidity,
one of the weakest in the sector, and its negative cash position which could put further weight
on its margins. We do not see upside for the bank whose P/E13e of 14.5x and low P/tNAV12e
of 1.1x are fully justified by its low returns (RORWA is expected to come down to an average
1.29% for the next 5 years) and its very weak liquidity.
Boubyan: Valuation artificially high
Boubyan Bank has extremely low returns that are expected to improve significantly driven by
growth in Islamic finance and improvement in C/I filters through. The bank has a robust asset
quality with a below average cumulative loss. Boubyan has comparatively low NPLs, with NPL
ratio coming in at 0.5% in FY 11A with a strong coverage ratio of 2286%. It has the strongest
capital base (CET1 of 22.2%) and an adequate liquidity profile. However the main drawback is
that the bank’s valuation, which is extremely high fueled by NBK’s potential takeover. Boubyan
is trading at over 4x tNAV which is extremely expensive, in our view. We think that after NBK
acquires the additional 12.7% it is allowed to buy (which remains to be seen as NBK has
previously shied away from doing this while being granted permission), the shares would fall
substantially, as the implicit valuation support from NBK buying up shares would fall away. We
do not expect the Kuwait Central bank to grant NBK the right to buy 100% of the shares.
Gulf Bank: Expensive despite earnings recovery potential
Gulf bank is a relatively low return bank in spite of our bullish earnings outlook. We forecast
revenue growth of 7%, cost growth of c. 2%, and loan loss provisions remaining stable or
declining. We expect margins to remain relatively stable or improve slightly going forward. The
bank has a very weak asset quality, its NPL ratio stood at 14.4% in FY 11A, with a relatively low
coverage ratio of 38%. Gulf bank has an acceptable capital base, with FY 11A CET1 of 13.6%
that is expected to increase to 15% in FY 14e. We believe the bank is fully valued despite the
fact that we have factored in double digit earnings growth in our valuation (P/E13e of 21.4 and
P/tNAV12e of 2.3x vs. a RoE of 9.5%)
Kuwait finance House: High reliance on capital gains
We expect lower capital gains for Kuwait Finance House, and as a result we expect revenues to
fall in FY 12e. The bank enjoyed substantial capital gains over the last few years, but we expect
a structural level to be c. 50% lower than in FY 11A. It still has revaluation reserves on real
estate, but its available for sale reserve is negative, making it difficult to realize capital gains.
Nevertheless we expect a strong earnings recovery for the bank, but its returns remain low on
our forecasts, despite penciling in very low cost growth and a pick-up in lending, The bank has
a reasonable asset quality, with an NPL ratio of 10% in FY 11A and coverage of 77%. KIFN’s
capital base is the weakest among the Kuwaiti banks. Additionally it has a high reliance on
May 23 2012
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Important Notice. 34
investment income, while its liquidity position that is close to the minimum threshold. The
shares are overvalued in our view (P/E13e of 14.3x, P/tNAV12e of 1.6x vs. a RoE12e of 9.7%).
HSBC Oman: Remains too expensive despite merger
We expect decent profitability resulting from the merger of OIB and HSBC Oman, HSBC Oman’s
RORWA is expected to stand at 1.8% , helped by a 10-15% cost reduction, with cost/income
improving from 58.5% in FY 11A to 42.6% in FY 15e. We expect OIB to be initially focused at
the integration, but medium term we expect positive revenues emanating from a broadening
product sweet and enhanced retail and corporate relationships though the HSBC network. The
bank has the weakest asset quality among the Omani banks under coverage, OIB’s NPL ratio
stood at 10.9%, relatively high compared to its peers, with a coverage ratio of only 38.8% in FY
11A. The Bank’s capital base (CET1>13%) is relatively strong; however it is relatively expensive
on earnings despite the strong capital base and expertise of HSBC. We think the merger is
initially EPS dilutive for shareholders of OIB, as HSBC’s activities are smaller than OIB, while
HSBC acquired a majority stake.
DIB: Sizeable potential hidden losses
Even though DIB may not look expensive with trading at multiples of P/E13e of 7.6x and
P/tNAV12e of 0.8x, while offering an ROAE of 9.7%, we initiate with a Sell recommendation.
DIB has substantial hidden losses because of the (i) Valuation of associates (ii) aggressive
valuation of Tamweel and (iii) real estate investment portfolio that is not fully impaired (iv) too
low balance sheet loan loss provisions (v) Fair value losses that are not subtracted from Tier-1.
DIB is generating low pre-provisioning income relative to peers (2.8% of RWAs) due to
relatively average margins and burdening efficiency levels with a C/I ratio of 41%. We are
forecasting at least two transitional years due to continued high loan loss charges as DIB has
not bitten the bullet so far due to its limited earnings capacity and tight capital base. The
market value of DIB’s associates is as much as AED 1.3bn below their BV exerting an unfolded
drag on DIB’s valuation. Moreover, DIB has valued Tamweel at above Tamweel’s BV, which
increased DIB’s book value by AED 276mn. The situation is further magnified if we use
Tamweel’s market valuation which would bring the discrepancy to above AED 875mn. We are
assuming 50% cumulative impairment (or AED 1.2bn) on real estate investment portfolio. We
also take into account a substantial underprovisioning. DIB’s Basel III CET1 is expected to stand
at 10.2% in FY 12e. However, this does not include the above mentioned fair value losses.
EGB: Unlikely M&A candidate given elevated valuation
We forecast a RORWA of 1.8x vs. 1.2x in FY 11A, a level much lower than the 3.2% achieved in
FY 10A due to lower capital gains and a structurally higher cost of risk. We also expect
normalization of investment income to boost bottom line growth, as trading/investment losses
were the main driver behind the c. 66% fall in FY 11A. Although EGB incurred a loan loss charge
of only 51bps, well below CIB (81bps) and CAE (121bps), we expect the bank to take on further
provisions in FY 12e (forecasted at 75bps). In Q1 12 EGB recorded net releases, but also a steep
increase in NPLs. Our valuation shows a strong downside of 26%, largely driven by its very high
valuation multiples. The stock currently trades at a P/E13e of 16.1x, highest among peers,
P/tNAV12e of 1.6x and RoE of c. 9%, substantially lower than the cost of capital fueled by take-
over speculation. We, however, view CAE as a much more likely M&A candidate than EGB, as a
take-over of CAE would offer a far higher ROI than the purchase of EGB.
May 23 2012
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Important Notice. 35
Bank Al-Jazira: Sector-worst returns and asset quality
Bank Al-Jazira recently transitioned its focus into the Islamic banking sector, having previously
been a conventional bank with a strong focus on retail brokerage services. The bank currently
has the lowest returns among KSA banks as a result of having the lowest NIMs in the sector,
coupled with the highest cost/income ratio. Moreover, the bank maintains the weakest asset
quality in the Kingdom with an NPL ratio of 7.7%, and the lowest coverage at 64%. This implies
that the bank will incur high provisioning charges in the upcoming periods as it attempts to
reach the informal 150% coverage ratio required by SAMA, negatively impacting its earnings.
Although we expect the bank to grow its loan book aggressively, we also expect it to raise
capital given its very tight position. The bank currently trades at a P/E13e of 11.7x and a
P/tNAV12e of 1.4x, which given its low returns and tight capital position, we feel fully reflects
any future potential.
Bank of Beirut: Tier-1 highly leveraged, masking weak underlying RoE
We forecast a 1.3% RORWA, down from 1.7% in FY 11A, due to lower capital gains and a higher
average cost of risk, with a more moderate, but still double digit, balance sheet expansion. We
expect EPS to remain stagnant over the next two years. We forecast a Tier 1 ratio of 13.6% that
could fall by half if preferred shares were to be excluded. We calculate a CET1 of 6.5% (the
lowest among our coverage range). The bank will have to address its unusual capital structure
with preference shares at a staggering 47% of total shareholder’s equity, if it were to meet the
12% requirement by FY 16e. BOB currently trades at a P/E13e of 9.5x with P/tNAV12e of 1.82x
and RoE of 16.4%. However the high RoE is inflated by the very low capital ratios of the bank,
while also lower capital gains and higher cost of risk should be headwinds for earnings growth
going forward, while international expansion (the bank recently acquired Laiki Bank in
Australia) is a further drain on its capital ratios.
Mashreq: Unjustified premium valuation compared to peers, subpar fundamentals
Mashreq is trading at relatively high (in UAE context) multiples of 0.9x P/tNAV12e and 12.3x
P/E 13e on the back of low earnings capacity due to poor efficiency and lower capital gains,
slightly lower margins, pressured fees (due to retail cap) and relatively high C/I ratio (highest in
the UAE) of 46.3% in FY 11e. The bank’s RORWA look dismal at 1.1% (second lowest in the
UAE). Furthermore, asset quality remains a concern for Mashreq as the bank’s NPL and
coverage ratio stand at levels of 12.6% and 52.1% in FY 11A, respectively. The bank has strong
capital base of CET1 ratio of 15.5% helped by a substantial contraction in loans over the last 3
years; nevertheless we anticipate this level to fall once growth returns. The bank’s liquidity
position is strong with a LCR of 163% and NSFR of 113%.
DFM: Only option value
Despite a surge in volumes and prices during Q1 12A, assuming value traded increase by 75%
y-o-y, we price DFM at AED 0.74 per share, at a 23% discount to market price. We believe DFM
would be fairly valued if traded value reaches USD 140mn per day, close to FY 09A levels. Even
with reasonable cost reductions arising from a merger with ADX, TP would only improve by 5%.
The company currently trades at a FY 11A P/tNAV of 3.8x (its balance sheet contains a high
May 23 2012
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Important Notice. 36
amount of capitalized intangibles) and FY 13e P/E of 45x and cash P/E13e of 31x (including
amortization intangibles).
Shuaa: Break-up, the only scenario with upside, too unlikely to play
The stock trades at a P/tNAV12e of 0.8x and a negative P/E13e. We welcome the new strategic
direction (growth in SME lending, building a private bank), but the bank is still a long way from
covering its cost of capital. Following a transitional year of significant restructuring, we expect
Shuaa to cut administrative costs by c. 20%, grow fee income by c. 24% and net interest
income by c. 8% in FY 12e. However, despite the significant cost reductions and revenue
growth, we do not see Shuaa breaking even in FY 12e or even FY 13e. A break-up could realize
a capital distribution close to Shuaa’s capital base, but we think the shares are too expensive
(only 32% discount to tNAV) to play this still unlikely scenario.
Medgulf: Highly exposed to competitive health insurance market
Medgulf is our least favorite insurance stock as we expect combined ratio to edge up by 3.5%
by FY 16e due to increased claims and price pressure in health insurance, which accounts for
c.72% of GWP. On the other hand, we expect the insurer to benefit from increasing investment
returns, enabling the RoE to remain high. Medgulf is trading at high multiples (P/B12e of 1.8x,
P/tNAV is even 3.0x, as 41% of Medgulf’s equity relates to intangible assets and P/E13e of
11.4x) compared to its peers under coverage. It may not reach its growth targets (20-38%) and
as a result we cannot rule out a potential impairment on the goodwill.
May 23 2012
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Important Notice. 37
Picks by country
Positive stance on UAE in general with a few stocks offering >50% upside: We play UNB, FGB
and CBD
Exhibit 33: UAE valuation summary
Source: Bloomberg, Arqaam Capital Research
We are positive on the UAE in general, despite the 6.2% YTD rally, though we witnessed a
strong pull back recently, as we still observe, on average, very compelling valuations (P/E13e of
7.5x, 0.9x tNAV with RoE 11%, P/PPP13e of 4.0x and an average dividend yield of 6.1%) that
are not aligned with the UAE’s strengthened fundamentals. We see an average of 26.5%
upside. Positive catalyst should be the potential inclusion in the MSCI Emerging market indices
and the substantially increased liquidity of the UAE. We do not expect additions to loan loss
reserves to come down by much in FY 12e or FY 13e, due to the buildup of general reserves,
but we have moved another year past the crisis year of 2008 and balance sheet provisions
have increased to 5.39% from 1.65% of loans in FY 08A to 4.61% in FY 11A. We expect this to
further increase to 6.92% in FY 15e.
It is also encouraging to see that residential property prices may have seen their trough or
appear to be bottoming out. Capital positions have improved substantially thanks to retained
earnings, limited risk-weighted assets growth and asset disposals to, in most cases, adequate
levels (even under Basel III), while liquidity is progressively addressed by issuing wholesale
debt, that are further aided by lower credit spreads. We see dome headwind stemming from
potentially reduced credit card interest charges, spill-over effects of reduced retail charges that
were implemented in Q2 11A and from a slowdown in public projects in Abu Dhabi. We see a
5.6% contribution from public sector projects to the annual loan growth in the UAE.
The UAE's central bank has expanded its large exposure limit rules for commercial banks,
introducing new caps for loans made to local governments and their entities. We expect this
circular to impact the growth of ENBD and NBAD if the circular is not changed, but we do not
expect the banks to have to sell high quality loans.
We prefer a selective approach: UNB and FGB are our favorite picks in Abu Dhabi on their very
low valuations (particularly their P/Es), more than adequate capital positions (even if we take a
large impairment on FGB’s real estate portfolio), attractive earnings outlook (CAGR FY 12-15e
of 11% for FGB, 8% for UNB) and the three offer an upside of over 50% to our TPs.
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
ADCB UH ADCB 3.0 (5.2) HOLD 7.1 6.0 0.9 9.1
ADIB UH ADIB 2.7 (12.5) SELL 6.7 5.2 1.1 13.0
CBD UH CBD 4.2 49.1 BUY 6.8 8.7 0.8 16.4
DIB UH DIB 1.8 (7.0) SELL 7.6 5.8 0.8 9.3
EMIRATES UH ENBD 3.2 18.0 HOLD 8.4 8.2 0.6 5.3
FGB UH FGB 13.4 53.4 BUY 5.9 8.1 1.0 15.2
NBAD UH NBAD 13.0 48.1 BUY 6.8 8.6 1.3 16.1
UNB UH UNB 4.6 57.1 BUY 5.0 7.2 0.6 11.2
TAMWEEL UH Tamweel 1.7 45.3 BUY 11.4 19.0 0.5 3.8
MASQ UH Mashreq 57.0 (37.4) SELL 16.7 9.2 1.2 6.2
RAKBANK UH Rakbank 6.1 46.3 BUY 6.0 8.1 1.2 20.4
UAE banks 26.5 7.5 9.4 0.9 10.9
May 23 2012
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Important Notice. 38
We acknowledge ADCB’s progress in improving its operating profit, substantially improved
balance sheet strength by selling its stake in RHB and by reducing its CDS exposures, which
helps its Basel core equity Tier-1. However, we disagree with the 10% share buy back as it
creates a new capital hole. We do not recommend ADIB despite its strong RORWA, due to its
tight capital base which could cap future growth or dividend distributions or could lead to a
capital increase.
Within Dubai, we prefer CBD that is helped by its low valuation, decent profitability and the
strongest capital position which allows for a buy back as large as 35% of its market
capitalization. We cannot go further than a Hold for ENBD at the moment, as the company
continues to be affected by high loan loss charges, which absorb a lot of its operating profits,
while we also expect pressure on its margins as ENBD should rebuild its liquidity position. DIB
is the least attractive stock in our view, due to its very high commercial real estate exposure,
relatively low provisioning so far, and less conservative accounting especially with regards to
its valuation of its associates.
We also initiate on RAK Bank with a BUY recommendation. RAK Bank offers the highest
profitability within the UAE thanks to its consumer lending footprint, but the high profitability
should come under pressure due to new regulation capping credit card charges and retail
charges and caps on retail leverage, and therefore we have not included the stock in our Core
Buy portfolio.
We see further upside in Tamweel, despite its staggering YTD performance, but we do not
include the stock in our Core Portfolio, as its very large undervaluation has largely corrected.
Salama is our preferred insurance stock on its extremely low valuation (P/tNAV12e of only
0.5x). We expect RoE to improve due to a fall in the very high combined ratio (as Salama grows
into family business, causing reinsurance to become less prominent), increased yields on its
investment portfolio and re-leverage helped by business growth. A potential catalyst could be
further acquisitions in new markets. Its solid capital position certainly allows for acquisitions,
which could enhance the re-leveraging process.
We initiate on Mashreq with a Sell recommendation due to low pre-provisioning earnings, high
costs, shrinking loan book and a premium valuation compared to UAE peers. We do not expect
a break-up of Shuaa, and the potential upside to its tNAV is not high enough to play this
unlikely scenario.
May 23 2012
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Important Notice. 39
Delays in budget may dent loan momentum in Qatar: QNB best long-term play
Exhibit 34: Qatar valuation summary
Source: Bloomberg, Arqaam Capital Research
We forecast an average of 28% upside for Qatar, as part of the exceptionally strong
fundamentals (double digit loan growth, high RORWA, the region’s best Basel 3 capital
position, solid liquidity) is already partly factored in the valuations (P/E13e of 10.3x, 1.7x tNAV
with ROE 14.8%, P/PPP13e of 8.9x and an average dividend yield of 5.3%). Positive catalyst
should be the potential inclusion in MSCI Emerging market indices. The government of Qatar is
in an exceptionally strong position, with the lowest break-even point in the GCC after Kuwait.
Even though we do anticipate some trickle-down effect of public sector spending, we continue
to expect that public sector loan growth will outpace the private sector’s, at least in the next
few years, making us positive on QNB, even though we expect a marked slowdown in QNB’s
loan growth as compared to the whopping 47% in FY 11A to only 11% for FY 12e. We pencil in
a 10.1% contribution from public sector projects to the annual loan growth in the Gulf state.
However, as banks are all chasing the same public loans, we expect margin pressure to
continue unabated, while also banks are continuing to invest in their expansion, putting
upward pressure on their very low cost/income ratios. We do not foresee any major asset
quality issues, but we do expect some normalization in the cost of risk for Khaliji, Masraf Al
Rayan and QIB, which could cap their earnings growth.
Again we are highly selective and we only like to play QNB. We initiate QNB with a BUY with
42% upside. We continue to expect an FY 12-15e earnings CAGR of 13.0% and loan growth of
16.0%, on average, during this period, coupled with the highest RORWA of the sector of 4.5-
5.0% and the sector’s best capital position (Basel III Core Tier-1 of 23.6%), which allows for
continued strong growth, ample dividends and no need for future capital increases. We expect
QNB as one of the best positioned to grow, but due to its denominator effect and some delays
in the government budgets, we do anticipate loan growth to slow down significantly in FY 12e.
Doha is very tightly capitalized and should raise capital in FY 12e, which would dilute EPS in the
short term. CBQ is paying out a very high share of its earnings, and as a result of its high RWA
growth in FY 11A, we expect CBQ to raise capital in FY 13e, which will also dilute CBQ’s upside
and reduce its net distribution to shareholders. It is also showing a low underlying profitability.
QIB is very well capitalized, and after changes in management, the bank should be able to
recapture lost market share of FY 11A. However, we expect short-term profitability to be
impacted by higher loan loss charges relating to its exposure to Arcapita (USD200m) which
could impact Q2 12e earnings, though the net interest margin could improve.
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
CBQK QD CBQ 82.1 17.2 HOLD 8.7 9.2 1.2 12.7
DHBK QD Doha 68.0 17.2 HOLD 9.8 10.4 1.5 16.1
QIBK QD QIB 79.8 3.3 HOLD 11.7 10.9 1.7 10.0
QNBK QD QNB 189.2 41.6 BUY 9.9 12.4 2.0 18.6
MARK QD MARK 30.9 15.8 HOLD 11.2 11.1 2.1 15.9
KCBK QD Khaliji 14.1 (16.9) SELL 14.5 11.0 1.2 6.9
QIIK QD QIIB 60.5 21.2 BUY 9.9 11.6 1.5 14.2
Qatar banks 27.6 10.3 13.2 1.7 14.8
May 23 2012
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Important Notice. 40
Al Khaliji offers strong growth, but enjoyed significant one off gains on its bond portfolio in FY
11A. Bottom line growth should be capped due to structurally higher loan loss charges as its
loan book matures, while its efficiency should remain less favorable as compared to peers. It is
our least preferred stock in Qatar.
Masraf Al Rayan is well positioned due to its public sector and Islamic focus, but a recovery in
its earnings capacity will depend ultimately on a normalization in its net interest margins,
which is still uncertain to happen, while one off gains in FY 11A inflated its profitability.
QIIB has a very strong capital base, ample cash and high pay-out ratio, which should bring
down slowly the overcapitalization. We believe QIIB is well positioned to grow although we
may see continued pressure on net interest margin. It is our second preferred bank in Qatar.
Our TP offers 21% upside.
Egypt: Pricing in more than another transitional year: Best play CIB
Exhibit 35: Egypt valuation summary
Source: Bloomberg, Arqaam Capital Research
Egyptian banks offer a very strong value, with an average P/E13E of 6.7x (even cheaper than
UAE), P/tNAV12e of 1.4x (with RoE of 17.8%), a yield of 4.8% and a P/PPP13e of 4.5x. Our TPs
offer an average of 23% upside. Egyptian banks’ earnings have been affected by higher loan
loss charges, but they are, by all means, well contained with loan loss charges only absorbing c.
20% of operating profit. Nevertheless FY 12e should be another transitional year, though the
economic activity has improved. Crucial is the support from Arab states and the IMF to beef up
the FX currency reserves that have been depleted to USD 15.1bn. It remains questionable
whether the IMF will demand a devaluation of the EGP vs. the USD, which could result in short-
term disruptions for trading businesses and renewed social unrest due to imported price
inflation. We argue that Egypt doesn’t need a strong devaluation, merely a pick-up in tourism
revenues and a return to the FDI and portfolio inflows that would be enough to balance the
payments. However, this requires political stability and a return to a stable investment
environment. Even with a 10-20% devaluation, we think asset quality would not be severely
affected, and banks would realize modest currency gains on their FX positions.
We perceive CIB as best positioned to grow its loans, as public sector banks shy away from
lending and instead, allocate excess cash to treasury bills, while the French owned banks are in
less of a growth mode as their Egyptian treasury bill positions are weighted more heavily due
to the lowered credit rating of the Egyptian sovereign. We see less upside in NSGB, as we
expect earnings to remain flat y/y as NSGB hasn’t strengthened its provisions as much as its
closest peers and is slightly more expensive on our forecasts. We see CAE as a very attractive
take-over target, and Credit Agricole could be inclined to sell its operations to strengthen its
own capital base which is heavily affected by Basel 3. Credit Agricole Egypt will soon be
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
CIEB EY CAE 12.0 32.2 BUY 5.9 6.4 1.3 17.4
COMI EY CIB 35.6 39.3 BUY 6.0 7.1 1.5 23.8
HDBK EY HDB 13.0 9.6 HOLD 6.5 5.7 0.6 6.0
NSGB EY NSGB 32.8 9.4 HOLD 7.1 6.8 1.5 19.4
EGBE EY EGB 1.1 (26.2) SELL 16.1 61.0 1.6 9.3
Egypt banks 23.1 6.7 8.2 1.4 17.8
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 41
severely hampered by its very high dividend distribution and is facing a choice between joining
a better capitalized bank, raising capital from the parent company, increasing its free float or
cutting its growth ambitions. Egyptian Gulf Bank is severely overvalued on its own metrics, and
due to its high valuation, we see CAE as a much likelier take-over target.
EFG to exit investment banking as Qatar builds financial power
EFG-Hermes should enjoy a capital gain with the tie up with Qinvest. We expect EFG-Hermes
to exercise its put option after 12 months and divest its remaining stake of 40% in the
investment banking platform for c. USD 165m. Tangible NAV is only EGP 8.6 ps. However,
valuing CL at P/E13e 7x, EGP 4.7 ps may be recoverable of the goodwill. In addition to that, EFG
has a Private Equity business that we could value at EGP 1.4 ps (7x EGP 144m in fees in FY 11A
minus 5% of assets under management as a capital requirement). Together with the capital
gain of EGP 2.1, the potential Fair Value could be c. EGP 16.6, 42% above the share price. But it
highly depends on the potential exit price of CL and Private Equity, and the distribution of
further cash dividend after the EGP 4 may take a while, and hence the stock could continue
trading below its fair value.
Lebanon: Impact of Syria felt by Lebanese banks: Best value BLOM, Audi second best
Exhibit 36: Lebanon valuation summary
Source: Bloomberg, Arqaam Capital Research
We estimate an average of 24% upside in Lebanon. Banks are very cheap in Lebanon, but this
partly reflects the fragile nature of the banking business in Lebanon (i.e. recycling deposits
from expatriates living abroad into government securities) while the fragile situation in Syria
may also spill over to Lebanon. We expect continued elevated loan loss charges in general,
particularly for the banks’ foreign market banking operations.
BLOM: Best from every angle, but FY 12e should be a transitional year due to loan losses
In Lebanon, we prefer BLOM on its best returns (RORWA of 2.1% and RoE of 18.1%), capital
position (CET1 c. 12%) and lowest valuation (P/E13e 4.9x), which offers 41% upside, though we
do not expect earnings growth for FY 12e as additions to loan loss reserves (mainly for Syria
and Sudan) should absorb any improvement in operating profit, making it a somewhat an
unexciting story for FY 12e.
Bank Audi: Expansion in Turkey may hamper capital rebuilding plans
We are positive on Audi, as earnings growth should be feasible since it has taken higher loan
loss charges for Syria and Egypt in FY 11A, but Audi is also structurally less profitable than
BLOM, with a lower RORWA, higher cost/income ratio and worse, a much poorer capital base.
However we expect Bank Audi to fork away its capital deficit through contained risk-weighted
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
AUDI LB Audi 7.3 21.3 BUY 6.0 6.4 1.0 24.8
BLOM LB BLOM 11.0 41.1 BUY 4.9 6.1 0.9 18.6
BYB LB Byblos 1.5 (3.7) HOLD 5.8 4.9 0.7 11.1
BOB LB BOB 10.5 (45.4) SELL 9.5 4.6 1.8 18.4
Lebanon banks 11.7 6.0 6.6 0.6 18.0
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 42
asset growth and retained earnings, though its expansion in Turkey could put upward pressure
on the growth in risk-weighted assets and may be too ambitious without a capital increase.
Byblos and Bank of Beirut fully valued, Bank of Beirut very tight in capital
Byblos’ low valuation is fair given its subpar returns and small capital deficit. The excessively
high valuation of Bank of Beirut (P/E 13e 9.5x and p/tNAV12e of 1.8x) is not aligned
whatsoever with its stand-alone fundamentals (a very low RORWA of 1.3% and an even poorer
capital position with a Core Equity of 6.5% in FY 12e due to a high reliance on preference
shares) and hence we initiate with a Sell recommendation.
Saudi: Accelerating growth and better trading environment, but NIM under pressure: We like
Al Rajhi, Samba, ANB, Riyad and SHB
Exhibit 37: KSA valuation summary
Source: Bloomberg, Arqaam Capital Research
We are positive on Saudi with an average upside of 27%. A positive catalyst should be the
gradual opening up of the financial markets to foreign capital. We witness encouraging signs of
an accelerating loan growth to double digits (4.7% YTD and 12.4% y/y in Q1 12A) while Saudi
banks also enjoy a stronger trading environment, helping fees and commissions, particularly
supporting Aljazira. Moreover, most Saudi banks should enjoy lower additions to loan loss
reserves, except for Samba, Saudi Hollandi Bank, BSFR and Aljazeera. We also expect help from
the cost comparison base, as the banks paid out special bonuses of two months basic pay last
year.
We expect moderate headwinds from lower net interest margin due to the persistently low
interest rate environment, which could last until FY 14e, given that SAMA’s interest rates
should closely track the rates of the US.
We are positive on Al Rajhi, SHB, ANB, Riyad and Samba
We are most positive on Al Rajhi (best RORWA, highest sustainable growth rate thanks to its
Islamic footprint, strong capital and liquidity) and SHB (cheap, mid double digit loan growth,
new potential core shareholder could be a catalyst). We also recommend ANB, Riyad and
Samba, which are all trading at attractive valuation multiples (P/E13e of 8.8-9.6x & P/tNAV12e
of 1.2-1.4x). On the other hand, Alinma, Aljazira and Albilad are fully valued, despite their
above average earnings growth potential.
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
ARNB AB ANB 39.1 32.8 BUY 8.9 10.2 1.4 12.8
RJHI AB Al Rajhi 100.5 35.8 BUY 11.4 13.6 3.1 23.0
BSFR AB BSFR 40.9 11.1 HOLD 10.2 10.8 1.4 13.7
RIBL AB Riyad 33.1 37.9 BUY 9.6 11.7 1.2 10.9
SAMBA AB Samba 65.6 36.2 BUY 8.8 10.7 1.4 15.0
SABB AB SABB 37.1 7.5 HOLD 9.0 8.8 1.6 14.5
AAAL AB SHB 38.3 41.9 BUY 8.7 11.1 1.2 13.9
ALBI AB Albilad 30.9 14.6 HOLD 12.6 12.3 1.9 22.1
BJAZ AB Aljazeera 22.0 (13.7) SELL 13.5 9.9 1.4 9.6
SIBC AB SIB 19.8 16.3 HOLD 9.9 10.2 1.0 9.3
ALINMA AB Alinma 15.4 16.5 HOLD 19.7 16.4 1.2 3.8
KSA banks 27.4 11.0 14.0 1.6 13.3
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 43
Kuwait: Burgan most appealing, Boubyan’s overvaluation due to M&A speculation
Exhibit 38: Kuwait valuation summary
Source: Bloomberg, Arqaam Capital Research
We initiate on Kuwait with the lowest upside among all our covered countries, despite support
from high oil prices. The Kuwaiti banking sector is still grappling with the aftermath of the
crisis. Debt restructurings (though less prominent than Dubai), excessive exposure to
investment companies, high corporate leverage and a structural political gridlock with the
opposition in control of the Parliament are stifling growth and continue to cause delays in the
implementation of economic policy, causing Kuwait to lag the region. We expect loan growth
increase to mid-single digits from virtually stagnation, as some private-public partnerships are
being started. We also think that banks will enjoy lower additions to loan loss reserves, despite
the buildup of general reserves.
NBK: Fully valued, purchase of 12.7% of Boubyan value destructive, further acquisition risks
We initiate NBK with a Hold recommendation with merely 8% upside (as its poor growth
outlook and poor liquidity position is somewhat mitigated by its strong capital position).
However, it could be affected by upcoming regulation limiting a funds’ holding of a particular
stock to 10%, which may put pressure as some local funds may have 20-30% exposure to NBK.
We also think that buying 12.7% of Boubyan would reduce the shareholder value of NBK.
We initiate on 3 other Kuwaiti banks (KFH, Gulf Bank, Boubyan) with a Sell recommendation,
mainly because their very high valuations (P/E13e 14.3-40x, P/tNAV 1.6x-4.1x with a low RoE of
6.2%-9.7%, dividend yield of 0.3%-1.3%) and an unappealing growth outlook for the next few
years.
Boubyan: Significantly overvalued due to take-over speculation
Boubyan is significantly overvalued on its own fundamentals (trading at a P/tNAV12e of over
4x, the highest in the sector, and at about 170% premium to the sector average), but its
valuation is held this high because of the anticipation that NBK will buy 12.7% of its shares at
the current high market valuation. This is not certain, and even if NBK does purchase Boubyan
at the current valuation as NBK is willing to deploy its excess capital since it has a strong capital
positions, and its loan growth is very limited, we do not think NBK will get approval to buy the
remaining 40%. After acquiring a 60% stake, we believe Boubyan could fall substantially.
KFH: Impacted by lower capital gains
We expect lower capital gains to normalize for Kuwait Finance House, and as a result, we
expect revenues to fall in FY 12e. The bank enjoyed substantial capital gains over the last few
years, but we expect the structural level to be c. 50% lower than in FY 11A, though it still has
revaluation reserves on real estate, and its available for sale reserve is marginally negative,
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
NBK KK NBK 1.1 8.1 HOLD 14.0 14.9 2.0 14.7
KFIN KK KFH 0.6 (13.6) SELL 14.3 7.7 1.6 10.0
GBK KK Gulf Bank 0.3 (18.5) SELL 21.2 14.7 2.3 9.5
BURG KK Burgan 0.6 45.3 BUY 8.7 11.0 1.9 19.3
BOUBYAN KK Boubyan 0.3 (54.0) SELL 40.0 13.2 4.1 6.2
Kuwait banks (4.2) 14.7 14.0 2.0 12.2
May 23 2012
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Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 44
making it difficult to realize capital gains. Nevertheless we expect a strong earnings recovery
for the bank, but its returns remain low on our forecasts, despite penciling in very low cost
growth and a pick-up in lending, The bank has a reasonable asset quality, with an NPL ratio of
10% in FY 11A and coverage of 77%. KFN’s capital base is the weakest among the Kuwaiti banks
coupled with a weak earnings’ structure, in addition to its high reliance on investment income
and a liquidity position that is close to the minimum threshold. The shares are overvalued in
our view (P/E13e of 14.3x, P/tNAV12e of 1.6x vs. a RoE12e of 9.7%).
Gulf Bank: Expensive despite earnings recovery potential
Gulf bank is a relatively low return bank in spite of our bullish earnings outlook. We forecast
revenue growth of 7%, cost growth of c. 2%, and loan loss provisions remaining stable or
declining. We expect margins to remain relatively stable or improve slightly going forward. The
bank has a very weak asset quality, its NPL ratio stood at 14.4% in FY 11A, with a relatively low
coverage ratio of 38%. Gulf bank has an acceptable capital base, with FY 11A CET1 of 13.6%
that is expected to increase to 15% in FY 14e. We believe the bank is fully valued despite the
fact that we have factored in double digit earnings growth in our valuation (P/E13e of 21x and
P/tNAV12e of 2.3x vs. a RoE of 9.5%)
Burgan Bank: High growth story, attractive acquisition with 12% EPS contribution
Burgan Bank stands out among other Kuwaiti players as it offers an attractive valuation,
coupled with the strongest loan growth momentum (in Q1 12A, it delivered 7% YTD growth
and 12% y/y growth) further enhanced by its Turkish acquisition, which should support its loan
growth by 3% pa. The stock is trading at a sharp discount to its Kuwaiti peers (P/E13e of 8.7x &
P/tNAV12e of 1.9x with a ROTE of 19.3%). Burgan Bank should be one of the most profitable
banks in Kuwait that also offers substantial growth, mostly driven by the acquisition of Tekfen.
The bank’s loan loss charges are expected to normalize, though it may need to further bolster
its low coverage of NPLs. Burgan bank’s recent acquisition is expected to decrease CET slightly
to 13.1%, which is still adequate. We expect an EPS contribution of 12% if it manages to
achieve an ROI of 10% on the acquisition.
Attractive growth opportunities in Oman: We play bank Muscat
Exhibit 39: Oman valuation summary
Source: Bloomberg, Arqaam Capital Research
We initiate coverage on Oman with a positive stance, with a broadly based loan and deposit
growth. We expect 10% support from government project lending. Recent central bank
regulation should allow for Islamic banking to be started, though it may also put some pressure
on margins as banks are targeting the same market. Our TP for Bank Muscat offers >50%
upside and the current valuation is very attractive (P/tNAV12e of 1.2x, P/E13e of 7.4x,
P/PPP13e of 5.3x and a dividend yield of 4.3%). The bank is addressing its capital deficit under
Basel 3, has a sound liquidity, low NPL levels and should enjoy wider deposit margins and is the
best positioned of our coverage to grow in the public sector. We expect the capital increase to
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
BKMB OM Muscat 0.9 51.2 BUY 7.4 9.6 1.2 15.0
BKSB OM Sohar 0.2 1.0 HOLD 8.4 7.0 1.1 11.3
OIBB OM OIB 0.2 (6.7) SELL 12.3 9.9 1.4 9.8
Oman banks 36.8 6.5 8.9 1.0 11.6
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 45
be a positive catalyst for the shares as the share overhang has pushed down the shares YTD
and we believe the current weakness offers a good entry point.
We initiate Bank Sohar with a Hold recommendation due to its much lower RORWA and weak
capital position (Core Equity Tier-1 of only 9.4% year end FY 12e despite a small planned capital
increase) and the negative impact of a return to a more normalized structural cost of risk.
We initiate OIB with a Sell recommendation. Based on its merger with HSBC Oman, we think
the shares are overvalued (P/E13e 12.3x and P/tNAV 1.4x), even though we factor in 10% cost
reduction from the merger with HSBC in Oman. The transaction is initially dilutive, in our view,
as HSBC has been granted 51% despite having much smaller operations than OIB. The bank is
well positioned for medium-term growth thanks to HSBC’s network and broadening product
offering, despite closing its offices in India and Pakistan.
Bahrain: Below average fundamental strength already captured by its valuation of the
leading bank
Exhibit 40: Bahrain valuation summary move table up
Source: Bloomberg, Arqaam Capital Research
We initiate coverage on Bahrain with the country’s biggest name- Ahli United Bank. We have a
neutral view on the stock. The bank has a poor liquidity position, which needs being addressed
by a substantial issuance of wholesale debt, while its capital position is also tight due to
overreliance on preference shares. The bank is showing a slightly below average RORWA
(1.6%, and adjusted for associate interests 1.1%) as well. However, this appears fully factored
in its valuation (P/E 13e of 7.9x P/tNAV12e of 1.5x vs. a RoE of 13.0%, dividend yield of 5%).
We initiate on the stock with a Hold with close to 11% upside.
We have a positive view on the GCC insurance sector names.
Exhibit 41: Insurance valuation summary
Source: Bloomberg, Arqaam Capital Research
We see expect double digit premium growth driven by the very low base. The market could grow 5 fold to catch up to the global average, driven by higher awareness, compulsory insurance, new distribution channels and increasing acceptance of Takaful insurance.
Insurance companies enjoy low combined ratios, although they should move up, particularly in health insurance due to increased claims and intense competition.
Robust capital positions allow for more aggressive asset allocation and future growth. We expect consolidation to create economies of scale. Valuations are still very attractive, though we prefer a selective approach.
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
AUB BI Ahli United 0.6 3.9 HOLD 8.0 8.4 1.7 19.6
Bahrain banks 3.9 9.0 9.3 4.8 19.6
Ticker Company TP Upside (%) Rating FY 13e P/E (x) Implied FY 13e P/E(x) FY 12e P/tNAV (x) FY 12e RoTE
SHUAA UH Shuaa 0.63 (16.2) SELL (58.8) (49.2) 0.7 (2.8)
HRHO EY EFG 16.6 41.9 BUY 11.7 16.6 1.5 10.8
DFM UH DFM 0.74 (23.3) SELL 45.0 34.5 3.6 1.0
SALAMA UH Salama 0.9 52.2 BUY 5.8 8.8 0.5 4.5
QATI QD Qatar Insurance 93.6 24.9 BUY 9.3 11.6 1.8 16.1
TAWUNIYA AB Tawuniya 61.1 23.8 BUY 9.0 11.1 1.8 18.3
MEDGULF AB MedGulf 24.6 (15.6) SELL 11.4 9.6 3.0 24.0
MENA financials' avg. 8.2 71.1 76.9 3.2 1.6
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 46
We initiate on 4 insurance names: We strongly recommend Salama. Salama offers a strong
growth in Takaful insurance and a very low valuation, despite a high reliance on reinsurance
and high combined ratios. We expect RoE to move up due to a reduction in the combined ratio
(better business mix) and higher investment yields, while the 25% price fall since its intra-year
high by the end of February offers a very attractive entry point.
We also see over 26% upside in QIC (Buy, TP QAR 94.9), which is a national champion in the
fastest growing market, but does have a high equity exposure and we expect investment yields
to fall moderately.
We also initiate on Tawuniya (Buy, TP SAR 61.1). It has a high quality of earnings and under
geared investment portfolio, though we are cautious regarding increased claims in health
insurance. We believe the sharp fall post the disappointing Q1 12A results represents a good
buying opportunity, as the bulk of the increase in claim ratio in Q1 12 related to strengthening
of provisions and incurred but not reported losses.
Our least preferred name in insurance is Medgulf (Sell, TP SAR 24.6). It has a high exposure to
health insurance where we see the biggest margin contraction. Furthermore Medgulf has
substantial capitalized goodwill at 41% of shareholders’ equity, which may be impaired if it fails
to deliver very strong premium growth. Medgulf is also expensive, trading at a P/tNAV of 3.0x).
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 47
Valuation: P/tNAV12e of 1.5x and P/E13e of 9.8x
We value banks based on a combination of 1) DCF (adjusted for excess returns on excess capital and non-cash amortizations, Zakat etc), 2) Its Basel 3 capital position vs. 12% minimum tangible equity 3) other balance sheet strengths and weaknesses such as unrealized gains and losses and 4) dividends.
Our Core Buy Portfolio (CBD, FGB, UNB, QNB, CAE, CIB, Al Rajhi, SHB, Muscat, Burgan, Salama) offers 45% upside on our TPs, while our avoid portfolio (DIB, Khaliji, EGB, BOB, Alinma, OIB, Boubyan, KFH, Gulf Bank, Mashreq, DFM and Shuaa) leaves 22% downside
We see the highest upside in the UAE (30% upside) and Oman (33% upside), followed by Egypt (28%), Qatar (18%), Lebanon (16%), KSA (13%) and the lowest upside in Kuwait (0%)
The MENA banking sector offers attractive value at an average P/tNAV12e of 1.5x and P/E13e
of 9.8x based on our estimates, which remain c2% below consensus. Our estimates, although
generally below consensus (as we are more pessimistic about the cost of risk and do not pencil
in capital gains on fixed income securities), point to an average RORWA of 2.0%–2.3% and RoE
of 13.5%-14.7%. Our TPs, which capture underlying earnings, are adjusted for capital strengths,
and take balance sheet weaknesses and strengths into account, offer 22% upside on average,
which is already very respectable, in our view; We see even more upside by being selective:
such as 45% by playing our preferred financials portfolio.
Global funds avoided the region last year due to the recent political instability in 2011, and we
believe this has given rise to continued opportunities, despite the strong YTD performance of
KSA particularly, and to a much lesser extent the UAE. We expect the potential MSCI upgrade
of the UAE and Qatar to be a positive step, and based on anecdotal evidence from speaking to
investors, would definitely raise the interest in these two markets. On the other hand, NBK
may suffer from a new investment regulation that has been implemented by the Capital
Markets Authority limiting funds’ holdings of a particular stock to 10%.
The GCC region offers much better prospects than developed markets given muted economic
prospects, the urgent need for fiscal consolidation (we argue that the fiscal consolidation in
Egypt will be a much smaller effort than in Europe or the US given Egypt’s primary deficit of
5.1% for FY 12e (IMF forecast), even if the strait of Hormuz would be disrupted. We see the
GCC as a key beneficiary of potentially renewed tensions in the Gulf, as the potential boost in
oil prices should more than offset any production cuts (as illustrated by the hike in oil prices
this year, though oil prices are now back to year end levels), as long as they remain in check. In
the short-term, Brent could fall further as KSA targets to bring the Brent oil price down to USD
100. We see KSA and to a lesser extent Oman as the key beneficiary, while we also see a net
positive effect for the UAE. Kuwait and Qatar may be more vulnerable as they solely trade
through the Strait of Hormuz.
Most banks are still trading below their average multiples (as illustrated in the charts on the
next page) and well below peak levels despite a strong re-rating of KSA banks y-t-d. Although
MENA financials do not offer a steep discount compared to their tNAV (except for a few UAE
banks), we argue that value is still extremely compelling considering the satisfactory
profitability, growth outlook, strong capital position and opportunities in the wholesale
markets opening up to address potential Basel 3 liquidity gaps.
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 48
Exhibit 42: P/tNAV12e vs. FY 12e RoE
Source: Company Data, Arqaam Capital Research
Exhibit 43: P/tNAV12e vs. FY 15e RoE
Source: Company Data, Arqaam Capital Research
ADCB
ADIBCBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ RAKBANKCBQK
DHBKQIBK
QNBKMARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFR
RIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
SHUAA
HRHO
DFM
SALAMA
QATI
TAWUNIYA
MEDGULF
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
0% 5% 10% 15% 20% 25%
ADCB
ADIBCBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ RAKBANKCBQK
DHBKQIBK
QNBKMARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNBBSFR
RIBL
SAMBA
SABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
SHUAA
HRHO
DFM
SALAMA
QATI
TAWUNIYA
MEDGULF
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
0% 5% 10% 15% 20% 25%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 49
Exhibit 44: P/tNAV12e vs.FY 12e Pre-provisioning RoE
Source: Company Data, Arqaam Capital Research
Exhibit 45: P/E12e vs. FY 11-15e EPS CAGR
Source: Company Data, Arqaam Capital Research
ADCB
ADIB
CBDDIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ RAKBANKCBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGBEGBE
AUDIBLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBASABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
5% 10% 15% 20% 25% 30%
ADCBADIB
CBDDIB EMIRATES
FGBNBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQKDHBK
QIBK
QNBKMARK
KCBK
QIIK
CIEBCOMI
HDBKNSGB
EGBE
AUDIBLOM
BYB
BOBARNB
RJHI
BSFRRIBL
SAMBA
SABB
AAALALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMBBKSB
OIBB
AUB
SHUAA
HRHO
SALAMAQATI
TAWUNIYA
MEDGULF
0x
10x
20x
30x
40x
50x
60x
70x
-10% 0% 10% 20% 30% 40% 50%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 50
Exhibit 46: FY 12e LLP as % of Operating Profit
Source: Company Data, Arqaam Capital Research
Exhibit 47: P/tNAV12e vs. PPP/RWA12e
Source: Company Data, Arqaam Capital Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
ENB
DG
BK
DIB
MA
SQA
DC
BR
IBL
KFI
NA
DIB
CB
DB
OU
BYA
NA
AA
LU
NB
TAM
WEE
LH
DB
KB
UR
GFG
BA
LBI
SIB
CQ
IBK
RA
KB
AN
KN
BA
DA
UB
AR
NB
RJH
IC
IEB
BK
SBB
JAZ
SAM
BA
BK
MB
EGB
EM
AR
KSA
BB
CB
QK
AU
DI
KC
BK
DH
BK
BYB
BO
BN
SGB
QN
BK
BLO
MB
SFR
OIB
BN
BK
CO
MI
QIIK
ALI
NM
A
ADCB
ADIB
CBDDIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ RAKBANKCBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGBEGBE
AUDIBLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBASABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
1% 2% 3% 4% 5% 6% 7% 8%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 51
Exhibit 48: P/tNAV12e vs. RORWA12e
Source: Company Data, Arqaam Capital Research
Exhibit 49: Upside/downside potential
Source: Arqaam Capital Research
ADCB
ADIB
CBDDIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ RAKBANKCBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
HDBK
NSGBEGBE
AUDIBLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBASABB
AAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMB
BKSB
OIBB
AUB
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
1% 2% 3% 4% 5% 6% 7% 8%
-60%
-40%
-20%
0%
20%
40%
60%
UN
BFG
BB
KM
BC
BD
NB
AD
RA
KB
AN
KTA
MW
EEL
BU
RG
AA
AL
QN
BK
BLO
MC
OM
IR
IBL
SAM
BA
RJH
IA
RN
BC
IEB
AU
DI
QIIK
ENB
DC
BQ
KD
HB
KA
LIN
MA
SIB
CM
AR
KA
LBI
BSF
RH
DB
KN
SGB
NB
KSA
BB
AU
BQ
IBK
BK
SBB
YBA
DC
BO
IBB
DIB
AD
IBK
FIN
BJA
ZK
CB
KG
BK
EGB
EM
ASQ
BO
BB
OU
BYA
N
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 52
Exhibit 50: FY 11-15e Change in RORWA
Source: Company Data, Arqaam Capital Research
Exhibit 51: FY 11-15e Change in ROE
Source: Company Data, Arqaam Capital Research
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
GB
KB
OU
BYA
NA
LIN
MA
ALB
IB
UR
GA
RN
BR
JHI
CO
MI
ENB
DB
JAZ
EGB
EK
FIN
MA
SQC
IEB
NB
AD
SIB
CC
BD
NB
KQ
NB
KA
AA
LR
IBL
AU
BB
KSB DIB
UN
BO
IBB
MA
RK
BK
MB
FGB
AU
DI
AD
IBB
LOM
BYB
SAM
BA
SAB
BB
OB
CB
QK
BSF
RH
DB
KTA
MW
EEL
QIB
KD
HB
KN
SGB
AD
CB
QIIK
KC
BK
RA
KB
AN
K
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
CIE
BB
OU
BYA
NK
FIN
ALI
NM
AG
BK
EGB
EB
JAZ
HD
BK
RJH
IA
RN
BEN
BD
ALB
IC
OM
IM
ASQ
RIB
LD
IBB
KSB
SIB
CN
BA
DB
UR
GO
IBB
AA
AL
CB
DC
BQ
KA
UB
MA
RK
FGB
QIB
KB
KM
BK
CB
KSA
MB
AQ
IIKN
BK
BYB
AD
IBB
OB
UN
BB
LOM
TAM
WEE
LD
HB
KN
SGB
SAB
BA
UD
IB
SFR
QN
BK
AD
CB
RA
KB
AN
K
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 53
Exhibit 52: RORWA12e vs. RWA Growth
Source: Company Data, Arqaam Capital Research
Exhibit 53: Dividend yield vs. potential yield
Source: Company Data, Arqaam Capital Research
ADCB
ADIB
CBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBK
QIBK
QNBK
MARK
KCBK
QIIK
CIEB
COMI
NSGB
EGBE
AUDI
BLOM
BYB
BOB
ARNB
RJHI
BSFRRIBL
SAMBA
SABBAAAL
ALBI
BJAZ
SIBC
ALINMA
NBK
KFIN
GBK
BURG BOUBYANBKMB
BKSB
OIBBAUB
0%
1%
2%
3%
4%
5%
6%
0% 5% 10% 15% 20% 25% 30% 35%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
RA
KB
AN
KC
OM
IC
BD
NSG
BU
NB
ALB
ISA
MB
AQ
IIKR
IBL
AR
NB
QN
BK
SIB
CFG
BB
LOM
RJH
ITA
MW
EEL
MA
RK
SAB
BN
BK
MA
SQA
AA
LB
YBQ
IBK
KC
BK
CIE
BD
HB
KEG
BE
BSF
RB
UR
GN
BA
DB
KM
BA
DC
BA
UD
IC
BQ
KO
IBEN
BD
GB
KB
JAZ
ALI
NM
AK
FH DIB
AU
BH
DB
KB
KSB
BO
UB
YAN
AD
IBB
OB
New potential yield Current yield
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 54
Exhibit 54: YTD Price Performance
Source: Bloomberg
Exhibit 55: 1 year share performance
Source: Bloomberg
-40%
-20%
0%
20%
40%
60%
80%
100%
Tam
we
el
Alja
zee
raSh
uaa
NSG
BA
linm
aA
lbila
dC
IBQ
ICEF
GD
FM CA
EFG
BSA
BB
AD
CB
Sala
ma
BSF
RSH
BA
NB
NB
AD
Me
dG
ulf
HD
BA
l Raj
hi
SIB
BLO
MA
ud
iSa
mb
aN
BK
Bo
ub
yan
Riy
adU
NB
MA
SQB
OB
Kh
aliji
AD
IBD
IBB
YBEG
BC
BD
Taw
un
iya
MA
RK
QN
BA
UB
BK
SBEN
BD
Rak
ban
kB
urg
anQ
IIB QIB
Do
ha
Gu
lf B
ank
BK
MB
KFH
CB
QO
IBB
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Alb
ilad
Alin
ma
Alja
zee
raTa
mw
ee
lM
AR
KA
DC
BD
oh
aQ
ICSH
BQ
IIBN
BA
DSA
BB
Rak
ban
kB
ou
bya
nB
OB
QN
BA
DIB
Me
dG
ulf
BK
SBA
l Raj
hi
QIB
CB
QK
hal
ijiB
SFR
FGB
NB
KR
iyad
BK
MB
NSG
BC
BD
AN
BO
IBB
SIB
BYB
Sam
ba
BLO
M CIB
AU
BD
IBA
ud
iB
urg
anU
NB
Sala
ma
Gu
lf B
ank
DFM CA
EEG
BTa
wu
niy
aEF
GK
FHEN
BD
Shu
aaH
DB
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 55
Exhibit 56: Historical P/B
Source: Factset
Exhibit 57: Historical Earnings/Price
Source: Factset
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
AD
CB
AD
IBC
BD
DIB
ENB
DFG
BN
BA
DU
NB
TAM
WEE
LM
ASQ
RA
KB
AN
KC
BQ
KD
HB
KQ
IBK
QN
BK
MA
RK
KC
BK
QIIK
CIE
BC
OM
IH
DB
KN
SGB
EGB
EA
UD
IB
LOM
BYB
BO
BA
RN
BR
JHI
BSF
RR
IBL
SAM
BA
SAB
BA
AA
LA
LBI
BJA
ZSI
BC
ALI
NM
AN
BK
KFI
NG
BK
BU
RG
BO
UB
YAN
BK
MB
BK
SBO
IBB
AU
BSH
UA
AH
RH
OD
FMSA
LAM
AQ
ATI
TAW
UN
IYA
MED
GU
LF
Max Current Min
0%
5%
10%
15%
20%
25%
AD
CB
AD
IBC
BD
DIB
ENB
DFG
BN
BA
DU
NB
TAM
WEE
LM
ASQ
RA
KB
AN
KC
BQ
KD
HB
KQ
IBK
QN
BK
MA
RK
KC
BK
QIIK
CIE
BC
OM
IH
DB
KN
SGB
EGB
EA
UD
IB
LOM
BYB
BO
BA
RN
BR
JHI
BSF
RR
IBL
SAM
BA
SAB
BA
AA
LA
LBI
BJA
ZSI
BC
ALI
NM
AN
BK
KFI
NG
BK
BU
RG
BO
UB
YAN
BK
MB
BK
SBO
IBB
AU
BSH
UA
AH
RH
OD
FMSA
LAM
AQ
ATI
TAW
UN
IYA
MED
GU
LF
Min Current Max
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 56
Exhibit 58: MENA banks valuation screen
Source: Bloomberg, Arqaam Capital Research
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ADCB HOLD 4,799 AED 17,626 3.2 3.0 (5.2) 8.4 7.1 6.4 6.0 19.0 0.4 1.0 0.9 0.8 0.8 16.7 9.1 10.7 11.2 3.6 4.4 5.0 4.0 3.7 3.5
ADIB SELL 1,996 AED 7,331 3.1 2.7 (12.5) 7.4 6.7 5.9 5.2 14.3 0.5 1.1 1.1 1.0 0.9 16.3 13.0 13.8 14.7 6.8 7.0 7.8 3.9 3.6 3.4
CBD BUY 1,480 AED 5,436 2.8 4.2 49.1 7.2 6.8 5.8 8.7 14.1 0.5 0.9 0.8 0.8 0.7 18.8 16.4 16.6 18.2 7.6 8.1 8.6 4.1 4.0 3.8
DIB SELL 1,954 AED 7,176 1.9 1.8 (7.0) 8.2 7.6 6.2 5.8 20.4 0.4 0.8 0.8 0.7 0.7 11.0 9.3 9.7 11.3 7.3 9.2 9.6 3.0 2.9 2.8
ENBD HOLD 4,116 AED 15,117 2.7 3.2 18.0 9.4 8.4 6.9 8.2 46.5 0.2 0.6 0.6 0.6 0.5 9.3 5.3 5.9 7.1 4.5 5.1 5.1 2.4 2.4 2.3
FGB BUY 7,155 AED 26,280 8.8 13.4 53.4 6.7 5.9 5.3 8.1 13.2 0.4 1.2 1.0 1.0 0.9 16.6 15.2 15.8 16.6 8.4 9.6 10.9 4.8 4.4 4.1
NBAD BUY 9,283 AED 34,096 8.8 13.0 48.1 8.4 6.8 5.8 8.6 20.1 0.3 1.5 1.3 1.2 1.0 16.3 16.1 17.7 18.3 3.9 4.9 5.8 6.0 5.0 4.5
UNB BUY 1,977 AED 7,262 2.9 4.6 57.1 5.3 5.0 4.6 7.2 14.4 0.3 0.7 0.6 0.6 0.5 13.7 11.2 10.9 10.9 3.4 3.7 4.0 3.2 3.1 3.0
Tamweel BUY 313 AED 1,150 1.2 1.7 45.3 13.5 11.4 13.1 19.0 (3.1) (3.6) 0.5 0.5 0.5 0.5 4.8 3.8 4.3 3.7 4.3 4.3 5.2 6.2 5.9 5.4
Mashreq SELL 3,084 AED 11,328 91.0 57.0 (37.4) 19.7 16.7 14.6 9.2 24.7 0.7 1.3 1.2 1.1 1.1 6.8 6.2 6.9 7.5 2.0 2.4 2.7 8.2 7.7 7.3
Rakbank BUY 1,726 AED 6,339 4.2 6.1 46.3 6.2 6.0 5.6 8.1 6.9 0.9 1.3 1.2 1.1 1.0 28.6 20.4 19.0 18.4 7.2 7.5 8.1 4.6 4.4 4.2
UAE banks 37,882 139,142 26.5 8.6 7.5 6.5 9.4 1.0 0.9 0.9 0.8 13.4 10.9 11.7 12.5 5.2 6.1 6.7 4.3 4.0 3.7
CBQ HOLD 4,757 QAR 17,321 70.0 82.1 17.2 9.3 8.7 7.8 9.2 9.9 0.9 1.2 1.2 1.2 1.1 13.7 12.7 13.1 14.0 8.6 8.6 8.6 8.8 8.1 7.2
Doha HOLD 3,292 QAR 11,988 58.0 68.0 17.2 10.2 9.8 8.9 10.4 6.0 1.6 1.7 1.5 1.5 1.4 18.5 16.1 15.0 16.1 8.6 8.6 8.6 8.6 8.0 7.2
QIB HOLD 5,016 QAR 18,265 77.3 79.8 3.3 16.3 11.7 10.6 10.9 15.5 0.8 1.7 1.7 1.6 1.5 13.3 10.0 13.5 14.3 5.2 6.9 7.4 11.1 9.9 8.9
QNB BUY 25,674 QAR 93,484 133.6 189.2 41.6 10.9 9.9 8.7 12.4 12.8 0.8 2.2 2.0 1.7 1.5 22.3 18.6 18.2 18.4 3.6 3.9 4.5 9.8 8.9 7.8
MARK HOLD 5,500 QAR 20,025 26.7 30.9 15.8 13.6 11.2 9.6 11.1 17.7 0.6 2.4 2.1 1.9 1.7 17.6 15.9 17.4 18.1 3.7 3.7 3.7 11.5 9.5 8.2
Khaliji SELL 1,681 QAR 6,120 17.0 14.1 (16.9) 16.8 14.5 13.2 11.0 14.3 1.0 1.2 1.2 1.2 1.2 9.5 6.9 8.0 8.7 5.9 5.9 5.9 13.5 11.1 9.4
QIIB BUY 2,076 QAR 7,561 50.0 60.5 21.2 10.4 9.9 9.6 11.6 5.4 1.8 1.5 1.5 1.4 1.4 14.6 14.2 14.4 14.4 7.5 7.9 8.2 9.7 8.9 8.4
Qatar banks 47,997 174,765 27.6 11.6 10.3 9.2 13.2 1.9 1.7 1.6 1.5 15.3 14.8 15.4 15.9 4.9 5.3 5.6 9.9 8.9 7.9
CAE BUY 430 EGP 2,603 9.1 12.0 32.2 6.8 5.9 4.9 6.4 19.9 0.3 1.3 1.3 1.2 1.1 13.6 17.4 18.6 20.8 10.3 11.9 12.7 4.0 3.6 3.0
CIB BUY 2,521 EGP 15,253 25.5 35.6 39.3 6.8 6.0 5.1 7.1 18.1 0.3 1.8 1.5 1.3 1.1 19.8 23.8 22.8 22.8 4.5 4.4 4.9 4.8 4.2 3.6
HDB HOLD 225 EGP 1,364 11.9 13.0 9.6 9.4 6.5 5.2 5.7 33.5 0.2 0.6 0.6 0.5 0.5 6.3 6.0 8.3 9.8 4.2 6.2 7.7 5.7 4.1 3.3
NSGB HOLD 2,000 EGP 12,100 30.0 32.8 9.4 8.0 7.1 6.2 6.8 14.4 0.5 1.7 1.5 1.3 1.1 21.6 19.4 19.2 19.6 4.4 4.9 5.7 5.4 4.8 4.2
EGB SELL 296 USD 1,778 1.5 1.09 (26.2) 17.7 16.1 13.7 61.0 16.3 1.0 1.7 1.6 1.5 1.4 5.0 9.3 9.5 10.4 1.7 1.9 2.2 1.9 1.7 1.4
Egypt banks 5,473 33,098 23.1 7.7 6.7 5.7 8.2 1.6 1.4 1.2 1.1 17.1 17.8 18.1 18.6 4.8 5.1 5.8 5.1 4.5 3.8
Audi BUY 2,091 USD 2,091 6.0 7.3 21.3 4.2 6.0 5.3 6.4 (2.1) (2.8) 1.1 1.0 0.9 0.8 18.8 24.8 15.5 15.9 9.0 6.4 7.2 3.8 3.8 3.4
BLOM BUY 1,675 USD 1,675 7.8 11.0 41.1 5.0 4.9 4.3 6.1 12.1 0.4 1.0 0.9 0.8 0.7 19.9 18.6 17.0 17.2 6.0 6.8 8.1 3.6 3.5 3.1
Byblos HOLD 899 USD 899 1.6 1.5 (3.7) 6.5 5.8 5.1 4.9 13.7 0.4 0.8 0.7 0.6 0.6 13.1 11.1 11.3 12.0 6.2 6.7 7.7 3.6 3.2 2.8
BOB SELL 974 USD 974 19.3 10.5 (45.4) 10.4 9.5 8.4 4.6 12.5 0.8 2.0 1.8 1.6 1.5 20.1 18.4 18.2 18.5 3.8 4.8 5.3 7.6 6.6 5.7
Lebanon banks 5,638 5,638 11.7 5.3 6.0 5.3 6.6 0.7 0.6 0.6 0.5 18.0 18.0 14.6 15.0 6.7 6.2 7.2 2.7 2.6 2.3
ANB BUY 6,675 SAR 25,034 29.4 39.1 32.8 10.6 8.9 7.7 10.2 18.8 0.5 1.5 1.4 1.3 1.2 10.9 12.8 14.0 14.7 3.7 4.3 4.8 8.4 7.2 6.4
Al Rajhi BUY 29,598 SAR 111,000 74.0 100.5 35.8 13.1 11.4 10.0 13.6 17.1 0.7 3.4 3.1 2.8 2.5 10.9 23.0 24.1 24.6 4.4 4.8 5.2 11.4 9.9 8.7
BSFR HOLD 8,871 SAR 33,268 36.8 40.9 11.1 10.7 10.2 9.7 10.8 6.5 1.6 1.7 1.4 1.2 1.1 21.0 13.7 12.3 11.9 2.7 2.7 2.7 9.5 8.8 8.2
Riyad BUY 9,599 SAR 36,000 24.0 33.1 37.9 10.4 9.6 8.5 11.7 13.6 0.7 1.2 1.2 1.1 1.0 15.2 10.9 11.3 12.1 5.4 5.4 5.4 8.7 8.0 7.1
Samba BUY 11,567 SAR 43,380 48.2 65.6 36.2 9.5 8.8 7.8 10.7 13.1 0.7 1.5 1.4 1.3 1.1 10.1 15.0 14.7 14.9 3.4 3.4 3.4 8.7 8.0 7.0
SABB HOLD 9,199 SAR 34,499 34.5 37.1 7.5 13.7 9.0 8.2 8.8 13.4 0.7 2.0 1.6 1.4 1.3 15.5 14.5 13.8 13.7 2.0 2.0 2.0 9.5 8.4 7.5
SHB BUY 2,857 SAR 10,716 27.0 38.3 41.9 9.2 8.7 7.8 11.1 11.4 0.8 1.4 1.2 1.1 1.0 16.2 13.9 13.0 13.2 3.7 4.1 4.4 7.8 7.1 6.4
Albilad HOLD 2,160 SAR 8,100 27.0 30.9 14.6 9.3 12.6 10.7 12.3 1.4 9.1 2.4 1.9 1.7 1.5 12.5 22.1 13.7 14.0 -- 0.9 0.9 11.4 10.1 8.9
Aljazeera SELL 2,040 SAR 7,650 25.5 22.0 (13.7) 15.9 13.5 11.5 9.9 20.1 0.7 1.6 1.4 1.3 1.2 10.1 9.6 9.8 10.7 2.1 2.1 2.1 12.8 10.7 9.0
SIB HOLD 2,493 SAR 9,350 17.0 19.8 16.3 11.1 9.9 8.7 10.2 13.3 0.7 1.1 1.0 1.0 0.9 6.3 9.3 9.7 10.4 3.2 3.5 3.8 9.2 8.4 7.6
Alinma HOLD 5,300 SAR 19,875 13.3 15.4 16.5 30.6 19.7 14.1 16.4 44.2 0.4 1.3 1.2 1.1 1.0 8.2 3.8 5.6 7.3 -- -- 3.0 24.3 16.1 11.6
KSA banks 90,359 338,872 27.4 12.3 11.0 9.7 14.0 1.8 1.6 1.5 1.4 1.6 3.8 5.6 7.3 2.6 2.7 2.8 10.1 8.9 7.9
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 57
Exhibit 59: MENA banks valuation screen (continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 60: MENA diversified financials valuation screen
Source: Bloomberg, Arqaam Capital Research
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
NBK HOLD 16,197 KWD 4,528 1.0 1.1 8.1 13.9 14.0 13.7 14.9 2.1 6.8 2.1 2.0 1.9 1.9 14.8 14.7 14.4 14.3 3.5 3.6 3.6 12.0 12.0 11.9
KFH SELL 7,169 KWD 2,004 0.7 0.60 (13.6) 16.4 14.3 8.9 7.7 29.3 0.5 1.7 1.6 1.5 1.2 6.8 10.0 10.6 14.3 1.4 1.3 2.9 6.9 6.3 5.0
Gulf Bank SELL 3,956 KWD 1,106 0.4 0.34 (18.5) 25.3 21.2 18.1 14.7 29.2 0.7 2.5 2.3 2.1 1.9 7.3 9.5 10.3 10.8 -- -- 1.2 9.6 8.9 8.3
Burgan BUY 2,294 KWD 641 0.4 0.60 45.3 10.9 8.7 7.5 11.0 20.4 0.4 2.3 1.9 1.7 1.5 19.7 19.3 20.8 21.0 2.3 2.3 4.8 5.8 4.9 4.4
Boubyan SELL 3,815 KWD 1,066 0.6 0.28 (54.0) 68.5 40.0 28.8 13.2 36.1 1.1 4.4 4.1 3.7 3.3 3.3 6.2 9.7 12.2 -- 0.3 0.3 39.2 27.2 21.5
Kuwait banks 33,431 9,345 (4.2) 16.6 14.7 12.2 14.0 2.2 2.0 1.8 1.7 11.2 12.2 12.6 13.6 2.2 2.2 2.7 10.2 9.3 8.3
Muscat BUY 2,752 OMR 1,058 0.58 0.88 51.2 8.4 7.4 6.4 9.6 17.8 0.4 1.4 1.2 1.1 1.0 15.9 15.0 15.3 16.0 4.3 4.3 4.3 6.1 5.3 4.6
Sohar HOLD 390 OMR 150 0.15 0.15 1.0 10.2 8.4 7.0 7.0 20.0 0.4 1.2 1.1 1.0 0.9 11.5 11.3 12.4 13.6 4.0 4.0 4.0 6.8 5.5 4.6
OIB SELL 589 OMR 226 0.23 0.22 (6.7) 13.9 12.3 10.6 9.9 13.2 0.9 1.3 1.4 1.3 1.2 10.5 9.8 11.1 12.1 4.3 4.3 4.3 14.7 9.6 8.1
Oman banks 3,730 1,435 36.8 8.2 6.5 5.5 8.9 1.3 1.0 0.9 0.8 14.1 11.6 13.5 14.2 4.1 4.1 4.1 5.7 4.7 4.0
Ahli United HOLD 3,556 BHD 3,556 0.6 0.63 3.9 8.9 8.0 7.1 8.4 12.3 0.7 1.9 1.7 1.5 1.3 18.2 0.0 0.0 0.0 4.9 4.9 4.9 5.7 5.3 4.8
Bahrain banks 3,556 3,556 3.9 9.9 9.0 8.0 9.3 5.4 4.8 4.3 3.8 18.2 19.6 19.4 19.3 1.7 1.7 1.7 5.7 5.3 4.8
MENA banks' avg. 228,066 22.0 10.8 9.6 8.4 11.8 1.6 1.4 1.3 1.2 13.9 13.6 14.0 14.7 3.5 3.8 4.0 8.2 7.7 7.0
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
Company Rating Mkt. Cap. Currency Mkt Cap. Share Target Upside Target P/E(x) CAGR PEG
USDm (m) Price* Price % FY 12e FY 13e FY 14e FY 13e FY 12-15E FY 12e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Shuaa SELL 217 AED 798 0.7 0.63 (16.2) (25.7) (58.8) 269.6 (49.2) na na 0.7 0.7 0.7 0.7 (22.2) (2.7) (1.2) 0.3 -- -- -- (32.5) (72.3) 1,050
EFG BUY 927 EGP 5,610 11.7 16.6 41.9 13.5 11.7 10.6 16.6 12.2 1.0 1.4 1.5 1.4 1.3 1.6 5.5 6.7 7.1 34.1 2.4 4.1 7.2 6.1 5.3
DFM SELL 2,089 AED 7,672 1.0 0.74 (23.3) 162.1 45.0 33.7 34.5 83.1 0.5 3.8 3.6 3.4 3.1 (0.1) 0.6 2.2 2.9 -- -- -- 161.2 44.8 33.6
Salama BUY 201 AED 738 0.6 0.9 52.2 11.2 5.8 5.6 8.8 27.9 0.2 0.5 0.5 0.4 0.4 3.7 4.0 7.2 7.0 -- -- -- na na na
Qatar Insurance BUY 1,835 QAR 6,680 74.9 93.6 24.9 11.6 9.3 9.5 11.6 8.1 1.1 1.9 1.8 1.8 1.7 16.8 16.1 19.5 18.5 7.3 9.2 9.0 na na na
Tawuniya BUY 988 SAR 3,705 49.4 61.1 23.8 10.2 9.0 7.4 11.1 15.9 0.6 2.0 1.8 1.6 1.4 22.6 16.8 17.0 18.4 3.4 3.9 4.7 na na na
MedGulf SELL 623 SAR 2,336 29.2 24.6 (15.6) 13.1 11.4 8.7 9.6 NA NA 3.4 3.0 2.6 2.2 18.3 14.6 15.4 18.4 3.4 3.9 5.2 na na na
MENA financials' avg. 234,945 21.6 11.1 9.9 8.6 12.0 1.6 1.5 1.3 1.2 13.6 13.4 13.8 14.5 3.5 4.0 4.0 8.5 7.9 7.1
P/PPP (x)P/E (x) P/tNAV (x) ROTE(%) Dividend yield (%)
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 58
Exhibit 61: MENA financials: Earnings estimates (LCY)
Source: Bloomberg, Arqaam Capital Research
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
ADCB HOLD AED 0.54 0.37 0.44 0.50 3.21 3.56 3.84 4.15 0.20 0.11 0.14 0.16 0.35 0.46 0.51 53% (19%) (13%) 8.9 6.8 6.2
ADIB SELL AED 0.49 0.42 0.46 0.52 2.78 2.87 3.07 3.35 0.24 0.21 0.22 0.24 0.49 0.56 0.62 1% (25%) (25%) 6.4 5.5 5.0
CBD BUY AED 0.42 0.39 0.41 0.48 3.26 3.44 3.64 3.89 0.20 0.21 0.23 0.24 0.52 0.56 na (19%) (31%) na 5.4 5.0 na
DIB SELL AED 0.27 0.23 0.25 0.30 2.41 2.51 2.62 2.75 0.13 0.14 0.17 0.18 0.28 0.33 0.41 (5%) (31%) (39%) 6.8 5.7 4.7
ENBD HOLD AED 0.46 0.29 0.32 0.39 4.52 4.58 4.75 4.97 0.20 0.12 0.14 0.14 0.43 0.57 0.80 7% (49%) (60%) 6.4 4.8 3.4
FGB BUY AED 1.24 1.30 1.48 1.67 7.55 8.51 9.18 9.92 0.50 0.73 0.84 0.95 1.23 1.43 1.78 0% (9%) (17%) 7.1 6.1 4.9
NBAD BUY AED 0.96 1.05 1.30 1.51 5.77 6.54 7.43 8.45 0.22 0.35 0.43 0.51 1.04 1.19 1.44 (8%) (12%) (10%) 8.5 7.4 6.1
UNB BUY AED 0.60 0.55 0.58 0.63 4.28 4.69 5.12 5.60 0.09 0.10 0.11 0.12 0.58 0.66 0.79 4% (16%) (26%) 5.0 4.4 3.7
Tamweel BUY AED 0.10 0.09 0.10 0.09 2.32 2.34 2.39 2.42 0.05 0.05 0.05 0.06 0.10 0.16 0.19 3% (47%) (47%) 11.5 7.2 6.1
Mashreq SELL AED 4.85 4.61 5.46 6.21 72.53 77.14 80.75 84.78 2.00 1.84 2.18 2.49 na na na na na na na na na
Rakbank BUY AED 0.79 0.67 0.70 0.75 3.08 3.46 3.85 4.29 0.30 0.30 0.31 0.34 na na na na na na na na na
CBQ HOLD QAR 7.61 7.55 8.05 8.94 57.51 58.87 60.72 63.43 6.00 6.00 6.00 6.00 8.41 9.48 10.62 (9%) (15%) (16%) 8.3 7.4 6.6
Doha HOLD QAR 6.00 5.70 5.89 6.51 34.26 37.99 38.73 40.08 5.00 5.00 5.00 5.00 6.32 7.04 8.29 (5%) (16%) (22%) 9.2 8.2 7.0
QIB HOLD QAR 5.78 4.75 6.62 7.31 46.49 46.63 49.10 50.87 4.50 3.98 5.36 5.71 6.69 7.50 8.44 (14%) (12%) (13%) 11.5 10.3 9.2
QNB BUY QAR 10.73 12.21 13.51 15.32 59.85 68.12 76.53 86.20 3.64 4.76 5.27 5.97 12.60 14.24 16.26 (15%) (5%) (6%) 10.6 9.4 8.2
MARK HOLD QAR 1.88 1.97 2.39 2.78 11.34 12.76 14.09 15.80 0.00 1.00 1.00 1.00 1.93 2.18 2.22 (2%) 10% 26% 13.9 12.2 12.1
Khaliji SELL QAR 1.35 1.01 1.17 1.29 14.22 14.21 14.35 14.60 1.00 1.00 1.00 1.00 na na na na na na na na na
QIIB BUY QAR 4.31 4.79 5.04 5.22 32.32 33.49 34.66 35.83 3.50 3.74 3.93 4.07 na na na na na na na na na
CAE BUY EGP 1.07 1.34 1.54 1.86 6.76 7.25 7.85 8.64 0.85 0.94 1.08 1.16 1.11 1.36 1.69 (4%) 13% 11% 8.2 6.7 5.4
CIB BUY EGP 2.72 3.74 4.29 5.03 14.00 17.44 20.22 23.81 1.00 1.16 1.12 1.26 3.15 3.70 4.33 (14%) 16% 16% 8.1 6.9 5.9
HDB HOLD EGP 1.30 1.26 1.83 2.28 20.65 21.40 22.49 23.86 0.52 0.50 0.73 0.91 1.58 2.33 2.64 (18%) (22%) (14%) 7.5 5.1 4.5
NSGB HOLD EGP 3.69 3.75 4.20 4.85 18.06 20.50 23.23 26.38 1.25 1.31 1.47 1.70 3.57 4.14 4.68 3% 1% 4% 8.4 7.2 6.4
EGB SELL EGP 0.04 0.08 0.09 0.11 0.86 0.94 1.00 1.07 0.03 0.03 0.03 0.03 na na na na na na na na na
Audi BUY USD 1.00 1.42 1.00 1.13 5.28 6.16 6.78 7.48 0.38 0.54 0.38 0.43 0.98 1.13 na 2% (11%) na 6.1 5.3 na
BLOM BUY USD 1.51 1.55 1.59 1.81 7.77 8.85 9.92 11.10 0.45 0.46 0.53 0.63 1.34 1.60 na 13% (0%) na 5.8 4.9 na
Byblos HOLD USD 0.27 0.25 0.27 0.31 2.09 2.33 2.51 2.71 0.11 0.10 0.11 0.12 0.24 0.27 0.27 13% 3% 15% 6.6 6.0 5.9
BOB 2.05 1.85 2.04 2.28 9.51 10.62 11.74 13.00 0.82 0.74 0.92 1.03 na na na na na na na na na
ANB BUY SAR 2.55 2.78 3.31 3.84 19.52 21.11 23.10 25.42 1.00 1.10 1.25 1.40 2.84 3.30 3.88 (10%) 1% (1%) 10.3 8.9 7.6
Al Rajhi BUY SAR 4.92 5.65 6.52 7.39 21.88 23.89 26.40 29.43 3.25 3.25 3.55 3.85 5.51 6.39 7.29 (11%) 2% 1% 13.4 11.6 10.1
BSFR HOLD SAR 3.22 3.43 3.60 3.79 21.74 27.17 29.77 32.57 0.70 1.00 1.00 1.00 3.55 4.03 4.60 (9%) (11%) (18%) 10.4 9.1 8.0
Riyad BUY SAR 2.10 2.30 2.49 2.82 20.11 20.84 21.95 23.38 1.30 1.30 1.30 1.30 2.24 2.58 3.01 (6%) (4%) (6%) 10.7 9.3 8.0
Samba BUY SAR 4.78 5.09 5.51 6.16 31.23 34.40 38.09 42.44 1.65 1.65 1.65 1.65 5.26 5.99 6.84 (9%) (8%) (10%) 9.2 8.0 7.0
SABB HOLD SAR 2.71 2.51 3.85 4.19 17.17 21.93 24.43 27.27 0.56 0.70 0.70 0.70 3.12 3.59 4.07 (13%) 7% 3% 11.1 9.6 8.5
SHB BUY SAR 2.60 2.93 3.12 3.46 18.67 22.22 24.25 26.51 0.95 1.00 1.10 1.20 2.85 3.26 3.73 (9%) (4%) (7%) 9.5 8.3 7.2
Albilad HOLD SAR 1.10 2.91 2.15 2.52 11.39 14.21 16.30 18.49 0.00 0.00 0.25 0.25 1.76 2.45 2.94 (37%) (12%) (14%) 15.4 11.0 9.2
Aljazeera SELL SAR 1.01 1.60 1.89 2.22 15.78 18.04 19.34 20.96 0.53 0.53 0.53 0.53 1.58 2.10 2.54 (36%) (10%) (13%) 16.2 12.2 10.0
SIB HOLD SAR 1.29 1.54 1.71 1.95 15.47 16.48 17.61 18.90 0.50 0.55 0.60 0.65 1.51 1.72 1.92 (15%) (0%) 2% 11.3 9.9 8.9
Alinma HOLD SAR 0.29 0.43 0.67 0.94 10.60 11.01 11.65 12.74 0.00 0.00 0.00 0.40 0.46 0.70 1.16 (37%) (3%) (19%) 28.8 19.1 11.5
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 59
Exhibit 62: MENA financials: Earnings estimates (LCY) (continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 63: MENA diversified financials: Earnings estimates (LCY)
Source: Bloomberg, Arqaam Capital Research
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
NBK HOLD KWD 0.07 0.07 0.07 0.08 0.49 0.53 0.54 0.55 0.04 0.04 0.04 0.04 0.07 0.09 0.10 (4%) (16%) (22%) 14.2 11.8 10.7
KFH SELL KWD 0.03 0.04 0.05 0.08 0.41 0.43 0.47 0.58 0.01 0.01 0.01 0.02 0.04 0.06 0.08 (33%) (23%) (2%) 16.4 11.0 8.7
Gulf Bank SELL KWD 0.01 0.02 0.02 0.02 0.17 0.18 0.20 0.23 0.00 0.00 0.00 0.01 na na na na na na na na na
Burgan BUY KWD 0.03 0.04 0.05 0.06 0.18 0.22 0.24 0.28 0.01 0.01 0.01 0.02 0.04 0.05 0.05 (16%) 4% 2% 10.6 9.0 7.7
Boubyan SELL KWD 0.00 0.01 0.02 0.02 0.14 0.15 0.16 0.18 0.00 0.00 0.00 0.00 na na na na na na na na na
Muscat BUY OMR 0.1 0.1 0.1 0.1 0.43 0.49 0.54 0.60 0.02 0.03 0.03 0.03 0.07 0.08 0.10 (11%) (6%) (4%) 7.9 7.0 6.1
Sohar HOLD OMR 0.0 0.0 0.0 0.0 0.13 0.14 0.15 0.17 0.01 0.01 0.01 0.01 0.02 0.02 na (19%) (6%) na 8.3 7.9 na
OIB SELL OMR 0.0 0.0 0.0 0.0 0.18 0.17 0.17 0.19 0.01 0.01 0.01 0.01 0.02 0.02 0.03 (7%) (22%) (25%) 11.6 9.6 8.0
AUB HOLD BHD 0.06 0.07 0.08 0.09 0.33 0.37 0.41 0.47 0.03 0.03 0.03 0.03 na na na na na na na na na
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
Company Currency
FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 11A FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e FY 12e FY 13e FY 14e
Shuaa SELL AED (0.28) (0.03) (0.01) 0.00 1.07 1.04 1.03 1.03 -- -- -- -- (0.17) (0.01) na 63% 16% na (4.4) (68.1) na
EFG BUY EGP 0.28 0.87 1.00 1.11 8.60 7.57 8.29 8.93 1.00 4.00 0.29 0.48 0.38 0.74 0.96 (28%) 36% 16% 30.5 16.0 12.3
DFM SELL AED (0.00) 0.01 0.02 0.03 0.25 0.27 0.28 0.31 -- -- -- -- 0.02 0.03 0.04 (105%) (29%) (23%) 56.4 32.0 25.9
Salama BUY AED 0.05 0.05 0.10 0.11 1.19 1.25 1.36 1.47 -- -- -- -- na na na na na na na na na
Qatar InsuranceBUY QAR 6.64 6.44 8.07 7.91 39.57 40.66 42.01 43.34 5.66 5.48 6.86 6.72 na na na na na na na na na
Tawuniya BUY SAR 5.76 4.86 5.49 6.66 25.14 28.08 31.41 35.50 2.00 1.70 1.92 2.33 na na na na na na na na na
MedGulf SELL SAR 2.56 2.23 2.56 3.34 8.67 9.89 11.30 13.14 1.25 1.00 1.15 1.51 na na na na na na na na na
Rating BBG consensus PEEPS tNAV DPS BBG EPS consensus Deviation vs consensus
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 60
Exhibit 64: MENA banks: Assets and returns
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency CET1
Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e
ADCB HOLD AED 137.6 154.3 164.1 1.6% 12.1% 6.3% 2.0% 1.1% 1.2% 15.9% 14.2% 14.2% 11.5% 16.7% 9.1% 10.7%
ADIB SELL AED 60.6 69.7 73.8 (2.0%) 15.0% 5.9% 1.7% 1.2% 1.3% 14.2% 12.6% 12.6% 8.0% 16.3% 13.0% 13.8%
CBD BUY AED 35.2 36.7 38.5 1.1% 4.3% 4.8% 2.3% 2.1% 2.1% 16.6% 16.9% 17.1% 16.6% 18.8% 16.4% 16.6%
DIB SELL AED 75.3 97.0 99.2 (4.9%) 28.8% 2.3% 1.3% 0.9% 1.0% 13.6% 11.1% 10.3% 12.1% 11.0% 9.3% 9.7%
ENBD HOLD AED 222.1 227.7 234.8 0.7% 2.5% 3.1% 1.0% 0.6% 0.7% 13.0% 12.8% 12.9% 10.5% 9.3% 5.3% 5.9%
FGB BUY AED 136.0 156.8 170.7 12.7% 15.3% 8.9% 2.6% 2.3% 2.5% 18.5% 18.0% 17.7% 13.3% 16.6% 15.2% 15.8%
NBAD BUY AED 174.8 208.8 233.4 15.3% 19.5% 11.8% 2.0% 1.8% 2.0% 15.6% 14.5% 14.4% 11.9% 16.3% 16.1% 17.7%
UNB BUY AED 76.7 82.8 87.7 0.4% 8.0% 5.9% 1.8% 1.5% 1.5% 16.7% 17.9% 18.3% 13.3% 13.7% 11.2% 10.9%
Tamweel BUY AED 10.0 10.2 10.5 (7.5%) 1.5% 2.8% 1.0% 0.8% 1.0% 22.9% 23.0% 22.9% 22.4% 4.8% 3.8% 4.3%
MASQ SELL AED 77.9 84.4 89.7 2.1% 8.4% 6.3% 1.1% 0.9% 1.0% 16.2% 15.9% 15.7% 15.5% 6.8% 6.2% 6.9%
RAKBANK BUY AED 15.8 19.0 20.3 9.1% 20.1% 6.5% 7.6% 5.3% 5.2% 22.0% 21.3% 22.9% 19.1% 28.6% 20.4% 19.0%
CBQ HOLD QAR 61.3 71.3 80.7 23.0% 16.3% 13.2% 3.0% 2.6% 2.4% 16.4% 14.4% 13.1% 12.5% 13.7% 12.7% 13.1%
Doha HOLD QAR 49.9 53.6 60.4 18.7% 7.2% 12.8% 2.4% 2.4% 2.2% 10.7% 12.4% 11.3% 10.1% 18.5% 16.1% 15.0%
QIB HOLD QAR 34.0 38.5 42.1 (9.4%) 13.2% 9.4% 3.9% 2.8% 3.6% 23.0% 21.3% 20.4% 21.8% 13.3% 10.0% 13.5%
QNB BUY QAR 156.4 167.2 191.1 39.6% 6.9% 14.2% 4.7% 5.0% 4.8% 22.0% 23.6% 23.7% 21.2% 22.3% 18.6% 18.2%
MAR HOLD QAR 35.2 47.0 55.2 5.2% 33.6% 17.3% 3.9% 3.1% 3.2% 21.8% 17.4% 16.5% 20.1% 17.6% 15.9% 17.4%
Khaliji SELL QAR 20.8 28.6 31.9 16.4% 37.2% 11.7% 2.3% 1.2% 1.3% 22.0% 17.0% 15.4% 16.3% 9.5% 6.9% 8.0%
QIIB BUY QAR 16.5 19.0 21.7 27.3% 15.1% 14.1% 3.9% 3.7% 3.4% 24.3% 22.5% 20.1% 22.6% 14.6% 14.2% 14.4%
CAE BUY EGP 14.6 17.4 19.9 9.9% 18.9% 14.3% 1.9% 2.0% 2.0% 11.6% 10.2% 9.5% 11.6% 13.6% 17.4% 18.6%
CIB BUY EGP 55.4 65.6 75.4 13.9% 18.4% 15.0% 2.6% 3.1% 3.1% 12.5% 12.8% 12.9% 13.4% 19.8% 23.8% 22.8%
HDB HOLD EGP 8.0 20.7 22.7 1.4% 157.2% 9.9% 1.9% 0.7% 0.9% 23.0% 9.2% 8.5% 20.8% 6.3% 6.0% 8.3%
NSGB HOLD EGP 42.7 50.9 57.9 11.6% 19.3% 13.7% 3.2% 2.7% 2.7% 12.8% 12.6% 12.7% 13.5% 21.6% 19.4% 19.2%
EGB SELL EGP 4.5 5.2 5.8 (6.2%) 15.3% 11.7% 1.2% 1.8% 1.8% 21.4% 19.5% 18.5% 17.4% 5.0% 9.3% 9.5%
Audi BUY USD trn 27.3 28.9 30.3 7.6% 5.7% 4.9% 1.9% 2.6% 1.7% 10.4% 11.3% 12.2% 8.5% 18.8% 24.8% 15.5%
BLOM BUY USD trn 20.1 23.6 25.7 12.9% 17.6% 8.6% 2.4% 2.1% 2.0% 12.8% 12.8% 13.1% 11.2% 19.9% 18.6% 17.0%
Byblos HOLD USD trn 15.5 16.9 18.7 4.9% 9.4% 10.6% 1.5% 1.2% 1.2% 14.4% 14.5% 13.9% 11.4% 13.1% 11.1% 11.3%
BOB SELL USD trn 9.4 10.8 11.6 15.8% 15.2% 7.4% 1.7% 1.3% 1.3% 14.3% 13.6% 13.4% 5.9% 20.1% 18.4% 18.2%
ANB BUY SAR 104.4 120.1 134.1 8.3% 15.1% 11.6% 1.7% 1.8% 2.0% 15.0% 14.2% 14.1% 14.0% 10.9% 12.8% 14.0%
Al Rajhi BUY SAR 173.0 201.2 226.0 11.9% 16.3% 12.3% 3.8% 3.9% 4.0% 14.7% 14.4% 14.8% 14.6% 21.0% 23.0% 24.1%
BSFR HOLD SAR 138.5 158.2 173.7 10.2% 14.2% 9.8% 2.1% 1.9% 1.8% 13.9% 13.6% 13.7% 12.9% 15.2% 13.7% 12.3%
Riyad BUY SAR 181.1 196.9 214.6 10.5% 8.7% 9.0% 1.7% 1.7% 1.7% 14.8% 14.4% 14.0% 15.3% 10.1% 10.9% 11.3%
Samba BUY SAR 156.1 194.5 214.4 8.8% 24.6% 10.2% 2.7% 2.3% 2.2% 18.1% 16.0% 16.1% 14.8% 15.5% 15.0% 14.7%
SABB HOLD SAR 120.0 138.5 162.0 10.0% 15.4% 17.0% 2.2% 2.0% 2.0% 11.8% 13.5% 12.8% 13.4% 16.2% 14.5% 13.8%
SHB BUY SAR 53.1 62.7 69.4 5.8% 18.1% 10.7% 1.6% 1.8% 1.7% 12.7% 12.4% 12.4% 12.9% 12.5% 13.9% 13.0%
Albilad HOLD SAR 20.0 24.8 27.9 10.0% 24.0% 12.6% 1.6% 3.4% 2.2% 15.4% 14.0% 15.2% 15.6% 10.1% 22.1% 13.7%
Aljazeera SELL SAR 34.7 42.4 49.0 16.1% 22.0% 15.7% 0.8% 1.2% 1.2% 13.6% 14.1% 13.0% 11.7% 6.3% 9.6% 9.8%
SIB HOLD SAR 42.5 46.2 50.7 (5.3%) 8.6% 9.9% 1.6% 1.8% 1.8% 17.2% 18.7% 18.0% 16.2% 8.2% 9.3% 9.7%
Alinma HOLD SAR 36.3 54.2 70.5 74.6% 49.3% 30.1% 0.7% 1.1% 1.4% 43.8% 30.5% 24.8% 39.0% 1.6% 3.8% 5.6%
RORWARWA GrowthRWA (bn) Tier I Ratio RotE
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 61
Exhibit 65: MENA banks: Assets and returns (continued)
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency CET1
Rating FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 12e FY 13e FY 11A FY 11A FY 12e FY 13e
NBK HOLD KWD 8.6 9.2 9.7 6.1% 6.8% 6.2% 3.5% 3.5% 3.6% 18.3% 19.0% 19.7% 15.9% 14.8% 14.7% 14.4%
KFH SELL KWD 10.4 12.4 13.5 4.0% 19.2% 9.3% 0.8% 1.0% 1.0% 13.5% 12.0% 11.8% 11.0% 6.8% 10.0% 10.6%
Gulf Bank SELL KWD 3.0 3.1 3.3 6.2% 5.0% 6.4% 1.0% 1.4% 1.5% 13.6% 14.4% 15.0% 13.6% 7.3% 9.5% 10.3%
Burgan BUY KWD 3.0 3.7 3.7 12.3% 23.4% 0.7% 1.7% 1.6% 2.0% 14.7% 14.6% 15.6% 14.3% 19.7% 19.3% 20.8%
Boubyan SELL KWD 0.9 1.0 1.3 12.2% 13.4% 24.4% 0.9% 1.5% 2.0% 25.5% 23.8% 21.1% 22.2% 3.3% 6.2% 9.7%
Muscat BUY OMR 6.6 8.0 9.2 16.6% 20.5% 14.9% 1.8% 1.7% 1.8% 11.9% 11.4% 12.5% 9.1% 15.9% 15.0% 15.3%
Sohar HOLD OMR 1.3 1.5 1.7 15.0% 16.2% 12.2% 1.1% 1.0% 1.1% 9.3% 9.4% 9.1% 9.3% 11.5% 11.3% 12.4%
OIB SELL OMR 1.0 1.9 2.1 7.2% 101.4% 7.5% 1.9% 1.7% 1.8% 13.6% 13.4% 13.3% 12.1% 10.5% 9.8% 11.1%
AUB HOLD BHD 19.9 21.9 23.6 1.7% 9.9% 7.8% 1.5% 1.6% 1.7% 11.5% 11.2% 11.3% 10.3% 18.2% 19.6% 19.4%
RORWARWA GrowthRWA (bn) Tier I Ratio RotE
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 62
Exhibit 66: MENA banks: Key performance indicators
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency
Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11A
ADCB HOLD AED 9.6% 21.4% 1.0% 6.6% 7.1% 25.1% 4.6% 6.0% 2.5% (3.7%) (3.5%) 0.6% 33.0% 34.0% 35.2% 35.0% 80.3% 150.9% 110.6% 92.0%
ADIB SELL AED 21.2% 11.4% (0.0%) 6.6% 31.0% 11.4% 5.2% 6.1% (9.8%) 0.0% (5.2%) 0.5% 42.5% 42.5% 44.8% 44.6% 358.4% 216.7% 127.4% 102.3%
CBD BUY AED 6.9% (1.7%) 2.7% 3.3% 1.4% 4.0% 2.8% 3.9% 5.5% (5.7%) (0.1%) (0.6%) 28.7% 30.4% 30.4% 30.6% 46.3% 100.0% 155.6% 101.7%
DIB SELL AED (3.1%) 10.5% 9.0% 3.7% 2.0% 8.2% 3.3% 3.6% (5.0%) 2.4% 5.7% 0.1% 42.3% 41.4% 39.2% 39.2% 201.8% 269.8% 108.7% 116.5%
ENBD HOLD AED (9.9%) 2.1% (3.6%) 1.2% (13.7%) 14.4% (5.6%) 1.0% 3.7% (12.3%) 2.0% 0.2% 32.4% 36.3% 35.5% 35.5% 100.3% 80.8% 91.6% 94.2%
FGB BUY AED 3.4% 2.3% 5.7% 9.7% 3.8% 9.1% 12.2% 13.9% (0.4%) (6.8%) (6.5%) (4.2%) 17.7% 18.9% 20.0% 20.8% 144.2% 134.5% 83.7% 87.2%
NBAD BUY AED 12.2% 9.8% 8.2% 18.0% 15.2% 17.3% 12.5% 13.3% (3.0%) (7.5%) (4.3%) 4.7% 30.5% 32.5% 33.8% 32.5% 76.8% 68.9% 74.5% 81.1%
UNB BUY AED 20.6% 11.1% 6.7% 4.0% 10.2% 1.9% 2.8% 7.6% 10.4% 9.2% 3.9% (3.6%) 28.0% 25.7% 24.7% 25.6% 139.2% 143.9% 91.8% 100.4%
Tamweel BUY AED (10.6%) (4.1%) 5.6% 5.3% (23.4%) 2.6% 2.5% 4.1% 12.8% (6.7%) 3.0% 1.1% 34.8% 37.3% 36.2% 35.8% na 29.4% 309.8% 100.5%
Mashreq SELL AED (11.6%) (11.7%) (3.2%) 6.5% (0.4%) 1.7% 4.6% 6.4% (11.2%) (13.4%) (7.9%) 0.2% 40.2% 46.3% 50.1% 50.0% 218.1% 162.8% 127.4% 113.3%
Rakbank BUY AED 28.4% 19.2% (4.2%) 4.4% 26.1% 20.4% 1.5% 4.7% 2.3% (1.2%) (5.8%) (0.3%) 42.5% 43.0% 45.5% 45.7% 79.9% 81.9% 210.8% 95.9%
CBQ HOLD QAR (7.8%) 11.8% 4.4% 9.0% 3.7% 11.2% 15.7% 10.7% (11.4%) 0.6% (11.3%) (1.7%) 30.7% 30.6% 33.9% 34.4% 191.1% 167.2% 93.9% 71.2%
Doha HOLD QAR 4.6% 9.1% 4.0% 8.6% 9.8% 10.0% 12.5% 11.8% (5.2%) (0.9%) (8.4%) (3.2%) 33.8% 34.1% 36.8% 37.9% 119.9% 123.2% 128.4% 91.6%
QIB HOLD QAR (4.3%) 19.7% 15.4% 10.8% 0.5% 57.1% 12.5% 9.0% (4.9%) (37.4%) 2.9% 1.8% 26.5% 34.8% 33.9% 33.4% 157.5% 187.1% 111.0% 74.4%
QNB BUY QAR 37.5% 35.5% 15.7% 11.0% 16.7% 24.1% 25.3% 17.7% 20.7% 11.4% (9.6%) (6.6%) 17.5% 16.0% 17.3% 18.4% 198.8% 162.5% 53.7% 88.7%
MAR HOLD QAR 21.0% 31.2% 17.1% 20.5% 15.3% 33.0% 15.0% 17.8% 5.7% (1.7%) 2.1% 2.7% 17.3% 17.5% 17.2% 16.8% 129.7% 126.0% 131.2% 107.3%
Khaliji SELL QAR 45.6% 23.7% (5.4%) 14.9% 290.5% (1.0%) 11.7% 8.2% (244.9%) 24.6% (17.0%) 6.7% 51.7% 41.4% 48.9% 46.0% 154.2% 159.1% 291.5% 66.7%
QIIB BUY QAR 8.1% 18.8% 13.7% 9.7% (12.1%) 39.3% 7.7% 13.1% 20.2% (20.4%) 5.9% (3.4%) 19.1% 22.4% 21.3% 21.9% 460.9% 965.9% 340.6% 137.7%
CAE BUY EGP 15.2% 8.8% 6.9% 9.9% 9.2% 17.6% 6.0% 8.0% 6.1% (8.8%) 0.9% 1.9% 47.9% 51.8% 51.3% 50.4% 72.1% 117.2% 201.8% 127.0%
CIB BUY EGP 17.6% 1.1% 22.4% 14.0% 23.0% 3.5% 7.3% 12.5% (5.4%) (2.3%) 15.1% 1.5% 39.9% 40.9% 35.8% 35.3% 47.2% 249.9% 104.6% 110.2%
HDB HOLD EGP 11.9% (4.4%) 2.6% 17.0% 18.7% 8.4% 5.8% 5.9% (6.8%) (12.7%) (3.2%) 11.1% 56.3% 63.8% 65.8% 59.6% 14.0% 84.1% 233.7% 126.7%
NSGB HOLD EGP 18.4% 7.8% 13.2% 11.6% 13.4% (13.3%) 8.2% 9.1% 5.1% 21.1% 5.0% 2.5% 47.3% 38.0% 36.3% 35.5% 87.2% 135.4% 102.8% 113.3%
EGB SELL EGP 21.2% (20.1%) 39.9% 9.3% (11.2%) 0.4% 7.5% 8.0% 32.4% (20.4%) 32.4% 1.3% 50.0% 62.8% 48.3% 47.7% 75.2% 97.2% 453.4% 94.4%
Audi BUY USD 18.9% 14.0% 1.8% 3.4% 15.3% 9.7% 4.9% 7.2% 3.5% 4.3% (3.1%) (3.8%) 47.4% 45.6% 47.0% 48.7% 440.6% 854.5% 245.3% 199.4%
BLOM BUY USD 19.6% 7.3% 4.5% 5.6% 12.8% 8.1% 7.1% 8.0% 6.8% (0.9%) (2.6%) (2.4%) 38.4% 38.7% 39.7% 40.6% 594.4% 426.0% 132.3% 168.6%
Byblos HOLD USD 19.6% 4.0% (0.9%) 10.5% 20.4% (3.4%) 9.1% 8.6% (0.8%) 7.4% (10.1%) 1.9% 46.6% 43.3% 47.7% 46.9% 321.5% na 104.8% na
BOB SELL USD 24.8% 11.5% 4.4% 11.7% 15.3% 21.0% 6.7% 8.4% 9.4% (9.5%) (2.3%) 3.3% 46.3% 50.3% 51.4% 49.9% 346.7% na 64.5% na
ANB BUY SAR (0.4%) 0.8% 6.2% 12.5% 2.7% 7.9% 3.8% 7.3% (3.1%) (7.1%) 2.4% 5.3% 36.5% 39.1% 38.2% 36.4% 172.2% 169.2% 133.0% 130.1%
Al Rajhi BUY SAR 0.2% 7.2% 7.9% 13.3% 0.1% 16.7% 1.5% 7.9% 0.1% (9.5%) 6.4% 5.3% 25.9% 28.2% 26.5% 25.3% 202.6% 200.0% 88.2% 118.0%
BSFR HOLD SAR 2.3% 4.3% 11.0% 7.5% 8.7% 19.2% 5.7% 7.3% (6.3%) (14.8%) 5.3% 0.2% 28.6% 32.7% 31.1% 31.1% 177.2% 180.6% 100.3% 131.2%
Riyad BUY SAR 0.3% 5.7% 6.4% 8.3% 5.1% 8.9% 3.7% 6.5% (4.8%) (3.2%) 2.6% 1.8% 38.6% 39.7% 38.7% 38.1% 160.6% 139.2% 69.4% 119.2%
Samba BUY SAR (2.9%) (4.9%) 6.0% 8.8% (2.1%) 2.4% 1.7% 6.5% (0.8%) (7.3%) 4.3% 2.3% 27.7% 29.8% 28.6% 28.0% 242.2% 193.1% 142.6% 157.9%
SABB HOLD SAR (6.2%) 1.2% 7.9% 12.1% 4.6% (8.5%) 3.7% 8.7% (10.8%) 9.7% 4.2% 3.3% 36.2% 32.8% 31.5% 30.6% 221.8% 194.8% 108.7% 137.9%
SHB BUY SAR (9.0%) 2.6% 10.6% 9.0% (4.9%) 3.9% 5.3% 6.7% (4.0%) (1.2%) 5.3% 2.3% 39.5% 40.0% 38.1% 37.3% 224.9% 185.0% 157.1% 150.6%
Albilad HOLD SAR 20.9% 25.0% 13.3% 10.2% (9.7%) 10.4% 6.9% 8.3% 30.6% 14.6% 6.4% 1.9% 65.3% 57.6% 54.4% 53.5% 280.8% 349.3% 253.8% 119.7%
Aljazeera SELL SAR (1.4%) 4.6% 29.1% 14.4% 5.3% 9.2% 7.9% 10.6% (6.6%) (4.6%) 21.2% 3.8% 66.2% 69.1% 57.7% 55.8% 309.2% 242.8% 153.7% 238.5%
SIB HOLD SAR 15.3% (7.6%) 4.5% 8.9% 3.7% 11.6% 6.9% 7.9% 11.6% (19.2%) (2.4%) 1.1% 32.0% 38.6% 39.5% 39.1% 164.7% 89.7% 127.2% 132.1%
Alinma HOLD SAR (30.6%) 109.6% 26.1% 34.7% 0.9% 29.2% 12.2% 20.3% (31.5%) 80.4% 13.9% 14.4% 97.3% 59.9% 53.3% 47.6% 238.3% 136.1% 159.1% 109.7%
Rev Growth Cost Growth Jaws Cost / Income Ratio NSFRLCR
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 63
Exhibit 67: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency
Rating FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e
ADCB HOLD AED 2.47% 2.91% 2.78% 2.77% 2.3% 1.6% 1.6% 1.4% 11.1% 4.6% 5.8% 5.9% 44.1% 94.8% 89.2% 98.3%
ADIB SELL AED 4.02% 4.08% 4.05% 4.08% 0.9% 1.1% 1.3% 1.3% 7.1% 8.7% 8.6% 8.6% 63.6% 66.8% 82.2% 94.1%
CBD BUY AED 3.91% 3.75% 3.71% 3.60% 1.8% 1.6% 1.9% 1.8% 5.8% 13.1% 13.4% 13.3% 76.7% 47.4% 48.5% 50.5%
DIB SELL AED 2.87% 3.33% 3.19% 3.02% 1.1% 1.6% 2.4% 2.4% 8.3% 14.5% 14.0% 13.8% 59.0% 48.8% 55.2% 72.7%
ENBD HOLD AED 2.62% 2.79% 2.70% 2.71% 1.4% 2.2% 2.2% 2.1% 10.0% 13.8% 15.0% 16.0% 40.7% 43.4% 56.2% 64.5%
FGB BUY AED 3.51% 3.71% 3.52% 3.51% 1.7% 1.5% 1.4% 1.2% 4.6% 4.0% 4.0% 3.9% 72.1% 84.2% 78.4% 70.7%
NBAD BUY AED 2.69% 2.70% 2.44% 2.51% 0.8% 0.9% 0.8% 0.8% 2.6% 3.3% 3.5% 3.6% 101.6% 89.9% 85.2% 100.4%
UNB BUY AED 2.60% 3.05% 3.10% 3.09% 0.8% 1.0% 1.4% 1.3% 4.3% 3.7% 4.0% 4.1% 47.5% 74.7% 71.6% 69.7%
Tamweel BUY AED 1.86% 2.41% 2.49% 2.49% 1.1% 0.2% 0.6% 0.6% 6.7% 10.0% 12.5% 14.5% 51.7% 35.4% 31.2% 29.8%
Mashreq SELL AED 2.81% 2.63% 2.40% 2.39% 3.2% 2.3% 2.4% 2.2% 11.9% 12.6% 12.4% 12.2% 61.0% 52.1% 62.0% 72.4%
Rakbank BUY AED 8.75% 9.07% 7.94% 7.77% 1.8% 1.7% 1.8% 1.8% 2.5% 2.5% 2.6% 2.7% 74.8% 71.3% 70.8% 72.0%
CBQ HOLD QAR 3.32% 3.22% 2.99% 2.89% 0.5% 0.6% 0.7% 0.7% 3.2% 1.2% 1.5% 2.2% 89.7% 107.8% 108.9% 90.4%
Doha HOLD QAR 3.39% 3.63% 3.46% 3.37% 1.1% 0.9% 0.6% 0.6% 4.9% 3.4% 3.5% 3.6% 73.8% 73.1% 102.3% 100.1%
QIB HOLD QAR 3.21% 2.88% 3.41% 3.37% 0.2% 0.0% 1.2% 0.6% 1.5% 1.2% 1.6% 1.9% 83.2% 97.7% 133.2% 128.4%
QNB BUY QAR 2.95% 3.08% 2.95% 2.90% 0.4% 0.6% 0.6% 0.5% 1.0% 1.1% 1.2% 1.3% 117.7% 118.9% 120.3% 112.0%
MAR HOLD QAR 3.73% 1.64% 1.86% 2.02% 0.0% 0.2% 0.7% 0.7% 0.0% 0.3% 0.5% 0.9% 100.5% 82.2% 317.1% 237.7%
Khaliji SELL QAR 3.23% 2.70% 2.40% 2.44% (0.9%) 0.4% 0.5% 0.6% 1.4% 0.5% 0.9% 1.3% 161.1% 296.5% 202.1% 164.9%
QIIB BUY QAR 3.63% 3.17% 2.94% 2.89% 0.1% 0.2% 0.4% 0.7% 3.9% 1.8% 2.0% 2.4% 30.6% 84.3% 81.4% 83.0%
CAE BUY EGP 3.32% 3.54% 3.74% 3.62% 0.4% 1.2% 1.1% 1.0% 2.6% 1.9% 3.0% 2.9% 107.6% 163.9% 114.1% 119.4%
CIB BUY EGP 3.38% 3.48% 3.93% 3.84% 0.0% 0.8% 0.7% 0.7% 2.8% 2.8% 3.1% 3.1% 153.8% 154.5% 146.8% 149.5%
HDB HOLD EGP 3.41% 3.37% 3.48% 3.49% 0.9% 0.7% 1.0% 1.0% 5.6% 6.0% 6.0% 5.0% 97.2% 91.1% 103.0% 131.2%
NSGB HOLD EGP 3.43% 3.56% 3.79% 3.74% (0.2%) 0.4% 0.7% 0.7% 3.4% 3.0% 3.5% 3.3% 93.8% 101.3% 86.1% 90.3%
EGB SELL EGP 3.41% 3.40% 3.55% 3.46% (0.6%) 0.5% 0.8% 0.8% 12.4% 11.2% 14.1% 14.1% 122.6% 126.3% 70.3% 70.7%
Audi BUY USD 1.72% 1.95% 1.99% 2.04% 0.4% 1.0% 0.9% 0.9% 3.3% 3.9% 3.8% 3.5% 55.0% 70.5% 73.8% 83.0%
BLOM BUY USD 2.36% 2.33% 2.28% 2.29% 0.3% 0.7% 0.9% 0.9% 2.2% 2.2% 2.7% 3.2% 70.4% 73.5% 118.0% 135.6%
Byblos HOLD USD 1.98% 1.82% 1.71% 1.73% 0.5% 0.7% 0.8% 0.9% 3.2% 3.3% 3.8% 4.0% 142.6% 140.5% 150.6% 162.2%
BOB SELL USD 2.01% 1.47% 1.64% 1.63% (0.0%) 0.1% 0.5% 0.6% 0.6% 0.5% 0.8% 0.8% 160.8% 231.9% 189.8% 229.9%
ANB BUY SAR 2.88% 2.81% 2.70% 2.73% 1.4% 0.9% 0.8% 0.8% 3.0% 2.4% 2.4% 2.4% 108.1% 146.0% 150.0% 154.0%
Al Rajhi BUY SAR 5.30% 4.61% 4.17% 4.20% 1.5% 1.1% 0.8% 0.8% 2.2% 1.7% 1.8% 1.8% 135.8% 148.4% 150.3% 152.6%
BSFR HOLD SAR 2.64% 2.50% 2.45% 2.41% 0.4% 0.2% 0.4% 0.5% 1.2% 1.2% 1.3% 1.4% 147.0% 136.4% 131.3% 134.3%
Riyad BUY SAR 2.45% 2.46% 2.45% 2.44% 0.9% 0.6% 0.6% 0.6% 1.7% 1.6% 1.6% 1.5% 126.2% 106.3% 112.5% 123.9%
Samba BUY SAR 2.53% 2.39% 2.33% 2.31% 0.7% 0.3% 0.4% 0.5% 3.7% 3.0% 3.0% 3.1% 118.1% 124.4% 130.0% 138.7%
SABB HOLD SAR 2.66% 2.37% 2.27% 2.25% 1.6% 0.6% 0.6% 0.6% 3.4% 1.9% 2.1% 2.1% 100.0% 124.0% 122.0% 120.5%
SHB BUY SAR 2.35% 2.39% 2.23% 2.18% 1.0% 0.4% 0.5% 0.6% 2.6% 1.9% 2.0% 2.0% 124.4% 145.4% 150.0% 155.0%
Albilad HOLD SAR 3.37% 2.96% 2.84% 2.79% 2.0% 1.8% 1.3% 0.8% 5.5% 4.7% 4.6% 4.6% 89.4% 129.0% 132.6% 138.0%
Aljazeera SELL SAR 2.40% 2.27% 2.16% 2.10% 2.0% 0.3% 0.5% 0.5% 9.1% 7.7% 7.5% 7.2% 62.0% 64.4% 96.0% 113.0%
SIB HOLD SAR 2.74% 2.52% 2.40% 2.35% 2.3% 0.9% 0.8% 0.8% 5.4% 6.1% 5.8% 5.7% 110.4% 124.6% 132.8% 135.1%
Alinma HOLD SAR 2.56% 3.78% 3.46% 3.43% 0.0% 0.6% 0.6% 0.6% --% 0.0% 0.0% 0.0% --% 1260.1% 1250.0% 1250.0%
Net Interest Margin CoverageNPL RatioLoan Loss Charge / Avg Loans
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 64
Exhibit 68: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 69: MENA banks: Key performance indicators (Continued)
Source: Bloomberg, Arqaam Capital Research
Company Arqaam Currency
Rating FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 12e FY 13e FY 10A FY 11A FY 10A FY 11A
NBK HOLD KWD (7.0%) 7.5% 3.6% 6.9% (11.6%) 1.8% 2.6% 5.6% 4.6% 5.6% 1.0% 1.3% 32.7% 31.0% 30.7% 30.3% 83.7% 78.5% 347.1% 100.5%
KFH SELL KWD 6.9% 14.0% (11.2%) 6.7% 6.3% 20.4% 0.3% 4.0% 0.6% (6.5%) (11.5%) 2.6% 43.3% 45.7% 51.7% 50.4% 104.6% 103.2% 365.3% 93.4%
Gulf Bank SELL KWD 38.3% (16.1%) 6.8% 7.0% (1.6%) 10.0% (4.7%) 4.8% 39.8% (26.1%) 11.6% 2.2% 25.9% 34.0% 30.3% 29.7% 141.0% 126.9% 946.9% 89.9%
Burgan BUY KWD 7.1% (0.9%) 12.0% 13.0% 49.9% (5.9%) 16.9% 5.5% (42.8%) 5.0% (4.9%) 7.6% 39.6% 37.6% 39.2% 36.6% 131.7% 116.0% 1066.6% 114.2%
Boubyan SELL KWD 498.1% 7.1% 33.3% 27.4% 13.0% 14.4% 15.3% 12.0% 485.1% (7.3%) 18.0% 15.5% 56.2% 60.0% 51.9% 45.6% 223.5% 242.6% 3828.0% 135.0%
Muscat BUY OMR (8.8%) 10.8% 12.5% 14.2% 25.3% 17.5% 10.5% 11.5% (34.1%) (6.7%) 1.9% 2.7% 38.8% 41.1% 40.4% 39.4% 315.3% 220.8% 631.0% 101.4%
Sohar HOLD OMR 20.9% 22.6% 13.2% 16.0% 13.8% 18.3% 9.4% 9.8% 7.2% 4.2% 3.8% 6.2% 55.6% 53.7% 51.9% 49.1% 145.5% 139.0% 2733.0% 104.8%
OIB SELL OMR (6.9%) 5.1% 62.9% 36.8% 7.3% 18.5% 50.9% 23.2% (14.2%) (13.4%) 12.0% 13.6% 51.9% 58.5% 54.2% 48.8% 533.1% 172.2% 2511.8% 108.2%
AUB HOLD BHD 7.2% 11.7% 5.0% 8.1% 7.6% 7.8% (1.7%) 6.3% (0.4%) 3.9% 6.8% 1.8% 36.0% 34.8% 32.5% 32.0% 76.1% 99.5% 66.9% 67.6%
Rev Growth Cost Growth Jaws Cost / Income Ratio NSFRLCR
Company Arqaam Currency
Rating FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e FY 10 FY 11 FY 12e FY 13e
NBK HOLD KWD 3.00% 3.11% 3.03% 3.00% 0.1% 0.6% 0.5% 0.5% 1.6% 1.5% 1.8% 1.5% 208.7% 243.0% 220.8% 290.5%
KFH SELL KWD 3.41% 3.24% 3.12% 3.08% 2.0% 2.4% 1.6% 1.5% 13.3% 10.0% 12.0% 12.0% 59.4% 77.3% 126.6% 132.7%
Gulf Bank SELL KWD 2.25% 2.30% 2.32% 2.32% 3.3% 1.9% 1.8% 1.7% 18.7% 14.4% 14.0% 14.0% 36.1% 38.1% 50.1% 59.4%
Burgan BUY KWD 2.79% 2.59% 2.53% 2.52% 3.1% 1.3% 1.2% 1.1% 6.1% 11.5% 11.0% 11.0% 72.9% 35.3% 41.8% 48.7%
Boubyan SELL KWD 2.81% 2.90% 2.92% 2.91% 1.4% 1.1% 0.9% 0.8% 0.7% 0.5% 2.9% 3.1% 1257.4% 2286.6% 320.0% 306.6%
Muscat BUY OMR 3.36% 3.42% 3.23% 3.23% 0.8% 0.6% 0.7% 0.7% 4.2% 3.0% 4.0% 4.0% 105.9% 118.4% 75.6% 74.5%
Sohar HOLD OMR 2.74% 2.64% 2.76% 2.93% 0.4% 0.3% 0.5% 0.5% 0.9% 1.5% 1.9% 2.3% 212.5% 133.6% 133.9% 132.5%
OIB SELL OMR 3.02% 2.79% 2.78% 2.78% (0.1%) (0.4%) 0.3% 0.4% 10.8% 10.9% 10.7% 10.6% 42.7% 38.8% 48.1% 47.4%
AUB HOLD BHD 2.24% 2.26% 2.31% 2.35% 1.1% 0.8% 0.8% 0.8% 2.4% 2.5% 3.0% 3.2% 119.5% 135.3% 130.7% 135.7%
Net Interest Margin CoverageNPL RatioLoan Loss Charge / Avg Loans
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 65
Exhibit 70: MENA financials: Share price performance
Source: Bloomberg, Arqaam Capital Research
Company Arqaam CurrencyShare
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d
ADCB HOLD AED 3.2 3.4 2.6 6% 20% (0.6) (2.5) 7.5 8.6 10.5 13.3 0.1 (1.1) 5.2 0.0 10.1 7.0 (0.2) (0.7) 7.8 8.9 17.7 10.6
ADIB SELL AED 3.1 3.7 2.9 16% 6% (1.6) (2.2) (8.8) (1.9) 0.6 (1.9) (0.8) (0.9) (11.1) (10.5) 0.2 (8.2) (1.2) (0.4) (8.6) (1.7) 7.9 (4.6)
CBD BUY AED 2.8 3.4 2.7 18% 5% -- 1.8 (5.1) (5.4) (8.2) (3.4) 2.2 10.7 5.7 1.4 6.1 5.2 2.6 12.0 (2.4) (12.4) (1.0) (12.5)
DIB SELL AED 1.9 2.3 1.8 18% 3% (3.6) (4.5) (12.1) (6.0) (12.9) (2.6) (1.4) 4.3 (1.3) 0.9 1.3 6.1 (1.0) 5.6 (9.4) (13.0) (5.7) (11.6)
ENBD HOLD AED 2.7 4.6 2.7 41% 3% (2.9) (5.2) (4.9) (16.3) (28.2) (7.5) (0.7) 3.7 5.8 (9.5) (14.0) 1.2 (0.3) 4.9 (2.2) (23.3) (21.1) (16.5)
FGB BUY AED 8.8 11.0 6.9 20% 26% (1.0) (4.8) (1.6) 16.8 (5.8) 13.4 (0.2) (3.4) (3.9) 8.2 (6.3) 7.1 (0.6) (3.0) (1.3) 17.0 1.4 10.7
NBAD BUY AED 8.8 9.2 7.4 4% 19% (0.6) 2.1 10.5 13.7 4.2 8.5 0.2 3.4 8.2 5.1 3.8 2.2 (0.1) 3.9 10.8 13.9 11.4 5.8
UNB BUY AED 2.9 4.0 2.8 26% 4% (1.0) (1.7) (2.3) (0.3) (17.8) 0.7 (0.2) (0.3) (4.7) (8.9) (18.2) (5.6) (0.6) 0.1 (2.1) (0.1) (10.6) (2.0)
Tamweel BUY AED 1.2 1.6 0.5 29% 119% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 4.1 (3.1) 0.4 (8.1) (32.4) 29.9 3.7 (2.7) 3.0 0.8 (24.7) 33.5
Mashreq SELL AED 1.0 1.3 0.7 28% 41% (1.7) (7.3) 41.5 60.8 22.3 90.7 (0.9) (5.9) 39.1 52.2 21.9 84.4 (1.3) (5.5) 41.7 61.1 29.6 88.0
Rakbank BUY AED 0.6 1.0 0.5 39% 29% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (4.3) (14.5) 11.7 (9.8) (23.7) 7.8 (4.6) (14.1) 14.3 (1.0) (16.1) 11.4
UAE
CBQ HOLD QAR 70.0 87.2 67.6 20% 4% (2.8) (6.8) (12.7) (14.7) (4.4) (16.7) (2.6) (5.5) (10.0) (9.6) (6.8) (10.2) (1.7) (3.8) (11.7) (11.4) (2.5) (13.0)
Doha HOLD QAR 58.0 67.2 49.9 14% 16% 1.0 (3.2) (6.5) (7.9) 7.8 (9.5) 1.2 (1.9) (3.8) (2.8) 5.4 (3.1) 2.1 (0.2) (5.4) (4.6) 9.7 (5.8)
QIB HOLD QAR 77.3 86.1 71.3 10% 8% (0.6) (0.3) (3.6) (6.0) (3.6) (8.3) (0.5) 1.1 (0.9) (0.9) (6.0) (1.9) 0.4 2.7 (2.6) (2.7) (1.7) (4.6)
QNB BUY QAR 133.6 142.7 121.8 6% 10% 0.4 (0.4) -- (3.3) 1.4 (3.3) 0.6 0.9 2.7 1.9 (1.0) 3.1 1.5 2.6 1.0 0.0 3.3 0.4
MAR HOLD QAR 26.7 28.6 22.1 6% 21% (0.7) (0.6) 1.9 0.8 14.6 (4.1) (0.6) 0.8 4.6 5.9 12.3 2.3 0.3 2.4 2.9 4.1 16.5 (0.4)
Khaliji SELL QAR 17.0 18.3 16.0 7% 6% 4.2 3.4 0.3 (2.0) (5.2) (1.0) 4.3 4.7 3.0 3.1 (7.6) 5.4 5.3 6.4 1.3 1.3 (3.3) 2.7
QIIB BUY QAR 50.0 56.5 45.0 12% 11% (1.5) (2.1) (7.3) (10.2) 6.3 (7.5) (1.3) (0.7) (4.6) (5.1) 3.9 (1.1) (0.4) 0.9 (6.3) (6.9) 8.1 (3.8)
Qatar
CAE BUY EGP 9.1 12.0 7.7 24% 18% 1.9 3.0 (3.5) 7.8 (23.5) 14.2 2.1 4.3 (0.8) 13.0 (25.8) 20.7 4.4 (1.7) (2.0) (10.7) (17.7) (20.8)
CIB BUY EGP 25.5 32.3 18.5 21% 38% (2.0) 5.0 9.4 7.6 (12.8) 36.6 (1.8) 6.3 12.1 12.7 (15.2) 43.0 0.5 0.4 11.0 (11.0) (7.1) 1.6
HDB HOLD EGP 11.9 20.0 10.5 41% 13% (5.2) (8.6) (5.6) (8.2) (36.3) 7.7 (5.0) (7.2) (3.0) (3.1) (38.7) 14.1 (2.7) (13.2) (4.1) (26.8) (30.5) (27.3)
NSGB HOLD EGP 30.0 35.2 18.4 15% 63% 0.8 8.3 9.0 38.9 (6.9) 47.8 1.0 9.6 11.7 44.0 (9.3) 54.2 3.3 3.6 10.6 20.3 (1.2) 12.8
EGB SELL EGP 1.5 2.0 1.3 27% 15% 2.8 5.7 (8.6) (8.6) (23.7) (2.6) 3.0 7.0 (6.0) (3.5) (26.1) 3.8 5.3 1.1 (7.1) (27.2) (18.0) (37.6)
Egypt
Audi BUY USD 6.0 7.1 5.6 15% 7% (0.8) -- (0.2) 0.3 (14.3) 3.3 0.2 1.3 2.7 5.1 (2.4) 6.4 (0.5) 0.9 0.7 0.4 0.8 3.4
BLOM BUY USD 7.8 8.9 7.0 12% 11% (0.1) 0.5 5.0 5.0 (12.0) 5.0 (0.7) 1.3 2.5 5.4 (16.7) 9.7 0.2 1.4 5.8 5.0 3.1 5.2
Byblos HOLD USD 1.6 1.8 1.6 12% 2% (1.3) (1.3) (3.7) (1.3) (12.2) (3.1) 0.0 1.8 7.7 10.1 (14.4) 11.4 (0.9) (0.3) (2.8) (1.2) 2.9 (2.9)
BOB SELL USD 19.3 20.0 18.9 4% 2% -- (0.1) (0.1) (0.8) 1.5 (0.6) (1.1) 0.1 (1.0) 3.9 (14.6) 3.4 0.4 0.9 0.8 (0.8) 16.7 (0.4)
Lebanon
ANB BUY SAR 29.4 34.1 26.2 14% 12% (1.7) (5.8) -- 5.4 (9.8) 6.9 0.3 1.9 (3.9) (5.7) (9.4) (3.6) 0.0 (0.3) (4.2) (8.8) (16.6) (3.7)
Al Rajhi BUY SAR 74.0 83.3 65.0 11% 14% (2.0) (5.1) 1.0 7.6 (1.7) 6.5 0.0 2.5 (2.9) (3.5) (1.2) (4.0) (0.3) 0.4 (3.2) (6.5) (8.4) (4.2)
BSFR HOLD SAR 36.8 40.6 29.7 9% 24% (0.5) (5.4) 6.2 10.6 (5.7) 9.3 1.5 2.2 2.3 (0.5) (5.3) (1.2) 1.1 0.1 2.0 (3.6) (12.5) (1.4)
Riyad BUY SAR 24.0 27.2 22.2 12% 8% (1.6) (4.4) (1.4) 1.9 (6.3) 3.0 0.4 3.2 (5.3) (9.2) (5.8) (7.5) 0.0 1.1 (5.7) (12.2) (13.0) (7.6)
Samba BUY SAR 48.2 57.0 42.1 15% 14% (1.4) (10.3) (0.2) 1.7 (12.0) 3.4 0.6 (2.7) (4.1) (9.4) (11.5) (7.0) 0.3 (4.8) (4.4) (12.5) (18.7) (7.2)
SABB HOLD SAR 34.5 37.2 27.8 7% 24% (1.4) (6.0) 6.7 15.0 2.4 13.0 0.6 1.6 2.8 3.9 2.9 2.6 0.3 (0.5) 2.5 0.8 (4.3) 2.4
SHB BUY SAR 27.0 29.7 21.0 9% 29% (2.9) (6.9) 4.5 17.0 6.9 8.7 (0.9) 0.7 0.6 5.8 7.4 (1.7) (1.2) (1.4) 0.3 2.8 0.2 (1.9)
Albilad HOLD SAR 27.0 35.4 16.5 24% 64% (1.5) (14.6) 11.1 45.6 40.3 36.0 0.5 (6.9) 7.2 34.4 40.7 25.6 0.2 (9.1) 6.9 31.4 33.5 25.4
Aljazeera SELL SAR 25.5 33.9 15.1 25% 69% (2.3) (13.6) 25.3 54.1 29.4 50.4 (0.3) (5.9) 21.4 43.0 29.9 40.0 (0.6) (8.1) 21.1 39.9 22.7 39.8
SIB HOLD SAR 17.0 21.4 15.5 21% 10% (3.1) (10.5) (2.3) 4.9 (10.5) 5.3 (1.1) (2.9) (6.2) (6.2) (10.1) (5.2) (1.5) (5.0) (6.5) (9.2) (17.3) (5.4)
Alinma HOLD SAR 13.3 16.9 8.8 21% 51% (5.4) (12.8) 25.6 43.2 30.5 41.7 (3.4) (5.2) 21.7 32.1 31.0 31.2 (3.7) (7.3) 21.4 29.1 23.8 31.1
KSA
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (banks, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 66
Exhibit 71: MENA financials: Share price performance (Continued)
Source: Bloomberg, Arqaam Capital Research
Exhibit 72: MENA diversified financials: Share price performance
Source: Bloomberg, Arqaam Capital Research
Company Arqaam CurrencyShare
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d
NBK HOLD KWD 1040.0 1127.3 900.0 8% 16% (3.7) (1.9) (1.4) (1.4) (6.2) 2.1 (3.7) (1.6) (2.9) (0.0) 2.0 1.4 (1.4) (0.0) (2.2) (0.3) 3.3 1.2
KFH SELL KWD 690.0 963.0 680.0 28% 1% (2.8) (9.2) (11.3) (17.2) (26.9) (17.2) (2.8) (8.9) (12.8) (15.9) (18.7) (18.0) (0.5) (7.4) (12.1) (16.1) (17.4) (18.1)
Gulf Bank SELL KWD 420.0 542.9 410.0 23% 2% (1.2) (2.3) (9.1) (15.2) (22.6) (13.5) (1.2) (2.0) (10.6) (13.9) (14.4) (14.3) 1.2 (0.5) (9.9) (14.1) (13.1) (14.5)
Burgan BUY KWD 415.0 514.3 405.0 19% 2% (3.5) (2.4) (5.3) (7.3) (17.8) (8.3) (3.5) (2.0) (6.8) (6.0) (9.6) (9.0) (1.2) (0.5) (6.1) (6.2) (8.2) (9.2)
Boubyan SELL KWD 610.0 610.0 530.0 0% 15% 1.7 1.7 7.0 -- 1.7 3.4 1.7 2.0 5.5 1.3 9.9 2.6 4.0 3.5 6.2 1.1 11.2 2.4
Kuwait
Muscat BUY OMR 0.6 0.7 0.6 13% 4% (1.2) (7.9) (5.8) (5.3) (6.2) (12.3) (1.2) (7.6) (7.4) (3.9) 2.0 (13.1) 0.4 (2.0) (5.9) (7.7) 0.0 (11.7)
Sohar HOLD OMR 0.2 0.2 0.1 9% 13% (2.0) (6.2) (2.6) (3.2) (1.3) (5.1) (2.0) (5.9) (4.2) (1.9) 6.9 (5.8) (0.4) (0.4) (2.7) (5.7) 4.9 (4.4)
OIB SELL OMR 0.2 0.3 0.2 20% 3% (0.4) (15.7) (15.3) (16.2) (10.0) (16.5) (150.4) 1.0 (115.3) (916.2) (910.0) (59.3) 1.1 (9.9) (15.3) (18.6) (3.8) (15.8)
Oman
Ahli United HOLD BHD 0.6 0.7 0.6 14% 3% -- -- (4.4) (12.3) (12.9) (3.7) -- (0.3) 1.6 (1.3) (8.2) 0.8 0.7 (0.1) 0.9 0.1 8.1 0.1
Bahrain
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
Company Arqaam CurrencyShare
Rating Price High Low High Low 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d 5D 1M 3M 6M 12M y-t-d
Shuaa SELL AED 0.7 1.1 0.4 33% 74% 3.3 (4.5) 2.7 0.5 (31.9) 36.2 5.5 15.0 (5.0) 0.2 (10.5) 22.4 5.9 5.7 5.4 (6.5) (24.7) 27.2
EFG BUY EGP 11.7 18.6 9.3 37% 27% (12.0) 2.9 (5.6) (3.9) (24.6) 17.2 (4.8) 0.1 0.5 (7.7) (3.5) (0.4) (9.5) (1.8) (4.0) (22.5) (18.8) (17.8)
DFM SELL AED 1.0 1.3 0.7 28% 41% (5.0) (15.9) 14.0 (1.2) (23.3) 14.2 (2.8) 3.6 6.3 (1.6) (1.9) 0.4 (2.4) (5.7) 16.7 (8.2) (16.1) 5.1
Salama BUY AED 0.6 1.0 0.5 39% 29% (8.5) (17.9) (5.3) 0.7 (18.1) 7.2 (6.0) (12.8) (5.8) (1.3) (13.4) 3.4 (5.9) (7.7) (2.6) (6.3) (10.9) (1.8)
Qatar InsuranceBUY QAR 74.9 78.3 63.3 4% 18% 0.4 (2.1) 4.4 16.0 7.6 15.8 (0.0) 0.0 (0.1) (0.1) (0.1) (0.1) 1.5 0.9 5.4 19.3 9.5 19.5
Tawuniya BUY SAR 49.4 66.8 46.4 26% 6% 0.8 (9.4) (16.6) 1.2 (24.3) (4.5) na na na na na na 2.5 (3.9) (20.9) (12.9) (31.0) (15.2)
MedGulf SELL SAR 29.2 37.5 23.9 22% 22% (3.6) (13.4) (13.4) 12.7 (0.7) 4.3 na na na na na na (1.9) (7.9) (17.6) (1.4) (7.4) (6.3)
Relative Performance (vs. market) %Relative Performance (vs. sector) %Absolute Performance %% to 52 week52 Week
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 67
20% MENA banks undercapitalized
We include potential hidden losses and gains on our Basel capital calculations for FY 12-13e. Other than 7 banks, most banks under our coverage remain very well capitalized, while another 5 are paying out very high dividends to please their investors to the extent that they should need new capital.
We also run a stress test where we weigh investment grade sovereign exposure at 20% and non-investment grade at 100% of risk weighted assets, which would particularly leave the Lebanese banks, NSGB, CAE and ENBD undercapitalized, capping their ability to grow their balance sheets and increase their dividends.
We continue to favorably view strong capital situations as there may be dividend restrictions for undercapitalized banks (with core equity below 7%); the best capitalized banks should have the best growth potential.
We expect Tier-1 subordinated debt and preference shares to be converted into Basel III structures (conditional convertibles) or converted into common equity, particularly for ADIB and the Lebanese banks.
We see 12% Core Equity Tier-1 under Basel III as a minimum for MENA banks
We expect all MENA countries to adopt Basel III, the new set of solvency rules introduced by
the Bank for International Settlements. Saudi Arabia is a member of Basel, and the UAE and
Qatar have said they will adopt Basel III as well. Saudi banks have already started reporting
their Basel III solvency ratios to their regulators. We expect Egypt to be the last to implement
Basel III as implementation of Basel II is scheduled for 2012. NBAD was the first UAE bank to
report Basel 3 capital ratios. Our Basel 3 calculation for NBAD slightly deviates as we deduct
dividends from the capital ratios and include slightly higher risk-weighted assets. We strongly
favor Basel III over II as banks will become stronger as they will have better (less hybrid debt)
and more capital (higher minimum capital ratios, no longer double counting of capital), while
making banks more liquid, thus making them less vulnerable to sudden funding shocks.
Basel III capital ratios are lower than under Basel I or II as:
Basel III should reduce banks’ available capital, mainly for the Qatari banks (due to investments in associates), the UAE banks (as they rely on subordinated debt), and the Lebanese banks (due to preferred shares), while Egyptian banks’ capital ratios may increase (as Egyptian banks do not include the current year’s profits in their capital ratios). Capital ratios within countries are not always calculated in the same way.
Basel II is likely to markedly increase the capital requirements of Egyptian banks as they include a more comprehensive coverage of risks, especially those related to capital market activities, while also credit quality, market risks and operational risks are captured as compared to Basel I.
We expect a much smaller effect of Basel III on risk-weighted assets on the banks, given the small trading books of the MENA banks.
We are setting a 12% core equity Tier-1 for our universe unilaterally:
The Basel committee has increased the minimum core equity Tier 1 to 4.5%. Basel has also introduced a capital conservation buffer of 2.5%, making the new effective minimum 7%.
Basel agreed to require an additional 2.5% for banks that are systemically important from a global perspective, making the effective minimum 9.5% for such banks. We believe the market will effectively force non-systemic banks to have a core equity Tier 1 of 9.5% as
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 68
well: Senior and junior debt holders are not likely to be keener to lend to non-systemic banks with weaker capital ratios than banks that would be bailed out by their governments in cases of acute stress.
Most European banks are already targeting 9-10% core equity Tier-1. We apply another buffer of 2.5% for the MENA banks, given their higher risks (higher
economic volatility, untested credit history, higher concentration risks, more vulnerable for foreign money flows, but also simply perceived riskiness by foreign investors).
We do not take into account implicit support from the government, as we do not believe banks that are partly owned by national government should run on lower capital ratios than banks that are not partly owned by national governments. From a credit perspective, implicit support may enhance the bank’s credit worthiness; shareholders on the other hand, would face a dilution risk – if a government indeed were to step in to stabilize a bank.
We are not rushing banks to improve their capital structure as some banks do generate enough retained earnings compared to their capital consumption emanating from their expected growth and we think banks should adjust their dividends to prepare for the new higher capital requirements. However, we see capital weakness or strength as a hidden value that is often neglected in stock analysis in this region.
We believe common equity Tier 1 will be the most important capital ratio going forward (as it
takes into account only capital of the highest quality) rather than the total capital adequacy
ratio or BIS ratio (which includes debt instruments), which has typically been the focus point
for MENA analysts.
Exhibit 73: Basel III Implementation framework
Source: Bank for International Settlements, Arqaam Capital Research
FY 13 FY 14 FY 15 FY 16 FY 17 2018 As of 1 Jan. 2019
Minimum common equity capital ratio 3.5% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5%
Capital conservation buffer 0.6% 1.3% 1.9% 2.5%
Minimum CE capital ratio plus conservation buffer 3.5% 4.0% 4.5% 5.1% 5.8% 6.4% 7.0%
Additional buffer for Global Systemic banks 2.5%
New effective minimum 9.5%
Arqaam Capital minimum 12.0%
Minimum Tier-1 capital 4.5% 5.5% 6.0% 6.0% 6.0% 6.0% 6.0%
Minimum Total capital 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Minimum Total capital plus conservation buffer 8.0% 8.0% 8.0% 8.6% 9.3% 9.9% 10.5%
Minimum Total capital plus conservation buffer for systemic banks 13.0%Capital instruments that no longer qualify as non-core T1 or T2 Phased out over 10 years
May 23 2012
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Important Notice. 69
Available capital under pressure due to Basel III (impact of up to 39%)
Basel III should raise the quality of capital, with a much greater focus on common equity to
absorb losses.
Non-equity components (such as preferred shares, subordinated loans, etc) will no longer be included in core equity ratios, as they are not loss-absorbing.
Intangibles and deferred assets (in excess of 10% of Tier 1) will have to be deducted from core capital ratios.
Financial associates will need to be fully deducted from Tier 1. Currently only 50% is deducted from Tier 1 and 50% deducted from Tier 2 for bank holdings, while insurance capital is only deducted from the total BIS ratio.
We also adjust for differences between banks: We include earnings, but subtract dividends payable.
We include minority interests in core equity Tier-1, if not already included. We adjust for securitizations being directly deducted, as those positions should be
grossed-up into risk-weighted assets.
In the following table, we summarize the impact of the deductions and additions to current
reported Tier 1 capital and common equity Tier 1. Common equity Tier 1 falls 11.9% on
average for UAE banks, 21.9% for Lebanese banks, 3.1% for Kuwaiti banks, 3.5% for Omani
banks and 3.2% for Qatari banks, but increases 2.6% for Saudi banks. Our estimated total
impact is smaller than the average impact estimated in the most recent quantitative impact
study performed by Basel (41.3% for a sample of large banks and 24.7% for small banks). We
think this is because, for banks under our coverage, goodwill and intangibles have already been
deducted from Tier 1 in most cases, deferred tax assets are very small, and the current year’s
earnings are not always included in reported Tier 1 ratios.
May 23 2012
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Important Notice. 70
Exhibit 74: Impact of Basel III on common equity Tier 1 (FY 13e)
Source: Arqaam Capital Research
Audi (10.2%) -- (2.8%) 1.6% -- -- -- -- -- -- (11.3%)
Blom (8.9%) -- -- -- -- -- -- -- -- -- (8.9%)
Byblos (22.5%) -- -- -- 8.7% (3.4%) -- -- -- -- (17.1%)
BOB (48.2%) -- (3.6%) 1.8% -- -- -- -- -- -- (50.0%)
Lebanon (22.4%) -- (1.6%) 0.9% 2.2% (0.9%) -- -- -- -- (21.9%)
QNB -- -- (10.6%) 8.1% -- -- -- -- -- -- (2.5%)
Doha -- -- (0.2%) 0.1% -- -- -- -- -- -- (0.1%)
QIB -- -- (12.7%) 12.7% -- -- -- -- -- -- --
CBQ -- -- (42.8%) 21.4% -- -- -- -- -- -- (21.4%)
MARK -- -- (7.2%) 7.2% -- -- -- -- -- -- --
Khaliji -- -- -- -- -- -- -- -- -- -- --
QIIB -- -- (4.1%) 2.0% 18.1% (14.4%) -- -- -- -- 1.6%
Qatar -- -- (11.1%) 7.4% 2.6% (2.1%) -- -- -- -- (3.2%)
NBK -- -- (29.8%) 24.8% -- -- -- -- -- -- (5.0%)
Burgan -- -- -- -- -- -- -- -- -- -- --
Gulf Bank -- -- -- -- -- -- -- -- -- -- --
KFH -- -- (9.5%) 4.7% -- -- -- -- -- -- (4.7%)
Boubyan -- -- (11.6%) 5.8% -- (1.3%) -- -- -- -- (5.8%)
Kuwait -- -- (10.2%) 7.1% -- (0.3%) -- -- -- -- (3.1%)
Muscat -- (9.7%) (6.6%) 4.3% -- -- -- -- -- 1.5% (10.5%)
Sohar -- -- -- -- -- -- -- -- -- -- --
OIB -- -- -- -- -- -- -- -- -- -- --
Oman -- (3.2%) (2.2%) 1.4% -- -- -- -- -- 0.5% (3.5%)
CIB -- -- (1.5%) -- 26.2% (6.8%) (3.9%) 0.5% -- -- 14.6%
CAE -- -- -- -- 21.3% (16.4%) -- 0.0% -- -- 4.9%
NSGB -- -- (1.6%) -- 23.1% (8.1%) -- -- -- -- 13.4%
HDB -- -- (26.4%) 26.4% 10.9% (4.4%) -- -- -- -- 6.5%
EGB -- -- (16.5%) -- -- (3.1%) -- -- -- -- (19.6%)
Egypt -- -- (7.7%) 4.4% 13.6% (6.5%) (0.6%) 0.1% -- -- 4.0%
ADCB -- (17.2%) (0.4%) 0.2% -- (3.0%) -- -- -- -- (20.4%)
ADIB -- (21.5%) (8.8%) -- -- (5.5%) -- -- -- -- (35.8%)
NBAD -- (11.9%) (0.1%) -- -- (5.0%) -- -- -- -- (16.9%)
FGB -- (13.2%) (1.9%) -- -- (8.3%) -- -- -- -- (23.4%)
UNB -- (13.4%) (0.0%) 0.0% -- (1.8%) -- -- -- -- (15.2%)
ENBD -- (13.3%) -- -- -- (2.5%) -- -- -- -- (15.8%)
DIB -- -- (5.7%) -- -- (6.3%) -- -- -- -- (12.0%)
CBD -- -- (0.2%) -- -- -- -- -- -- -- (0.2%)
Mashreq -- -- (0.2%) -- -- (2.6%) -- -- -- -- (2.8%)
Rakbank -- -- -- -- -- (10.3%) -- -- -- -- (10.3%)
Tamweel -- -- -- -- -- (2.1%) -- -- -- -- (2.1%)
UAE -- (7.0%) (1.3%) 0.0% -- (3.6%) -- -- -- -- (11.9%)
SAMBA -- -- -- -- -- (1.1%) -- -- -- -- (1.1%)
RIYAD -- -- (1.1%) 0.5% 12.0% (3.2%) -- -- -- -- 8.3%
ALRAJHI -- -- -- -- 27.1% (11.2%) -- -- -- -- 15.9%
BSFR -- -- (0.9%) 0.4% -- (3.8%) -- -- -- -- (4.2%)
SABB -- -- (3.6%) 1.8% 15.4% (3.4%) -- -- -- -- 10.2%
ANB -- -- (2.2%) 1.1% -- -- -- -- -- -- (1.1%)
SHB -- -- (0.2%) 0.1% -- -- -- -- -- -- (0.1%)
SIB -- -- (11.1%) 5.5% -- (3.6%) -- -- -- -- (9.1%)
ALBILAD -- -- -- -- 14.8% (1.8%) -- -- -- -- 13.0%
BJAZ -- -- -- -- -- (2.7%) -- -- -- -- (2.7%)
ALINMA -- -- -- -- -- -- -- -- -- -- --
KSA -- -- (1.7%) 0.9% 6.3% (2.8%) -- -- -- -- 2.6%
AUB (4.7%) -- (23.6%) 11.8% 14.9% (5.6%) -- -- -- -- (7.2%)
Bahrain (4.7%) -- (23.6%) 11.8% 14.9% (5.6%) -- -- -- -- (7.2%)
Preference
shares
Subordinated
debtAssociates
Associates
already
Current year
earningsDividends
Allowed
minorities
Deferred tax
assets beyond Securitization CET1Intangibles
May 23 2012
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Important Notice. 71
Exhibit 75: Composition of Tier I (Basel III FY 13e)
Source: Arqaam Capital Research
Audi 12.2% 1.2% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 10.9%
Blom 13.0% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.9%
Byblos 13.9% 3.1% 0.0% 0.0% 0.0% 1.2% 0.5% 0.0% 0.0% 11.5%
BOB 13.1% 6.3% 0.0% 0.5% 0.2% 0.0% 0.0% 0.0% 0.0% 6.6%
Lebanon 13.1% 3.0% 0.0% 0.2% 0.1% 0.3% 0.1% 0.0% 0.0% 10.2%
QNB 23.7% 0.0% 0.0% 2.5% 1.9% 0.0% 0.0% 0.0% 0.0% 23.2%
Doha 11.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.3%
QIB 19.6% 0.0% 0.0% 2.5% 2.5% 0.0% 0.0% 0.0% 0.0% 19.6%
CBQ 13.1% 0.0% 0.0% 5.6% 2.8% 0.0% 0.0% 0.0% 0.0% 10.3%
MARK 15.7% 0.0% 0.0% 1.1% 1.1% 0.0% 0.0% 0.0% 0.0% 15.7%
Khaliji 15.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15.4%
QIIB 19.2% 0.0% 0.0% 0.8% 0.4% 3.5% 2.8% 0.0% 0.0% 19.5%
Qatar 16.9% 0.0% 0.0% 1.8% 1.3% 0.5% 0.4% 0.0% 0.0% 16.4%
NBK 19.7% 0.0% 0.0% 5.9% 4.9% 0.0% 0.0% 0.0% 0.0% 18.7%
Burgan 13.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.9%
GBK 15.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15.0%
KFH 11.8% 0.0% 0.0% 1.1% 0.6% 0.0% 0.0% 0.0% 0.0% 11.2%
Boubyan 21.1% 0.0% 0.0% 2.5% 1.2% 0.0% 0.3% 0.0% 0.0% 19.9%
Kuwait 16.3% 0.0% 0.0% 1.9% 1.3% 0.0% 0.1% 0.0% 0.0% 15.7%
Muscat 12.0% 0.0% 1.2% 0.8% 0.5% 0.0% 0.0% 0.0% 0.0% 10.7%
Sohar 9.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.1%
OIB 13.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.3%
Oman 11.5% 0.0% 0.4% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 11.1%
CIB 12.4% 0.0% 0.0% 0.2% 0.0% 3.3% 0.8% 0.5% 0.1% 14.3%
CAE 9.5% 0.0% 0.0% 0.0% 0.0% 2.0% 1.6% 0.0% 0.0% 9.9%
NSGB 12.7% 0.0% 0.0% 0.2% 0.0% 2.9% 1.0% 0.0% 0.0% 14.4%
HDB 15.5% 0.0% 0.0% 4.1% 4.1% 1.7% 0.7% 0.0% 0.0% 16.6%
EGB 18.5% 0.0% 0.0% 3.1% 0.0% 0.0% 0.6% 0.0% 0.0% 14.9%
Egypt 13.7% 0.0% 0.0% 1.5% 0.8% 2.0% 0.9% 0.1% 0.0% 14.0%
ADCB 14.1% 0.0% 2.4% 0.1% 0.0% 0.0% 0.4% 0.0% 0.0% 11.2%
ADIB 12.6% 0.0% 2.7% 1.1% 0.0% 0.0% 0.7% 0.0% 0.0% 8.1%
NBAD 14.4% 0.0% 1.7% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 12.0%
FGB 17.7% 0.0% 2.3% 0.3% 0.0% 0.0% 1.5% 0.0% 0.0% 13.5%
UNB 16.3% 0.0% 2.2% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 13.8%
ENBD 12.7% 0.0% 1.7% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 10.7%
DIB 10.5% 0.0% 0.0% 0.6% 0.0% 0.0% 0.7% 0.0% 0.0% 9.2%
CBD 17.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.1%
Mashreq 15.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 15.3%
Rakbank 22.4% 0.0% 0.0% 0.0% 0.0% 0.0% 2.3% 0.0% 0.0% 20.1%
Tamweel 22.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 22.4%
UAE 16.0% 0.0% 1.2% 0.2% 0.0% 0.0% 0.7% 0.0% 0.0% 13.9%
SAMBA 16.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% 15.9%
RIYAD 13.9% 0.0% 0.0% 0.1% 0.1% 1.7% 0.5% 0.0% 0.0% 15.1%
ALRAJHI 14.8% 0.0% 0.0% 0.0% 0.0% 4.0% 1.7% 0.0% 0.0% 17.2%
BSFR 14.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.5% 0.0% 0.0% 13.4%
SABB 12.4% 0.0% 0.0% 0.4% 0.2% 1.9% 0.4% 0.0% 0.0% 13.6%
ANB 14.1% 0.0% 0.0% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 13.9%
SHB 12.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.4%
SIB 18.0% 0.0% 0.0% 2.0% 1.0% 0.0% 0.7% 0.0% 0.0% 16.4%
ALBILAD 15.2% 0.0% 0.0% 0.0% 0.0% 2.2% 0.3% 0.0% 0.0% 17.1%
BJAZ 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 12.7%
ALINMA 24.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.8%
KSA 15.3% 0.0% 0.0% 0.3% 0.1% 0.9% 0.4% 0.0% 0.0% 15.7%
AUB 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%
Bahrain 11.3% 0.5% 0.0% 2.7% 1.3% 1.7% 0.6% 0.0% 0.0% 10.5%
Intangibles CET1Allowed
minorities
DividendsTier-1
(Basel 3)
Preference
shares
Subordinated
debt
Associates Associates
already
Current year
earnings
May 23 2012
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Important Notice. 72
Increased capital requirements under Basel II
For Egypt (the only country under our coverage that has not applied Basel II yet), we estimate
an increase of 5%–14% in risk weighted assets as a result of Basel II. This is driven by a number
of factors:
Increased risk weightings for sovereign bills in foreign currency (depending on the country rating),
The introduction of market risk (based on the volatility of held securities), and The introduction of operational risk (the risk of loss due to inadequate or failed internal
processes, people, and systems).
(1) Increased weightings for sovereign debt in foreign currencies due to Basel II (increasing
capital requirements 1%–2%)
According to Basel II, the standardized approach of BIS, non-investment grade treasury bonds
should attract a risk weight of 100%. Within our universe, Lebanon and Egypt (both B rating)
are within this category. However, we expect only a small impact as we believe the Egyptian
central bank, like Lebanon’s, will assign a risk weight of 0% to sovereign exposures
denominated in the local currency (EGP). Around 95% of the treasury bills and bonds held by
the Egyptian banks are in local currency, while the Lebanese banks hold far more T-bills and
bonds in foreign currency (mainly USD c. 40%-50% of total).
Exhibit 76: Country rating under Basel II
Source: Bloomberg, The Standardized Approach to Credit Risk, January 2001
(2) Market risk (5%–6% increase) and (3) operational risk (5% increase)
The potential increase in capital requirements as a result of market risk should be fairly limited,
as the Egyptian banks mainly hold short-dated treasury bonds and do not have large securities
positions. Operational risk could be a major factor, however. The latest quantitative impact
study from BIS showed an increase of 5%–13% in capital requirements. Considering the
investments banks have made in their operational risk management systems, we expect the
operational risk charge to come in at the lower end of the range.
Credit Assessment AA- to AAA A- to A+ BBB- to BBB+ BB+ to B- Below B- Unrated
Risk weights sovereign debt 0% 20% 50% 100% 150% 100%
Countries Kuwait Oman Bahrain Egypt Dubai
UAE Lebanon
Qatar
KSA
Abu Dhabi
May 23 2012
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Important Notice. 73
(4) Credit risks weighted according to internal or external ratings (roughly no impact
expected)
The standardized approach sets out specific risk weights for certain types of credit risk. We do
not expect any material effect as we expect most credits to attract a 100% weighting, though
borrowers with a lower credit rating could attract a 150% weighting.
Increased capital requirements under Basel III
Basel III is likely to increase the capital requirements of banks as they include a more
comprehensive coverage of risks, especially those related to capital market activities, but the
impact on MENA banks is much smaller than their peers in the US and Europe, as banks have
shied away from those activities.
We take into account the following impacts:
Significantly increased weightings for market risk. Banks will have to calculate a stressed value at risk and an incremental risk capital charge (IRC) for credit sensitive positions, which captures default and migration risk at a longer liquidity horizon.
Securitization positions will be subject to charges: All remaining regulatory adjustments currently deducting 50% of an item from Tier 1 and 50% from Tier 2 and not addressed elsewhere should receive a risk weight of 1250%. ADCB managed this position down from AED 13bn year-end FY 10A to less than AED 1bn, which is a major achievement.
Rating migration/benefit seen from advanced models: We may see some benefit when MENA banks adopt more sophisticated models, such as the internal ratings-based method (under which banks rank their loans according to expected probability of default) and the advanced internal ratings-based method (under which banks also estimate the loss in case of default). We do not expect a substantial benefit from the use of sophisticated risk models as most lending is to corporate borrowers (for which we do not expect much of a positive effect from advanced modeling), while historical data for retail lending are not always available as the retail lending market is still in its infancy, particularly in Egypt. NBAD has adopted the foundation-IRB approach and has said it does not expect a significant benefit.
As a result of these revisions, market risk capital requirements will increase an estimated
average of 3 to 4 times for large, internationally active banks. The impact on MENA banks
should be smaller as they are not holding large credit exposures in their trading books.
Banks are preparing for Basel III and should proactively reduced their market-risk weighted
assets or potential gross up for securitization positions, with ADCB being the most aggressive in
this respect.
May 23 2012
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Important Notice. 74
Exhibit 77: Market Risk Weighted Assets as % RWAs
Source: Company Data, Arqaam Capital Research
Exhibit 78: Market Risk Weighted Assets y/y Growth
Source: Company Data, Arqaam Capital Research
Some banks will have to raise more capital in the next few years: CBQ, CAE,
Doha
Evolution Core Equity Tier-1 2011-2013
We analyze the evolution of estimated capital ratios between 2011 and 2013, breaking the
ratios down into various components; the ratios are positively affected by: pre-impairment
income, capital increases, and disposals but are adversely impacted by acquisitions, share
buybacks, dividend payments, taxes, impairments, and growth in risk weighted assets.
We also incorporate hidden balance sheet strengths (such as potential capital gains on real
estate assets, but not over provisioning as banks are required to build excess provisions) and
weaknesses (potential impairments on real estate) in the calculations.
-1%
1%
3%
5%
7%
9%
11%
13%
15%
TAM
WEE
L
KC
BK
SAM
BA
QIIK
OIB
B
ALI
NM
A
KFI
N
BJA
Z
RJH
I
BLO
M
NB
AD
ALB
I
BK
MB
BO
UB
YAN
NB
K
SIB
C
AU
DI
AD
IB
FGB
MA
RK
AR
NB
DH
BK
CB
QK
BO
B
DIB
AD
CB
BK
SB
BSF
R
RIB
L
AU
B
SHB
UN
B
QIB
K
BU
RG
ENB
D
CO
MI
SAB
B
MA
SQ
QN
BK
CIE
B
BYB
EGB
E
CB
D
GB
K
RA
KB
AN
K
NSG
B
HD
BK
% RWA (reported) % RWA (Basel 3)
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
ALI
NM
A
QN
BK
QIIK
CB
QK
DH
BK
BK
MB
KC
BK
BJA
Z
BO
B
NB
AD
BK
SB
CO
MI
BLO
M
FGB
BU
RG
BO
UB
YAN
RJH
I
NSG
B
RIB
L
BSF
R
SAB
B
ALB
I
CIE
B
RA
KB
AN
K
SAM
BA
AR
NB
AU
DI
OIB
B
GB
K
NB
K
SHB
MA
RK
BYB
KFI
N
MA
SQ
AU
B
AD
CB
HD
BK
CB
D
ENB
D
UN
B
AD
IB
DIB
SIB
C
EGB
E
TAM
WEE
L
QIB
K
May 23 2012
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Important Notice. 75
Capacity to grow RWA FY 13e onward vs. 12% CE Tier-1
Exhibit 79: Capacity to Grow
Source: Company Data, Arqaam Capital Research
Dividend constraints and sustainability of dividend payments:
Exhibit 80: Dividend Payout
Source: Company Data, Arqaam Capital Research
Some banks are paying very high dividends to mainly satisfy retail shareholders. However, due
to the very high pay-outs, those banks do not generate enough capital for future growth. A
consistent pay-out should allow the banks to have roughly stable capital ratios.
-50%
-30%
-10%
10%
30%
50%
70%
90%
110%
ALI
NM
AQ
NB
KTA
MW
EEL
RA
KB
AN
KQ
IBK
BO
UB
YAN
QIIK
NB
KR
JHI
ALB
IC
BD
SIB
CSA
MB
AM
AR
KK
CB
KM
ASQ
RIB
LG
BK
EGB
EC
OM
IU
NB
SAB
BN
SGB
BU
RG
AR
NB
FGB
OIB
BB
SFR
BJA
ZA
AA
LN
BA
DB
LOM
BYB
DH
BK
AD
CB
KFI
NA
UD
IEN
BD
BK
MB
CB
QK
CIE
BD
IBB
KSB
HD
BK
AD
IBB
OB
10%
20%
30%
40%
50%
60%
70%
80%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e
UAE
Qatar
Egypt
Lebanon
KSA
Kuwait
Oman
Bahrain
Sector
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 76
If (1-earnings pay-out)* RoE = the growth in risk weighted assets, then capital ratios remain
stable.
If every 1% point of growth in risk-weighted assets > the (1-pay-out)* RoE then capital ratios
should fall by 1% (not pp) of their respective capital ratio. We think that the following banks
are having too high pay-outs and should increase capital, cut their pay-outs or slow-down their
risk-weighted asset growth.
The chart below shows the link between RoE and pay-out.
Exhibit 81: FY 12e Payout vs. ROE
Source: Company Data, Arqaam Capital Research
We expect capital ratios to come down for HDB (as we include 100% risk-weighting for
property developments), Alinma (due to its sharp leveraging), QIIB, MARK, QIB and CAE (due to
its high pay-out and double digit loan growth).
We expect capital ratios to improve for NBK (due to its very low loan growth), Audi (due to
contained RWA growth), Al Rajhi (due to its very high RoE), RAKBank (due to a slowdown in
lending due to retail caps) and Muscat (thanks to 2 capital increases).
ADCB
ADIBCBD
DIB
EMIRATES
FGB
NBAD
UNB
TAMWEEL
MASQ
RAKBANK
CBQK
DHBKQIBK
QNBK
MARK
QIIK
CIEB
COMI
HDBK
NSGB
EGBE
AUDI
BLOM
BYB BOBARNB
RJHI
BSFRRIBL
SAMBA
SABB
AAAL
ALBI
BJAZSIBC
ALINMA
NBK
KFIN
GBK
BURG
BOUBYAN
BKMBBKSB
OIBB
AUB
SHUAADFM SALAMA
QATI
TAWUNIYA
MEDGULF
5% Equity Growth
10% Equity Growth
15 % EquityGrowth
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 5% 10% 15% 20% 25%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 77
Exhibit 82: Change in CET1 FY 11-14e
Source: Company Data, Arqaam Capital Research
Potential dividend cuts under Basel III
Banks may face restrictions on their dividend payouts if their common equity Tier 1 is not
above 7%. Some banks continued to pay out dividends during the crisis even though their
individual financial conditions and the outlook for the sector were deteriorating.
Much of this activity was driven by a sense that discretionary reductions in distributions could
be seen as a sign of weakness. To remove the temptation for banks to distribute more in an
attempt to signal strength when their financial condition has actually weakened, the Basel
Committee has developed a proposal for capital conservation standards.
The table below shows the minimum capital conservation ratios a bank must meet at various
levels of the Common Equity Tier 1 (CET1) capital ratios.
In the table on the next page, we compare the potential new FY 12e core Tier 1 ratios (as
calculated in the previous section) with the potential minimum capital requirement of 7.0%
core equity (4.5% plus the 2.5% conservation buffer), to find the maximum potential payout of
dividends from retained earnings.
Bank Audi, Bank of Beirut, Doha Bank, CBQ, Sohar, CIB, ADIB, DIB and Ahli United could be at
risk under such a framework. DIB reduced its DPS for FY 11A from AED 0.15 to AED 0.125 under
pressure from the UAE Central Bank.
-20%
-15%
-10%
-5%
0%
5%
NB
KR
JHI
RA
KB
AN
KA
UD
IA
LBI
BK
MB
GB
KC
OM
IU
NB
QN
BK
SAM
BA
BO
BO
IBB
BLO
MC
BD
BSF
RSA
BB
ENB
DN
SGB
AU
BA
DIB
NB
AD
DH
BK
BJA
ZK
FIN
FGB
AD
CB
SIB
CA
RN
BB
YBB
KSB
RIB
LM
ASQ
AA
AL
BU
RG
TAM
WEE
LC
IEB
KC
BK
DIB
BO
UB
YAN
QIB
KC
BQ
KEG
BE
MA
RK
QIIK
HD
BK
ALI
NM
A
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 78
Exhibit 83: Potential dividend constraints under Basel III
Source: Company Data, Arqaam Capital Research
CET1 FY 12e Minimum Exceeds min by Maximum Pay-out
range (min 7%)
Current pay-
out
Dividend cut or
allowed increase
Current yield New potential
yield
AUDI 9.9% 7.0% 41.2% 20.0% 38.0% (47.4%) 9.0% 4.7%BLOM 11.6% 7.0% 65.1% 40.0% 30.0% 33.3% 6.0% 7.9%
BYB 11.7% 7.0% 66.7% 40.0% 40.0% --% 6.2% 6.2%BOB 6.5% 7.0% (7.3%) --% 40.0% (100.0%) 3.8% --%
QNBK 23.1% 7.0% 230.6% 100.0% 39.0% 156.4% 3.6% 9.1%
DHBK 12.4% 7.0% 77.6% 60.0% 87.7% (31.6%) 8.6% 5.9%QIBK 20.4% 7.0% 191.7% 100.0% 83.9% 19.3% 5.2% 6.1%
CBQK 11.4% 7.0% 63.3% 40.0% 79.5% (49.7%) 8.6% 4.3%MARK 16.5% 7.0% 135.2% 100.0% 50.8% 96.7% 3.7% 7.4%
KCBK 17.0% 7.0% 142.5% 100.0% 98.9% 1.1% 5.9% 5.9%
QIIK 21.4% 7.0% 206.0% 100.0% 78.0% 28.2% 7.5% 9.6%
NBK 17.9% 7.0% 156.0% 100.0% 48.7% 105.5% 3.5% 7.2%BURG 13.1% 7.0% 86.8% 60.0% 25.0% 139.5% 2.3% 5.5%
GBK 14.4% 7.0% 105.2% 100.0% --% N/A --% 3.9%KFH 11.4% 7.0% 62.9% 40.0% 23.7% 68.6% 1.4% 2.4%
BOUBYAN 22.4% 7.0% 219.7% 100.0% --% N/A --% 1.5%
BKMB 11.0% 7.0% 57.3% 40.0% 36.0% 11.2% 4.3% 4.8%BKSB 9.4% 7.0% 34.6% 20.0% 40.8% (51.0%) 4.0% 2.0%
OIB 13.4% 7.0% 91.4% 60.0% 60.3% (0.5%) 4.3% 4.3%
COMI 14.3% 7.0% 104.4% 100.0% 31.0% 222.6% 4.5% 14.6%CIEB 10.6% 7.0% 51.6% 40.0% 70.0% (42.9%) 10.3% 5.9%
NSGB 14.1% 7.0% 100.7% 100.0% 35.0% 185.7% 4.4% 12.5%HDBK 9.9% 7.0% 41.6% 20.0% 40.0% (50.0%) 4.2% 2.1%
EGBE 15.9% 7.0% 127.3% 100.0% 30.0% 233.3% 1.7% 5.7%
ADCB 11.1% 7.0% 58.7% 40.0% 30.5% 31.0% 3.6% 4.7%
ADIB 7.8% 7.0% 12.1% --% 50.1% (100.0%) 6.8% --%NBAD 11.9% 7.0% 70.1% 40.0% 32.9% 21.4% 3.9% 4.8%
FGB 13.8% 7.0% 96.4% 60.0% 56.3% 6.5% 8.4% 8.9%UNB 13.9% 7.0% 99.2% 60.0% 18.2% 228.8% 3.4% 11.3%
ENBD 10.8% 7.0% 54.1% 40.0% 41.9% (4.5%) 4.5% 4.3%DIB 10.2% 7.0% 45.8% 20.0% 60.0% (66.7%) 7.3% 2.4%
CBD 16.9% 7.0% 141.3% 100.0% 55.0% 81.8% 7.6% 13.9%MASQ 15.5% 7.0% 121.8% 100.0% 40.0% 150.0% 2.8% 6.9%
RAKBANK 18.9% 7.0% 170.6% 100.0% 45.0% 122.2% 7.2% 16.0%TAMWEEL 22.5% 7.0% 221.7% 100.0% 58.7% 70.4% 4.3% 7.4%
SAMBA 15.7% 7.0% 123.6% 100.0% 32.4% 208.2% 3.4% 10.6%
RIBL 15.6% 7.0% 122.4% 100.0% 56.6% 76.8% 5.4% 9.6%RJHI 16.5% 7.0% 135.7% 100.0% 57.5% 74.0% 4.4% 7.6%
BSFR 13.0% 7.0% 85.2% 60.0% 29.1% 105.9% 2.7% 5.6%SABB 15.1% 7.0% 115.2% 100.0% 27.9% 258.7% 2.0% 7.3%
ARNB 14.1% 7.0% 101.0% 100.0% 39.5% 153.2% 3.7% 9.5%
AAAL 12.4% 7.0% 77.2% 60.0% 34.2% 75.6% 3.7% 6.5%
SIBC 17.0% 7.0% 143.1% 100.0% 35.8% 179.4% 3.2% 9.0%
ALBI 17.4% 7.0% 148.2% 100.0% --% N/A --% 10.8%BJAZ 13.6% 7.0% 94.9% 60.0% 33.1% 81.4% 2.1% 3.8%
ALINMA 30.5% 7.0% 335.2% 100.0% --% N/A --% 2.8%
AUB 10.2% 7.0% 46.0% 20.0% 43.9% (54.4%) 4.9% 2.2%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 79
Exhibit 84: FY 11-15e CAGR Capital vs. RWA growth
Source: Company Data, Arqaam Capital Research
Audi BLOM
BYBLOS
BOBQNB
DOHA
QIB
CBQ
MARK
Khaliji QIIB
NBK
Burgan
GULF BANK
KFH
BOUBYAN
MUSCAT
SOHAR
OIB
CIB
CAE
NSGB
HDBEGB
ADCB
ADIB
NBAD
FGBUNB
ENBD
DIB
CBDMASQ
RAKBANK
TAMWEEL
SAMBA
RIYAD
RJHI
BSFR
SABB
ANBSHB
SIB
ALBI
BJAZ
AUB
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20% 25%
Capital Absorption
Capital Generation
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 80
Exhibit 85: Evolution of core equity Tier 1: FY 11-12e
Source: Arqaam Capital Research
Core Tier-1 FY 11A Pre pairment income Equity raisings Asset sales/acquisitions Impairments Taxes Dividends Increase in RWAs Residual Core Tier-1 FY 12e
AUDI 8.5% 2.9% --% 0.5% (0.4%) (0.5%) (1.0%) (0.1%) 0.0% 9.9%BLOM 11.2% 3.3% --% --% (0.4%) (0.4%) (0.6%) (1.9%) 0.3% 11.6%BYB 11.4% 2.6% --% --% (0.3%) (0.4%) (0.5%) (1.1%) (0.0%) 11.7%BOB 5.9% 2.0% (0.2%) (0.3%) (0.5%) (0.7%) 0.4% 6.5%QNBK 21.2% 5.4% --% --% (0.7%) (0.0%) (2.0%) (1.3%) 0.6% 23.1%DHBK 10.1% 2.9% 2.2% --% (0.4%) (0.0%) (2.1%) (0.2%) (0.1%) 12.4%QIBK 21.8% 4.0% --% --% (1.3%) (0.0%) (2.4%) (2.0%) 0.3% 20.4%CBQK 12.5% 3.4% --% --% (0.4%) --% (2.1%) (1.2%) (0.7%) 11.4%MARK 20.1% 4.0% --% --% (0.7%) --% (1.6%) (4.5%) (0.9%) 16.5%KCBK 16.3% 2.0% (0.3%) (0.0%) (1.3%) (0.3%) 0.6% 17.0%QIIK 22.6% 3.9% (0.3%) --% (3.0%) (1.7%) 0.0% 21.4%NBK 15.9% 4.1% --% --% (0.5%) (0.2%) (1.7%) 0.2% 0.2% 17.9%BURG 14.3% 3.3% --% (0.9%) (0.3%) (0.4%) (2.6%) (0.2%) 13.1%GBK 13.6% 3.4% (2.2%) (0.1%) --% (0.7%) 0.3% 14.4%KFIN 11.0% 3.0% (1.1%) (0.0%) (0.2%) (0.2%) (0.9%) 11.4%BOUBYAN 22.2% 2.1% (1.1%) (0.1%) --% (1.0%) 0.3% 22.4%BKMB 9.1% 2.3% 1.5% --% (0.5%) (0.3%) (0.6%) (1.1%) 0.6% 11.0%BKSB 9.3% 1.5% (0.4%) (0.2%) (0.4%) (1.4%) 0.9% 9.4%OIBB 12.1% 1.6% 10.6% (0.2%) (0.2%) --% (10.6%) 0.0% 13.4%COMI 13.4% 4.3% --% --% (0.5%) (0.9%) (1.0%) (2.6%) 1.7% 14.3%CIEB 11.6% 4.1% --% --% (0.8%) (0.7%) (1.5%) (2.0%) (0.0%) 10.6%NSGB 13.5% 4.2% --% --% (0.5%) (0.9%) (1.0%) (1.6%) 0.3% 14.1%HDBK 20.8% 3.1% --% --% (0.7%) (0.3%) (0.5%) (6.1%) (6.3%) 9.9%EGBE 17.4% 1.8% (0.6%) (0.6%) (0.6%) (2.2%) 0.6% 15.9%ADCB 11.5% 3.8% (1.2%) (1.4%) (0.0%) (0.4%) (0.8%) (0.3%) 11.1%ADIB 8.0% 3.1% --% (1.3%) --% (0.7%) (0.7%) (0.5%) 7.8%NBAD 11.9% 2.8% --% (0.7%) (0.1%) (0.6%) (1.3%) (0.1%) 11.9%FGB 13.3% 3.6% --% (1.0%) --% (1.4%) (1.2%) 0.4% 13.8%UNB 13.3% 2.7% --% (1.0%) (0.0%) (0.3%) (1.1%) 0.3% 13.9%ENBD 10.5% 3.3% --% (2.0%) (0.0%) (0.3%) (0.1%) (0.6%) 10.8%DIB 12.1% 2.7% --% (1.6%) (0.0%) (0.5%) (2.4%) (0.1%) 10.2%CBD 16.6% 3.7% --% (1.6%) --% (1.1%) (0.7%) 0.1% 16.9%MASQ 15.5% 2.6% (1.2%) (0.0%) (0.4%) (1.1%) 0.0% 15.5%RAKBANK 19.1% 9.5% (1.9%) --% (2.4%) (4.1%) (1.3%) 18.9%TAMWEEL 22.4% 1.7% (1.0%) --% (0.5%) (0.3%) 0.2% 22.5%SAMBA 14.8% 2.5% --% --% (0.2%) --% (0.4%) (0.7%) (0.3%) 15.7%RIBL 15.3% 2.0% --% --% (0.3%) --% (0.5%) (0.9%) (0.1%) 15.6%RJHI 14.6% 4.8% --% --% (0.6%) (0.3%) (1.9%) (1.3%) 1.2% 16.5%BSFR 12.9% 2.1% --% --% (0.3%) --% (0.6%) (1.0%) (0.2%) 13.0%SABB 13.4% 2.8% --% --% (0.4%) --% (0.5%) (2.3%) 2.1% 15.1%ARNB 14.0% 2.5% --% --% (0.5%) --% (0.8%) (1.2%) 0.1% 14.1%AAAL 12.9% 2.2% (0.3%) --% (0.6%) (1.9%) 0.1% 12.4%SIBC 16.2% 2.4% (0.6%) --% (0.7%) (0.2%) (0.1%) 17.0%ALBI 15.6% 2.7% 1.9% (0.8%) --% --% (2.3%) 0.3% 17.4%BJAZ 11.7% 1.0% 2.5% (0.3%) --% (0.4%) (1.1%) 0.4% 13.6%ALINMA 39.0% 1.4% (0.3%) --% --% (8.8%) (0.8%) 30.5%AUB 10.3% 2.9% (1.0%) (0.1%) (0.7%) (1.0%) (0.1%) 10.2%
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 81
Exhibit 86: Evolution of core equity Tier 1: FY 12-13e
Source: Arqaam Capital Research
Core Tier-1 FY 12e Pre pairment income Equity raisings Asset sales/acquisitions Impairments Taxes Dividends Increase in RWAs Residual Core Tier-1 FY 13e
AUDI 9.9% 2.4% --% 0.5% (0.5%) (0.4%) (0.7%) (0.5%) 0.1% 10.9%BLOM 11.6% 3.3% --% --% (0.4%) (0.4%) (0.7%) (1.1%) (0.5%) 11.9%BYB 11.7% 2.6% --% --% (0.4%) (0.4%) (0.5%) (1.3%) (0.4%) 11.4%BOB 6.5% 2.0% (0.3%) (0.3%) (0.6%) (0.5%) (0.1%) 6.7%QNBK 23.1% 5.4% --% --% (0.7%) (0.0%) (1.9%) (3.2%) 0.4% 23.2%DHBK 12.4% 2.9% --% --% (0.5%) (0.0%) (1.9%) (1.5%) (0.2%) 11.3%QIBK 20.4% 4.0% --% --% (0.6%) (0.0%) (3.0%) (1.8%) 0.6% 19.6%CBQK 11.4% 3.4% --% --% (0.5%) --% (1.8%) (1.5%) (0.8%) 10.3%MARK 16.5% 4.0% --% --% (0.7%) --% (1.4%) (2.7%) (0.1%) 15.7%KCBK 17.0% 2.0% (0.4%) (0.0%) (1.1%) (1.8%) (0.2%) 15.4%QIIK 21.4% 3.9% (0.5%) --% (2.8%) (2.6%) (0.1%) 19.3%NBK 17.9% 4.1% --% --% (0.5%) (0.2%) (1.8%) (1.1%) 0.4% 18.7%BURG 13.1% 3.3% (0.9%) (0.4%) --% (0.1%) (1.0%) 13.9%GBK 14.4% 3.4% (2.0%) (0.1%) --% (0.9%) 0.4% 15.0%KFIN 11.4% 3.0% (1.1%) (0.1%) (0.2%) (1.1%) (0.7%) 11.2%BOUBYAN 22.4% 2.1% (0.9%) (0.1%) (0.3%) (4.5%) 1.0% 19.6%BKMB 11.0% 2.3% --% --% (0.5%) (0.3%) (0.6%) (1.6%) 0.3% 10.7%BKSB 9.4% 1.5% (0.4%) (0.2%) (0.4%) (1.1%) 0.2% 9.1%OIBB 13.4% 1.6% (0.3%) (0.2%) --% (1.0%) (0.2%) 13.3%COMI 14.3% 4.3% --% --% (0.5%) (0.9%) (0.8%) (2.3%) 0.6% 14.6%CIEB 10.6% 4.1% --% --% (0.7%) (0.7%) (1.6%) (1.5%) (0.3%) 9.9%NSGB 14.1% 4.2% --% --% (0.6%) (0.9%) (1.0%) (1.9%) 0.2% 14.1%HDBK 9.9% 3.1% --% --% (0.7%) (0.4%) (0.7%) (1.2%) (0.9%) 9.0%EGBE 15.9% 1.8% (0.6%) (0.5%) (0.6%) (1.7%) 0.5% 14.9%ADCB 11.1% 3.8% (1.3%) (0.0%) (0.4%) (0.8%) (1.2%) 11.2%ADIB 7.8% 3.1% --% (1.3%) --% (0.7%) (0.5%) (0.4%) 8.1%NBAD 11.9% 2.8% --% (0.7%) (0.1%) (0.7%) (1.4%) 0.1% 12.0%FGB 13.8% 3.6% --% (0.9%) --% (1.5%) (1.2%) (0.2%) 13.6%UNB 13.9% 2.7% --% (0.9%) (0.0%) (0.3%) (1.0%) 0.1% 14.4%ENBD 10.8% 3.3% --% (1.9%) (0.0%) (0.3%) (0.5%) (0.6%) 10.8%DIB 10.2% 2.7% --% (1.6%) (0.0%) (0.7%) (0.3%) (1.0%) 9.4%CBD 16.9% 3.7% --% (1.5%) --% (1.1%) (0.8%) (0.1%) 17.1%MASQ 15.5% 2.6% (1.1%) (0.0%) (0.4%) (1.0%) (0.4%) 15.3%RAKBANK 18.9% 9.5% (1.8%) --% (2.3%) (1.9%) (1.8%) 20.6%TAMWEEL 22.5% 1.7% (0.9%) --% (0.5%) (0.6%) 0.2% 22.4%SAMBA 15.7% 2.5% --% --% (0.2%) --% (0.3%) (1.6%) (0.2%) 15.8%RIBL 15.6% 2.0% --% --% (0.4%) --% (0.5%) (1.4%) (0.2%) 15.2%RJHI 16.5% 4.8% --% --% (0.7%) (0.3%) (1.7%) (2.0%) 0.6% 17.2%BSFR 13.0% 2.1% --% --% (0.3%) --% (0.5%) (1.3%) 0.2% 13.2%SABB 15.1% 2.8% --% --% (0.4%) --% (0.4%) (2.5%) (0.2%) 14.3%ARNB 14.1% 2.5% --% --% (0.5%) --% (0.8%) (1.6%) 0.2% 13.9%AAAL 12.4% 2.2% (0.4%) --% (0.6%) (1.3%) 0.1% 12.4%SIBC 17.0% 2.4% (0.5%) --% (0.7%) (1.6%) (0.2%) 16.4%ALBI 17.4% 2.7% (0.5%) --% (0.3%) (2.1%) 0.1% 17.1%BJAZ 13.6% 1.0% (0.3%) --% (0.4%) (1.9%) 0.7% 12.7%ALINMA 30.5% 1.4% (0.3%) --% --% (8.2%) 1.4% 24.8%AUB 10.2% 2.9% (0.9%) (0.1%) (0.7%) (0.8%) (0.1%) 10.4%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 82
Questioning zero risk weighting for sovereign debt
The debt crisis also is leading some regulators, particularly European, to question rules that
allow lenders to apply zero risk-weightings to government bonds issued in a bank’s home
currency when calculating capital ratios. Under current guidelines, banks do not need to hold
any capital against the securities, even after the cost of insuring government bonds against
default are high and clearly the risk of holding the securities is no longer zero. Many corporate
issuers can borrow at narrower spreads than governments. We therefore would not be
surprised by further adjustments to the Basel III rules.
Exhibit 87: CDS vs. Probability of default (bps)
Source: Bloomberg
In the calculations below we calculate the potential impact of applying 10% risk weighting for
Kuwait, UAE, KSA, Qatar and Abu Dhabi (rated AA to AAA), 20% risk-weighting for Oman (rated
AA), 50% for Bahrain (rated BBB) and 100% risk-weighting for Lebanon, Egypt (both not
investment grade) and Dubai banks (not rated). This is more or less in line with S&P’s capital
model.
The impact would be the largest for ENBD (2.35% negative effect on CET1), Egypt (NSGB 2.34%,
CIB 2.01%, CAE 1.84%) and Lebanese banks (Byblos 2.35%, Blom 2.37%, Audi 1.85% and BOB
0.60%, partly offset by the fact that USD government bonds are already risk weighted at
100%).
0
10
20
30
40
50
60
70
80
90
0
200
400
600
800
1000
1200
Po
rtu
gal
Egyp
t
Ire
lan
d
Spai
n
Leb
ano
n
Ital
y
Du
bai
Bah
rain
Ho
llan
d
Qat
ar AD
KSA
Ge
rman
y
UK
US
5Yr CDS PD
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 83
Exhibit 88: Claims on governments as % of Total Assets
Source: Company Data, Arqaam Capital Research
Exhibit 89: Impact on CET1 vs. New CET1
Source: Company Data, Arqaam Capital Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
BLO
MB
YBA
UD
IQ
NB
KA
LIN
MA
BO
BK
CB
KEN
BD
SAM
BA
AR
NB
QIIK
AA
AL
OIB
BR
JHI
NSG
BD
HB
KC
IEB
SAB
BC
OM
IC
BQ
KM
ASQ
HD
BK
NB
KB
SFR
BU
RG
GB
KR
IBL
EGB
EB
JAZ
NB
AD
BK
SBSI
BC
BK
MB
AD
CB
FGB
QIB
KM
AR
KK
FIN
BO
UB
YAN
AD
IBU
NB
DIB
CB
DR
AK
BA
NK
TAM
WEE
LA
LBI
AU
B-5%
0%
5%
10%
15%
20%
25%
30%
35%
BO
UB
YAN
TAM
WEE
LQ
IBK
EGB
ER
AK
BA
NK
ALB
IC
BD
MA
RK
UN
BK
FIN
DIB
AU
BA
DIB
FGB
AD
CB
SIB
CB
KM
BB
JAZ
NB
AD
BK
SBB
SFR
RIB
LC
BQ
KB
UR
GD
HB
KG
BK
AA
AL
SAB
BN
BK
AR
NB
RJH
ISA
MB
AB
OB
OIB
BK
CB
KQ
IIKA
LIN
MA
MA
SQH
DB
KC
IEB
AU
DI
QN
BK
CO
MI
NSG
BEN
BD
BYB
BLO
M
Impact CET1 New CET1
May 23 2012
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Important Notice. 84
Exhibit 90: Capacity to Grow after Weighting T-Bills
Source: Company Data, Arqaam Capital Research
Exhibit 91: FY 12e Leverage Ratio (assets/tangible equity)
Source: Company Data, Arqaam Capital Research
-60%
-30%
0%
30%
60%
90%
120%
150%
ALI
NM
ATA
MW
EEL
BO
UB
YAN
QN
BK
QIIK
QIB
KR
AK
BA
NK
NB
KA
LBI
CB
DSI
BC
MA
RK
KC
BK
RJH
IEG
BE
RIB
LSA
MB
ASA
BB
MA
SQG
BK
UN
BFG
BA
RN
BB
JAZ
BU
RG
BSF
RO
IBB
CO
MI
DH
BK
AA
AL
NSG
BN
BA
DK
FIN
CB
QK
AD
CB
BK
MB
AU
BD
IBB
YBB
KSB
BLO
MC
IEB
ENB
DH
DB
KA
UD
IA
DIB
BO
B
0.0%
500.0%
1000.0%
1500.0%
2000.0%
BO
BB
UR
GA
UB
AU
DI
BYB
CIE
BB
LOM
NB
AD
AD
IBK
FIN
AD
CB
ENB
DG
BK
BK
SBH
DB
KD
IBC
OM
IC
BD
NSG
BB
KM
BB
JAZ
AA
AL
ALB
IO
IBB
UN
BA
RN
BB
OU
BYA
NSA
BB
RJH
IQ
NB
KM
AR
KFG
BD
HB
KSA
MB
AM
ASQ
EGB
ESI
BC
NB
KB
SFR
RIB
LK
CB
KQ
IBK
CB
QK
QIIK
RA
KB
AN
KTA
MW
EEL
ALI
NM
A
May 23 2012
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Important Notice. 85
Potential Disruptions in Strait of Hormuz - GCC is a sweet spot
Iran has threatened retaliation in the form of a blockade of the Strait of Hormuz, a channel for
the 20% of the global flow of oil and gas out of the Gulf, in response to tougher sanctions,
including a boycott of Iranian oil exports by the EU from 1 July 2011 over Iran’s nuclear
program.
These threats have been verbal and most likely to remain in check. However, we view that a
plausible scenario would be the slowdown of shipping through the Strait of Hormuz by the
Iranian authorities through tanker inspections, boarding merchant ships, and obstructing
shipping routes in its territorial waters. We rule out a scenario where Iran would place mines –
as Iran’s exports would also come to a complete stand still. Additionally, the US has expressed
it is hopeful that it could resolve the issues in a peaceful manner.
Such tension could increase oil prices as markets would increasingly view the vision of military
confrontation as a possibility. Based on the very low price inelasticity in the short term – it is
estimated that the price elasticity is as low as 6.1% - we calculate that if 5% of the trade
volumes in the strait are affected, or 1% of worldwide oil production, there may be an increase
in oil prices of up to 16.7%.
Exhibit 92: Strait of Hormuz
Source: Global Security, Arqaam Capital Research
May 23 2012
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Important Notice. 86
Below we share the outcome of such a plausible scenario with a 5% production cut for
countries that rely on the Strait of Hormuz, Kuwait and Qatar, as both countries have limited
options with regard to the transport of its hydrocarbon exports other than through the Strait,
and a 3.3% cut for UAE as Abu Dhabi plans to build a crude oil pipeline in H1 12 that diverts
half of its oil exports directly to the Gulf of Oman, bypassing the Strait of Hormuz.
We would see no production impact on Oman, while KSA is ideally positioned as it could boost
its oil production to offset lower Iranian production, though it will have to divert part of its oil
exports through the East-West pipeline to the Red Sea, which could transport around 60% of
Saudi Arabia's oil exports, according to S&P. Saudi Arabia's oil minister has said the country
could even increase its oil production by about 2m barrels a day, however, the crude oil would
not be considered of the same quality.
Exhibit 93: GCC A SWEET SPOT
Source: Arqaam Capital Research
The combined effect of production changes and oil price changes results in a net positive effect
for the GCC countries ranging from 1.7% for Qatar to 12.9% for KSA.
Qatar should benefit the least, as we do not expect any compensation from higher LNG prices
(though admittedly there is a link between LNG and oil prices), as Qatar controls only 5% of
worldwide gas production, while it depends highly on the Strait of Hormuz. It shares the giant
North field gas reservoir with Iran and has the largest US military base outside the US. The
Qatar Central Bank has already banned lenders from financing trade to Iran by US sanctions.
However, the fiscal and external balances of oil importers in the Middle East - especially Jordan
and Lebanon - would be even more stretched and they may be vulnerable to future oil price
shocks. Egypt is currently a net exporter of oil, with a surplus of about USD 6bn or about 2.7%
of GDP.
In case of a severe disruption, this could affect the fragile global economic recovery and could
lead to a new world wide recession. In such a world, GCC could prove to be a sweet spot.
However, there are second order effects:
Short-term (price elasticity 0.061)
Impact 5% trade disruption KSA Oman Kuwait UAE Qatar
Crude oil production (b/d million; average) 0.50 -- (0.13) (0.08) (0.04)
Impact (%) 5.6% -- (5.0%) (3.3%) (5.0%)
Impact on GDP 12.9% 8.9% 5.5% 3.6% 1.7%
Impact on fiscal balance 8.1% 2.7% 3.9% 2.3% 0.9%
Long-term (price elasticity of 0.45)
Impact 5% trade disruption KSA Oman Kuwait UAE Qatar
Crude oil production (b/d million; average) 0.50 -- (0.13) (0.08) (0.04)
Impact (%) 5.6% -- (5.0%) (3.3%) (5.0%)
Impact on GDP 4.4% 1.2% (1.5%) (0.3%) (2.3%)
Impact on fiscal balance 3.4% 0.1% (1.1%) (0.7%) (0.2%)
May 23 2012
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Important Notice. 87
Dubai as the region's logistics hub is particularly exposed to trade downturns and tourism that could severely be impacted as well.
Asset quality of the banks could be under pressure, while there also could be a renewed pressure on funding markets and increased risk aversion.
The longer the disruption takes, the more likely that oil demand adjusts to the increased price levels. The long-term price elasticity is 45%, still low, but nevertheless a dramatic increase over the short-term price elasticity of 6.1%. This implies that a 5% disruption could initially lead to a 16.7% increase in oil prices, but medium term, this could fall back to a 2.2% price increase only. Hence a long-term disruption of trade flows is not in the GCC’s best interest.
Exhibit 94: Political landscape
Source: Arqaam Capital Research
Country Affecting Impact
Egypt Slowdown tourism
SCAF governed since collapse of Mubarak regime CAPEX
New Parliament dominated by Islamist parties (MB 47%, Salafi 25%) FDIs
10 Presidential candidates, 1stv round 23-24 May, 30 June handover of
power High Yields
New presidential elections Higher taxes
Lebanon
Sanctions on Syria Audi, BLOM, Byblos Reduced loans & deposits by 40%
Inharmonious political landscape Hardly any effect on T-bill yields & inflows
UAE
Extremely well governed and very stable ADIB, FGB Lower leverage
Regulation capping retail loans Reduced fees
Regulation capping retail charges ADIB, FGB Ahead of regulation FGB cut rates for nationals
Potential regulation capping credit card charges to 18%
New circular capping single party exposures ENBD, NBAD Negotiations with UAE CB
New foreign ownership possibilities
Large trading partner with Iran Noor Bank US Treasury disrupted the banks operations
Kuwait
Inharmony between Parliament and ruling family Slowing down spendingVery low corporate loan demand
Disputes with Iraq over land
Vulnerable for blockage Strait of Hormuz
Oman
Oman maintains its military ties with the West while keeping good
relations with Iran
Granting of legislative powers to the Majlis al-Shura
Strong diversification plan
Qatar
Together with UAE most stable
creating a two-third elected Advisory Council
play a leading role in the region
KSA
Mortgage law still not delivered
Bahrain
Domestic instability Financial centre hub slowly moving to Dubai
May 23 2012
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Important Notice. 88
Hidden deficits and values in balance sheets
We scrutinize the quality of the banks’ balance sheets. Some banks have also adopted some
form of less prudent accounting, which relates to the valuation of real estate assets, associates
or acquisition accounting (a few UAE banks):
We calculate the largest negative adjustment for DIB, driven by the valuation of associates (1.0% of RWAs), real estate valuation (1.4%), negative FV reserves (0.8%) and underprovisioning (1.5%).
We also calculate negative adjustments for FGB (relating to real estate valuation), RAKbank and Tamweel (underprovisioning).
Other banks, on the other hand, have substantial hidden reserves regarding some real estate
investments or associates that are carried at well below market value (however the impact on
CET1 is not significant in some circumstances as they are already deducted from CET1, DIB
being the exception as the revaluation is on real estate associates), or substantial revaluation
reserves that are included in shareholders’ equity and thus captured in our valuations, but not
in the reported Tier 1.
QNB has the largest unrealized gains. Qatari banks have set aside up to 1.5% of credit risk weighted assets as a special reserve that is part of equity, but is fully subtracted from Tier-1 and Capital Adequacy ratios. The same applies to Egyptian banks with substantial general banking reserves and special reserves.
Saudi banks are sitting on unrealized capital gains on real estate (Bank Aljazira (0.52%), Albilad (0.38%), and Riyad (0.22%)).
Fair value gains or losses on associates are captured in our valuation of the banking operations,
while the fair value reserves and risk reserves are included in our capital surplus in our
valuation models as they are part of equity, while unrealized gains and losses on real estate
and under/overprovisioning are reflected in the third section of our valuation.
Exhibit 95: Impact of Accounting Adjustments on CET1
Source: Company Data, Arqaam Capital Research
-8%
-6%
-4%
-2%
0%
2%
4%
ALBI
AAAL
BJAZ
ARNB
EGBE
SIBC
QNB
KDH
BKBO
UBYA
NRI
BLBK
MB
SABB
RJHI
AUB
CIEB
HDBK
NSGB
CBQ
KM
ARK
OIB
BSA
MBA QIIK
COM
INB
ADBU
RGKF
INAL
INM
AGB
KKC
BKQ
IBK
AUDI
BYB
BSFR
BLO
MNB
KBK
SBBO
BEN
BDAD
CBCB
DAD
IBM
ASQ
FGB
UNB
RAKB
ANK
DIB
TAM
WEE
L
May 23 2012
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Important Notice. 89
Exhibit 96: Accounting adjustments
Source: Company Data, Arqaam Capital Research
Impact on CET1 Associates Real estate Intangibles Level 3 FV reserves Risk reserves Provisions
ADCB (1.40%) --% (0.13%) --% --% (0.28%) --% (0.99%)
ADIB (1.68%) --% (0.80%) --% --% (0.22%) --% (0.66%)
CBD (1.51%) --% (0.24%) --% --% 0.09% --% (1.36%)
DIB (4.70%) (0.97%) (1.24%) --% --% (0.98%) --% (1.52%)
ENBD (1.39%) --% (0.56%) --% (0.09%) 0.11% --% (0.84%)
FGB (2.92%) --% (2.40%) --% --% 0.09% --% (0.61%)
NBAD 0.26% --% --% --% --% --% --% 0.26%
UNB (3.02%) --% (0.83%) --% --% (0.01%) --% (2.18%)
TAMWEEL (3.05%) --% (1.90%) --% --% --% --% (1.15%)
RAKBANK (3.36%) --% --% --% --% (0.05%) --% (3.31%)
MASQ (1.95%) --% (0.19%) --% --% (0.45%) --% (1.31%)
UAE
CBQK 1.01% --% (0.06%) --% --% (0.10%) 1.13% 0.03%
DHBK 1.54% --% --% --% --% (0.01%) 1.12% 0.43%
QIBK (0.03%) --% (0.31%) --% --% (0.18%) 1.11% (0.65%)
QNBK 1.58% --% --% --% --% 0.30% 0.96% 0.33%
MARK 0.88% --% (0.02%) --% --% 0.02% 0.96% (0.08%)
QIIK 0.50% --% (0.46%) --% --% 0.51% 0.89% (0.44%)
KCBK --%
Qatar
CEIB 1.03% --% --% --% --% (0.76%) 0.60% 1.20%
COMI 0.36% --% --% --% --% (1.08%) 0.70% 0.75%
NSGB 1.01% --% --% --% --% (0.06%) 1.09% (0.02%)
EGBE 1.85% --% --% --% --% (0.63%) 0.62% 1.86%
HDBK 1.13% --% --% --% --% --% 0.36% 0.77%
Egypt
AUDI (0.07%) --% --% --% --% 0.30% --% (0.37%)
BLOM (0.17%) --% --% --% --% --% --% (0.17%)
BYB (0.05%) --% --% --% --% (0.13%) --% 0.07%
BOB (0.39%) --% --% --% --% --% --% (0.39%)Lebanon
ARNB 0.13% --% 0.04% --% (0.06%) --% --% 0.15%
RJHI 0.23% --% --% --% (1.02%) --% --% 1.25%
BSFR (2.24%) --% 0.00% --% (2.39%) --% --% 0.14%
RIBL 0.73% --% 0.22% --% (0.88%) --% --% 1.39%
SAMBA (1.11%) --% --% --% (1.96%) --% --% 0.85%
SABB 1.33% --% --% --% (0.04%) --% --% 1.37%
ALINMA 0.04% --% --% --% --% --% --% 0.04%
AAAL 3.64% --% --% --% --% --% --% 3.64%
BJAZ 2.08% --% 0.52% --% (0.01%) --% --% 1.57%
SIBC (0.64%) --% 0.17% --% (2.57%) --% --% 1.75%
ALBI 3.21% --% 0.38% --% (0.61%) --% --% 3.44%
Saudi Arabia
NBK (0.24%) --% --% (1.89%) --% (0.11%) --% 0.80%
BURG 0.17% --% --% --% --% 0.11% --% 0.07%
GBK 0.01% --% --% --% --% 0.23% --% (0.22%)
KFIN 0.10% --% --% --% --% (0.71%) --% 1.48%
BOUBYAN 1.54% --% --% --% --% (0.07%) --% 1.60%
Kuwait
BKMB 1.40% --% --% --% --% 0.06% --% 1.33%
BKSB (0.34%) --% --% --% --% (0.14%) --% (0.21%)
OIBB 0.76% --% --% --% --% 1.44% --% (0.68%)
Oman
AUB 1.11% --% --% --% --% --% --% 1.11%
Bahrain
May 23 2012
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Important Notice. 90
Solid credit growth outlook
KSA, Oman, Qatar and Egypt should show loan growth in excess of 10%. In Qatar we expect a slowdown in H1 due to the 2 month delay in the national budget, we see Oman as having the best balanced loan growth (both public and private sector), while momentum has dramatically improved in KSA. We do not expect an overall 10% loan growth in Egypt, except for CIB and to a lesser extent NSGB and CAE as public banks give up loan market share.
UAE, Kuwait and Lebanon should have loan growth below 10% due to high leverage in the UAE and Lebanon, in addition to the political gridlock in Kuwait.
We think QNB, FGB, Bank Muscat, Al Rajhi, Alinma, Boubyan and CIB should outperform their peers and should record double digit loan growth in FY 12e.
Some risks remaining in GCC
We do see few risks for the GCC:
The tensions in the Gulf could lead to an escalation of the conflict between Iran and the GCC.
The weak growth prospects in the advanced economies could lead to a pronounced decline in oil prices if regional geopolitical risks subside, but KSA seems committed to a Brent oil price of USD 100. Particularly Europe could still remain in recession until Q3 12e.
A renewed worsening of global financing conditions could make it more difficult to roll over some of the GREs’ maturing external debt and affect liquidity conditions in the banking system. GREs are still faced with high refinancing needs and continued reliance on foreign funding. The UAE central bank is not helping the situation in the short-term by capping the banks’ exposure to GREs and local governments.
We do not expect large ramifications of the closure of Islamic windows of conventional banks in Qatar. We expect most Islamic corporate loans to be converted, though we anticipate Islamic banks to be able to snap up Islamic retail loans from conventional lenders, as illustrated below.
Exhibit 97: Market share of Conventional and Islamic banks in Qatar
Source: Company Data, Arqaam Capital Research
Exhibit 98: Islamic share of total operations of the conventional banks in Qatar
Source: Company Data, Arqaam Capital Research
0%
2%
4%
6%
8%
10%
Doha CBQ ABQ KCB QNB% of loan % of deposit % of asset
May 23 2012
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Important Notice. 91
We are very concerned about the unfolding of the euro zone sovereign crisis and its
ramifications on the global outlook
We are very concerned about the unfolding of the euro zone sovereign crisis and its
ramifications on the global outlook despite the proactive approach of the ECB. Nevertheless,
we believe the gulf is committed to keeping the Brent oil price at around USD 100, slightly
lower than the current price, but high enough to pay for their government spending plans. The
region’s external balance is expected to remain high. Among oil exporters, high commodity
prices will maintain strong external positions and enhance reserves. Moreover, the GCC
strongly relies on domestic sources of growth, helped by investment sprees.
Kuwait stands out with a strong fiscal surplus of 34.5%, but due to the grid lock in Kuwait these
surpluses are not reinvested into the country. Nonetheless, all Gulf countries have very robust
fiscal balances as illustrated below, except for Bahrain. We would not be surprised if Egypt
underperforms IMF forecast with respect to its deficit, driven by salary hikes (up 15% for public
servants), unemployment insurance to be introduced in 2012, lower tax revenue due to
disruptions, rising bond yields, and increased spending on subsidies (up EGP 6bn). The deficit is
highly sensitive on the interest charges Egypt is paying. Every 1% increase raises Egypt’s deficit
by 0.6% within one year due to the short-term nature of its outstanding debt.
Exhibit 99: MENA governments' fiscal balances as a percentage of GDP
Source: IMF
Egypt’s deficit is not as bad as it appears
Even though we expect Egypt’s deficit to be much worse than is budgeted by the government,
we are not extremely worried about the size of the fiscal deficit. We think a structural deficit of
8.1%-10.8% is manageable considering the economy’s high nominal growth rate of c. 11.8%-
15.9% (8%-10% inflation and 5%-6% structural real growth, of which 2.5% is population growth
and 2.5%-3.5% is real GDP growth per capita).
Exhibit 100: Egypt Macro
Source: IMF, Arqaam Capital Research
FY 08A FY 09A FY 10A FY 11e FY 12e FY 13e FY 14e FY 15e FY 16e FY 17e
Bahrain 4.9% (6.6%) (6.7%) (2.3%) (1.0%) (1.7%) (3.2%) (4.8%) (6.3%) (8.0%)
Egypt (7.8%) (6.8%) (7.8%) (9.9%) (10.0%) (7.8%) (6.6%) (5.3%) (3.8%) (2.7%)
Kuwait 19.8% 27.2% 24.2% 31.0% 34.5% 31.8% 27.4% 25.8% 24.4% 24.0%
Lebanon (9.5%) (8.3%) (7.7%) (5.6%) (8.1%) (8.0%) (7.8%) (8.0%) (8.3%) (8.2%)
Oman 16.9% (0.3%) 5.6% 9.8% 12.9% 9.6% 4.5% 0.0% (2.4%) (5.1%)
Qatar 10.4% 14.3% 2.7% 7.8% 8.9% 8.1% 5.3% 2.9% 2.1% 1.5%
Saudi Arabia 34.4% (4.6%) 6.6% 15.2% 16.6% 10.1% 6.6% 3.2% (0.7%) (1.2%)
UAE 21.5% (0.1%) 4.4% 11.0% 12.3% 11.5% 10.1% 9.7% 9.3% 9.4%
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
Primary deficit/GDP (3.8%) (4.7%) (5.3%) (4.5%) (4.3%) (5.8%) (5.1%) (2.3%) (1.0%) (0.2%) 0.3%
Total deficit/GDP (9.2%) (7.5%) (7.8%) (6.8%) (7.8%) (9.9%) (10.0%) (7.8%) (6.6%) (5.3%) (3.8%)
Deficit with stable net debt/GDP (10.5%) (13.3%) (11.2%) (9.6%) (9.5%) (8.8%) (8.1%) (10.8%) (10.4%) (10.0%) (9.1%)
Above/below sustainable deficit 1.3% 5.7% 3.5% 2.8% 1.6% (1.1%) (1.9%) 3.0% 3.8% 4.7% 5.3%
Nominal GDP growth (%) 14.7% 20.6% 20.2% 16.4% 15.8% 13.7% 11.8% 15.9% 15.7% 15.8% 15.2%
Real GDP growth (%) 6.8% 7.1% 7.2% 4.7% 5.1% 1.8% 1.5% 3.3% 5.0% 6.2% 6.5%
Net debt/GDP 71% 64% 56% 59% 60% 64% 68% 68% 67% 63% 60%
May 23 2012
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Important Notice. 92
A large devaluation may not be necessary
We argue that Egypt does not need a significant depreciation and that the IMF should not call
for one (except for a managed fall of c. 10% pa), as imported inflation would create renewed
unrest, while higher interest rate charges would increase Egypt’s deficit almost instantly due to
the short-term nature of its outstanding public debt. Furthermore, it could be hit by the J-
curve effect as higher import prices would eat into the balance of payments. Below we analyze
how Egypt could balance its balance of payments without depreciation:
A normalization in tourism receipts supporting the current account by USD 700mn per quarter.
A normalization in FDIs, though still below historical averages. A return of portfolio investments in Egypt after significant outflows since Q4 10A, driven
by a more stable business environment and a more credible fiscal policy.
Exhibit 101: Egypt Balance of Payment
Source: Egypt Central Bank, Arqaam Capital Research
Egypt could use strong fiscal aid from neighboring countries, the World Bank, and the IMF,
but in the medium term the government deficit will need to be reduced by broadening the
tax base or cutting back on low-priority expenditures. Egypt will increase its reliance on
foreign borrowing to cover public spending needs and is considering the International
Monetary Fund financing plan it previously turned down, but not until the new president
takes over power. The government is still in talks with Gulf Arab states for funds of close to
USD 7bn.
Lebanon’s deficit should be sustainable at a deficit of c. 8% (with debt/GDP stable at 130%)
as long as its nominal GDP growth rate picks up to 6%-7.5% with real growth of 3%-4%, as we
expect. Note that the UAE, Qatar and Bahrain have issued a travel warning for Lebanon and
we anticipate a drop in tourist demand this summer as a consequence. Tourism contributes
to c. 10% of GDP.
Q1 08A Q2 08A Q3 08A Q4 08A Q1 09A Q2 09A Q3 09A Q4 09A Q1 10A Q2 10A Q3 10A Q4 10A Q1 11A Q2 11A Q3 11A Potential delta Potential
Trade Balance (5,521) (6,626) (7,000) (7,628) (4,866) (5,680) (6,254) (5,675) (6,608) (6,583) (7,134) (6,692) (5,543) (5,369) (7,823) -- (7,823)
Services (net) 4,049 4,170 4,060 3,406 2,158 2,878 3,302 2,983 2,478 1,577 2,623 2,961 1,265 1,030 1,622 700 2,322
o/w Suez 1,235 1,409 1,456 1,260 960 1,045 1,107 1,155 1,104 1,151 1,254 1,254 1,230 1,316 1,360 -- 1,360
o/w Tourism (net) 1,981 1,868 2,490 1,732 1,525 2,002 2,516 2,175 2,254 2,319 3,021 2,694 1,400 1,361 2,075 700 2,775
Transfers 2,165 2,945 1,974 2,675 1,790 1,808 2,459 1,903 2,807 3,295 3,205 3,132 2,829 3,971 4,026 -- 4,026
Balance of Current Account 693 489 (966) (1,547) (918) (994) (493) (790) (1,323) (1,711) (1,306) (599) (999) (369) (2,175) 700 (1,475)
Capital Account (0.2) (0.1) 0.7 (0.9) 0.1 (2.5) (14.0) (2.4) (0.4) (19.4) (7.9) (11.5) (4.8) (8.1) (20.5) -- (20.5)
Financial Account 507 3,933 2,186 (159) (1,347) 704 2,851 452 1,877 3,182 1,040 1,797 (4,589) (3,039) 523 1,645 2,168
o/w FDIs 3,482 1,985 1,655 2,373 1,211 2,875 1,731 895 1,706 2,426 1,597 656 (164) 99 440 1,300 1,740
o/w Portfolio investments in Egypt 383 (23) (3,485) (3,902) (1,503) (321) 1,186 378 5,548 768 5,900 (1,329) (5,540) (1,582) (1,730) 2,300 570
o/w other investmensts (2,825) 2,702 4,847 1,818 (969) (1,463) 69 (590) (4,401) 145 (6,115) 2,615 1,469 (1,322) 1,955 (1,955) (0)
Overall Balance 1,828 506 459 (1,006) (1,796) (1,035) 2,052 600 455 250 15 557 (6,071) (4,255) (2,356) 2,345 (11)
May 23 2012
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Exhibit 102: Lebanon Macro
Source: IMF, Arqaam Capital Research
Double digit growth in KSA, Oman & Qatar, and selected banks in Egypt
Qatar to witness the highest GDP growth in the region
Exhibit 103: Real GDP growth in the MENA region
Source: IMF
Exhibit 104: Nominal GDP growth in the MENA region
Source: IMF
GCC is a sweet spot in a world that is slowing down, helped by high oil prices and very strong
external surpluses. The economic environment remains favorable, with the IMF estimating
growth of 2.6%-5% real GDP 2012 in the MENA region, with Egypt (though we cannot rule
out Egypt underperforming IMF forecast for 2012), Qatar and Saudi Arabia taking the lead.
The nominal growth should be even higher, boosted by increased oil prices, but the IMF
takes into account a bearish view on future oil prices, hence its nominal growth forecasts for
FY 13-14e appear low.
We see loan growth picking up in KSA, while growth in Qatar, which was mainly driven by the
public sector, should slow down in FY 12e vs. the rapid expansion in FY 11A due to budget
delays. Oman, despite its small economy, should see better growth prospects as the
economy expands and spending on infrastructure projects picks up, further driven by Islamic
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Primary deficit/GDP 6.5% 3.6% 2.0% 1.6% 1.9% 3.9% 1.3% 1.2% 1.5% 1.3% 1.1%
Total deficit/GDP (10.4%) (10.8%) (9.5%) (8.3%) (7.7%) (5.6%) (8.1%) (8.0%) (7.8%) (8.0%) (8.3%)
Deficit with stable net debt/GDP (4.6%) (18.9%) (29.0%) (20.4%) (9.4%) (6.8%) (9.2%) (9.8%) (7.9%) (8.0%) (8.0%)
Above/below sustainable deficit (5.7%) 8.1% 19.5% 12.1% 1.7% 1.2% 1.1% 1.8% 0.2% (0.0%) (0.3%)
Nominal GDP growth (%) 2.6% 11.7% 20.0% 15.2% 7.1% 5.2% 7.1% 7.6% 6.1% 6.1% 6.1%
Real GDP growth (%) 0.6% 7.5% 9.3% 8.5% 7.0% 1.5% 3.0% 4.0% 4.0% 4.0% 4.0%
Net debt/GDP 175% 162% 145% 134% 132% 131% 131% 129% 130% 130% 131%
FY 06A FY 07A FY 08A FY 09A FY 10A FY 11e FY 12e FY 13e FY 14e FY 15e
Bahrain 6.3% 3.1% 4.5% 1.8% 2.0% 2.8% 2.6% 2.6% 2.9% 2.9%
Egypt 7.2% 4.7% 5.1% 1.8% 1.5% 3.3% 5.0% 6.2% 6.5% 6.5%
Kuwait 5.0% (5.2%) 3.4% 8.2% 6.6% 1.8% 3.3% 3.9% 3.9% 3.9%
Lebanon 9.3% 8.5% 7.0% 1.5% 3.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Oman 12.9% 1.1% 4.0% 5.5% 5.0% 4.0% 3.2% 3.4% 3.5% 3.8%
Qatar 17.7% 12.0% 16.6% 18.8% 6.0% 4.6% 4.6% 5.9% 5.9% 7.0%
Saudi Arabia 4.2% 0.1% 4.6% 6.8% 6.0% 4.1% 4.4% 4.3% 4.3% 4.2%
UAE 5.3% (3.3%) 0.9% 4.9% 2.3% 2.8% 3.3% 3.5% 3.6% 3.7%
FY 06A FY 07A FY 08A FY 09A FY 10A FY 11e FY 12e FY 13e FY 14e FY 15e
Bahrain 17.8% 16.5% 19.9% (12.9%) 16.2% 16.5% 6.4% 3.4% 1.2% 1.8%
Egypt 14.7% 20.6% 20.2% 16.4% 15.8% 13.7% 11.8% 15.9% 15.7% 15.8%
Kuwait 24.9% 10.6% 21.6% (23.1%) 16.9% 36.8% 15.3% (1.4%) (0.1%) 2.0%
Lebanon 2.6% 11.7% 20.0% 15.2% 7.1% 5.2% 7.1% 7.6% 6.1% 6.1%
Oman 19.1% 13.9% 44.5% (22.6%) 23.4% 24.3% 9.7% 2.1% 0.1% 1.2%
Qatar 36.6% 30.8% 44.6% (15.2%) 30.5% 36.5% 12.5% 1.4% 2.8% 5.4%
Saudi Arabia 12.9% 8.0% 23.8% (20.9%) 19.7% 28.0% 12.8% 2.3% 2.4% 3.0%
UAE 23.0% 16.2% 22.0% (14.1%) 10.1% 21.0% 7.3% 2.1% 2.1% 2.8%
May 23 2012
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financing (introduced in FY 12e), particularly helping credit penetration in retail.
We expect loan growth to pick up in Egypt, with private sector lenders outpacing their public
peers, who are more focused on investing in treasury bills rather than lending to the private
sector (and as a consequence there is a crowding out effect, though also corporate loan
demand is generally weak). CIB is best positioned to grow as corporations rebuild their
working capital, while CAE and NSGB are, to some extent, constrained by the tight capital
positions of their parent companies (though CAE had a stellar 10% YTD loan growth). At the
same time, activity has of course been adversely affected by social unrest and the ongoing
conflict, which is weighing heavily on tourism receipts, capital flows, and investment.
Loan growth in KSA is driven by a pick-up in corporate loan demand and moreover, by an
expanding retail sector (particularly helping Al Rajhi) and Islamic finance (Al Rajhi, Alinma,
Albilad, Al Jazira). We do not expect much support from public sector lending.
Single digit growth in Kuwait, UAE, Egypt and Lebanon
Kuwait should remain stagnant due to the political grid lock and since the strong fiscal
balances are not reinvested into the local economy in the medium term. Instead banks are
seeking growth through acquisitions.
The UAE should see mid single digit growth as some projects in Abu Dhabi are being delayed
and due to new caps on personal lending, restricting personal loans to no more than 20
times the borrower’s monthly income and capping the repayment period at a maximum of
48 months. This may slow consumer loan growth, but once initial adjustments are over, it
should improve loan servicing, in our view. In Dubai, we have witnessed some crowding out
as the leading bank had been lending to the Dubai government instead of to the private
sector.
We expect high single digit growth in Lebanon, though we remain cautious, due to the unrest
in Syria, which could spill over to Lebanon.
In Bahrain, we expect GDP growth to lag behind the historical growth due to the prevailing
social unrest, which may have ramifications for private-sector confidence, investment
appetite and foreign direct investments.
Developments in GCC
The chart on the following page shows the economic development plans being implemented
by the countries under our coverage. The GCC has big budgets for economic spending, but
we do not expect full implementation in Bahrain given its fiscal deficit and social unrest and
Kuwait due to the political gridlock. In Qatar the investments in infrastructure stand out,
presenting c. 50% of the budgeted spending thanks to the FIFA World Cup. However, we
think the project plans are more balanced in other countries and believe that Qatar may
have to invest into other segments like the petro-chemical sector, trade and tourism as there
is still an oversupply of commercial office and residential real estate.
May 23 2012
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Exhibit 105: Economic plans being implemented by MENA governments versus GDP
Source: Central Bank, IMF, Arqaam Capital Research
Exhibit 106: Government gross debt/GDP
Source: IMF, Arqaam Capital Research
Exhibit 107: Economic diversification: GDP breakdown Oil vs. non-oil
Source: Central Bank, Arqaam Capital Research,
Corporate sector unleveraged in Egypt, most leveraged in the UAE and Kuwait
Oman and Egypt are the least leveraged markets of the countries under our coverage,
followed by Qatar and Saudi Arabia, leaving ample room for corporate credit growth, in our
view. However, this is not the case for Kuwait and the UAE, as illustrated in the chart below.
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
500
600
700
KSA UAE Qatar Kuwait Oman Bahrain Egypt
Amount budgeted for development plans over the next 5 years (LHS) Annualized spending as a % of GDP (RHS)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Lebanon Egypt Bahrain Qatar UAE Saudi Arabia
Kuwait Oman
FY 11A FY 15e
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
Kuwait Qatar KSA Oman UAE BahrainOil Non-oil
May 23 2012
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Exhibit 108: Corporate leverage in the region
Source: Bloomberg, Arqaam Capital Research
Liquidity very strong in Lebanon and Egypt
On the liquidity front, Egypt and Lebanon stand out, enabling them to expand their loan
portfolios without limitations. Qatar looks a bit stretched, with a loan/deposit ratio of more
than 100%.
Exhibit 109: Loan/Deposits
Source: Central Bank
Exhibit 110: Credit Penetration
Source: IMF, Central Bank, Arqaam Capital Research
0
5
10
15
20
25
30
35
0%
10%
20%
30%
40%
50%
60%
UAE Bahrain Kuwait Qatar KSA Oman Egypt
Net debt/mkt cap Net debt/assets Interest coverage (RHS)
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
Sau
di A
rab
ia
Qat
ar
Om
an
UA
E
Ku
wai
t
Mo
rocc
o
Leb
ano
n
Egyp
t
Bah
rain
20%
70%
120%
170%
220%
270%
Leb
ano
n
UK
USA
Mo
rro
cco
UA
E
Ku
wai
t
Turk
ey
Bah
rain
Qat
ar
Sau
di A
rab
ia
Bra
zil
Om
an
Egyp
t
May 23 2012
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Strongest project-related loan growth in Qatar
We calculate that investment projects will have the highest impact in Qatar, with support of
10.1% from projects, followed by Oman (10.0%), KSA (6.7%), Egypt (5.7%), UAE (5.6%),
Kuwait (4.9%), Bahrain (4.5%), and Egypt (2.5%). We expect banks in Qatar to be the most
involved (35% funded by banks), whereas we expect most projects in KSA to be funded
directly by the government (only 15% funded by banks).
Long-term loan growth trends
All in all, we expect structural loan growth of 15%-18% in Egypt, 6%-8% in Lebanon, 13%-14%
in Qatar, 10%-13% in KSA, 5%-7% in UAE, 6%-8% in Kuwait and 9%-13% in Oman. On the next
few pages we detail the breakdown in retail, corporate and public sector credit penetration.
Exhibit 111: Credit penetration
Source: Central Bank, IMF, Arqaam Capital Research
20%
70%
120%
170%
220%
270%
Lebanon Qatar Oman KSA UAE Kuwait Egypt
FY 06A FY 11A FY 14e FY 20e FY 30e
May 23 2012
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Exhibit 112: Computation of lending growth stemming from project spending; Qatar gains the most – LCU bn
Qatar
Development plan 816.7
Annualized spending 136.1
Project spending FY 12e-FY14e 544.5
% funded by government 45%
% funded by corporates 20%
% funded by banks 35%
Bank lending from project spending 190.6
Loans as of FY 11A 404.8
Project lending + FY 11A loans 595.3
Project lending CAGR 10.1%
Non-project related loan growth rate 6.5%
Non-project related loan growth 116.0
Projected loans FY 14e 711.3
CAGR 15.1%
Oman
Development plan 43.5
Annualized spending 7.3
Project spending FY 12e-FY14e 29.0
% funded by government 60%
% funded by corporates 20%
% funded by banks 20%
Bank lending from project spending 5.8
Loans as of FY 11A 12.5
Project lending + FY 11A loans 18.3
Project lending CAGR 10.0%
Non-project related loan growth rate 5.5%
Non-project related loan growth 3.0
Projected loans FY 14e 21.3
CAGR 14.2%
Egypt
Development plan 302.5
Annualized spending 50.4
Project spending FY 12e-FY14e 201.7
% funded by government 20%
% funded by corporates 20%
% funded by banks 60%
Bank lending from project spending 121.0
Loans as of FY 11A 489.7
Project lending + FY 11A loans 610.7
Project lending CAGR 5.7%
Non-project related loan growth rate 7.8%
Non-project related loan growth 171.6
Projected loans FY 14e 782.3
CAGR 12.4%
Saudi
Development plan 2,802.8
Annualized spending 467.1
Project spending FY 12e-FY14e 1,868.5
% funded by government 70%
% funded by corporates 15%
% funded by banks 15%
Bank lending from project spending 280.3
Loans as of FY 11A 1,068.0
Project lending + FY 11A loans 1,348.3
Project lending CAGR 6.0%
Non-project related loan growth rate 6.1%
Non-project related loan growth 285.4
Projected loans FY 14e 1,633.7
CAGR 11.2%
May 23 2012
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Source: Arqaam Capital Research
UAE
Development plan 2,061.8
Average execution 32%
Annualized spending 110.0
Project spending FY 12e-FY14e 659.8
% funded by government 35%
% funded by corporates 25%
% funded by banks 40%
Bank lending from project spending 263.9
Loans as of FY 11A 1,074.1
Project lending + FY 11A loans 1,338.0
Project lending CAGR 5.6%
Non-project related loan growth rate 3.0%
Non-project related loan growth 134.8
Projected loans FY 14e 1,472.9
CAGR 8.2%
Bahrain
Development plan 23.5
Average execution 35%
Annualized spending 1.4
Project spending FY 12e-FY14e 5.5
% funded by government 60%
% funded by corporates 20%
% funded by banks 20%
Bank lending from project spending 1.1
Loans as of FY 11A 5.7
Project lending + FY 11A loans 6.8
Project lending CAGR 4.5%
Non-project related loan growth rate 3.0%
Non-project related loan growth 0.7
Projected loans FY 14e 7.5
CAGR 7.1%
Kuwait
Development plan 56.1
Average execution % 40%
Annualized spending 5.6
Project spending FY 12e-FY14e 22.5
% funded by government 70%
% funded by corporates 5%
% funded by banks 25%
Bank lending from project spending 5.6
Loans as of FY 11A 26.4
Project lending + FY 11A loans 32.0
Project lending CAGR 4.9%
Non-project related loan growth rate 2.5%
Non-project related loan growth 2.7
Projected loans FY 14e 34.7
CAGR 7.1%
May 23 2012
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Exhibit 113: Expected Net Loan Growth
Source: Company Data, Arqaam Capital Research
Exhibit 114: Loan growth by country
Source: Central Bank, Arqaam Capital
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
OIB
BA
LIN
MA
MA
RK
BO
UB
YAN
ALB
IK
CB
KB
UR
GQ
IIKB
JAZ
RJH
ISA
BB
AA
AL
BK
MB
DH
BK
CB
QK
BSF
RC
IEB
BK
SBN
BA
DSI
BC
QN
BK
SAM
BA
AR
NB
BLO
MB
OB
CO
MI
NSG
BB
YBFG
BQ
IBK
KFI
NR
IBL
AU
BR
AK
BA
NK
HD
BK
AD
CB
GB
KA
UD
IEG
BE
CB
DN
BK
MA
SQU
NB
TAM
WEE
LD
IBA
DIB
ENB
D
FY 12e FY 13e
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Qatar Lebanon Oman KSA Egypt UAE Kuwait Bahrain
FY 10A FY 11A
May 23 2012
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Exhibit 115: Total Credit Penetration
Source: Central Bank, IMF, Arqaam Capital Research
Exhibit 116: Retail Credit Penetration
Source: Central Bank, IMF, Arqaam Capital Research
Exhibit 117: Corporate Credit Penetration
Source: Central Bank, IMF, Arqaam Capital Research
Exhibit 118: Public Credit Penetration
Source: Central Bank, IMF, Arqaam Capital Research
Highest loan Y/Y growth in Qatar, but momentum slowing, KSA momentum improving
The Y/Y growth amounted to 35.3% in Qatar, 17.9% in Oman, 10.3% in KSA, 7.8% in Lebanon,
4.9% in Egypt, 2.5% in Kuwait and 2.2% in UAE.
YTD loan growth shows a different picture, with Qatar slowing and KSA accelerating, though
Qatar showed a strong pick-up in April: The YTD loan amounted to 6.4% in Qatar (Apr), 5.1% in
KSA (Mar), 2.1% in Oman (Feb), 1.4% in Lebanon (Mar), 1.1% in Kuwait (Mar), 1.1% in Egypt
(Feb) and 0.1% in UAE (Feb).
FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 20e FY 30e
Egypt 59% 56% 51% 48% 42% 38% 36% 34% 33% 31% 40% 54%
Lebanon 208% 234% 239% 218% 222% 230% 228% 230% 231% 235% 234% 239%
Qatar 43% 46% 55% 58% 76% 68% 64% 64% 73% 86% 93% 105%
KSA --% 47% 53% 55% 65% 59% 49% 49% 54% 59% 64% 82%
UAE 47% 53% 74% 85% 103% 95% 81% 79% 83% 86% 80% 76%
Kuwait 52% 53% 65% 62% 86% 73% 54% 49% 52% 55% 54% 57%
Oman 33% 33% 40% 40% 55% 48% 45% 47% 52% 59% 63% 85%
Bahrain --% 19% 23% 27% 31% 67% 58% 57% 59% 62% 92% 70%
FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 20e FY 30e
Egypt 8% 9% 9% 10% 9% 8% 8% 8% 7% 7% 9% 12%
Lebanon 83% 93% 96% 87% 89% 92% 91% 99% 97% 97% 99% 101%
Qatar 15% 16% 16% 14% 15% 12% 11% 11% 11% 12% 14% 18%
KSA --% 19% 21% 22% 26% 23% 20% 20% 23% 26% 26% 31%
UAE 4% 4% 5% 6% 7% 6% 5% 5% 5% 5% 6% 7%
Kuwait 22% 21% 22% 18% 26% 23% 18% 16% 17% 17% 17% 17%
Oman 13% 13% 16% 16% 22% 19% 18% 17% 17% 17% 18% 20%
Bahrain --% 8% 8% 17% 9% 21% 18% 18% --% 17% 18% 19%
FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 20e FY 30e
Egypt 46% 43% 38% 35% 30% 3% 3% 3% 3% 3% 4% 10%
Lebanon 81% 92% 86% 84% 84% 59% 62% 58% 62% 67% 63% 65%
Qatar 16% 21% 27% 30% 40% 33% 29% 32% 39% 46% 48% 54%
KSA --% 17% 19% 19% 26% 22% 20% 20% 21% 23% 26% 36%
UAE 37% 44% 63% 73% 87% 80% 68% 67% 69% 72% 65% 58%
Kuwait 30% 32% 43% 44% 60% 50% 36% 33% 36% 38% 38% 40%
Oman 19% 19% 24% 24% 32% 29% 27% 30% 34% 42% 45% 65%
Bahrain --% 10% 13% 8% 20% 47% 40% 39% 59% 45% 74% 51%
FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 20e FY 30e
Egypt 4% 4% 4% 4% 3% 27% 25% 23% 22% 20% 27% 32%
Lebanon 81% 92% 86% 84% 84% 79% 75% 73% 72% 71% 73% 74%
Qatar 12% 10% 12% 14% 21% 22% 24% 21% 23% 29% 31% 33%
KSA --% 12% 13% 14% 13% 13% 10% 9% 10% 11% 12% 15%
UAE 6% 6% 6% 6% 9% 9% 8% 8% 8% 9% 9% 11%
Kuwait 0% 0% 0% 0% 0% --% 0% 0% 0% 0% --% --%
Oman 1% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Bahrain --% 1% 1% 1% 2% 0% 0% 0% 0% 0% 0% 0%
May 23 2012
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Exhibit 119: Gross loan growth by country (Y/Y)
Source: Central Bank, Arqaam Capital Research
Exhibit 120: M/M gross loan growth by country
Source: Central Bank, Arqaam Capital Research
Exhibit 121: M/M gross deposits growth by country
Source: Central Bank, Arqaam Capital Research
YTD Y/Y Latest
UAE 0.1% 2.2% Feb-12
Qatar 6.4% 35.3% Apr-12
Egypt 1.1% 5.4% Feb-12
Lebanon 1.4% 4.2% Mar-12
Saudi 5.1% 10.3% Mar-12
Kuwait 1.1% 2.5% Mar-12
Oman 2.1% 17.9% Feb-12
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Au
g-1
1
Sep
-11
Oct
-11
No
v-1
1
De
c-1
1
Jan
-12
Feb
-12
Mar
-12
UAE Qatar Egypt Lebanon
Saudi Kuwait Oman
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Au
g-1
1
Sep
-11
Oct
-11
No
v-1
1
De
c-1
1
Jan
-12
Feb
-12
Mar
-12
UAE Qatar Egypt Lebanon
Saudi Kuwait Oman
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 103
Exhibit 122: Credit Commitments as % of total loans
Source: Company Data, Arqaam Capital Research
Exhibit 123: Banks market shares by loans and deposits
Source: Company Data, Arqaam Capital Research
-200%
0%
200%
400%
600%
800%
1000%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
KC
BK
CB
D
RA
KB
AN
K
BK
SB
KFI
N
DIB
DH
BK
MA
SQ
UN
B
CB
QK
NB
AD
TAM
WEE
L
MA
RK
QIB
K
QN
BK
BYB
ENB
D
RIB
L
BU
RG
BK
MB
ALI
NM
A
SAM
BA
BSF
R
AD
CB
AR
NB
FGB
AU
B
RJH
I
CIE
B
BJA
Z
BLO
M
AD
IB
EGB
E
SAB
B
NB
K
BO
UB
YAN
AU
DI
CO
MI
AA
AL
QIIK
GB
K
NSG
B
SIB
C
BO
B
HD
BK
ALB
I
GB
K
FY 10A FY 11A y/y growth (RHS)
0%
10%
20%
30%
40%
50%
60%
QN
BK
CB
QK
MA
RK
DH
BK
QIB
K
KC
BK
QIIK
BK
MB
BK
SB
OIB
B
NB
K
KFI
N
GB
K
BU
RG
BO
UB
YAN
ENB
D
NB
AD
AD
CB
FGB
UN
B
DIB
AD
IB
MA
SQ
CB
D
RA
KB
AN
K
TAM
WEE
L
AU
DI
BLO
M
BYB
BO
B
RJH
I
RIB
L
BSF
R
SAM
BA
SAB
B
AR
NB
AA
AL
SIB
C
ALI
NM
A
BJA
Z
ALB
I
CO
MI
NSG
B
CIE
B
HD
BK
EGB
E
QATAR OMAN KUWAIT UAE LEBANON KSA EGYPT
Loans market share FY 11A Deposits market share FY 11A
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 104
Exhibit 124: Change in lending market share FY10-11A
Source: Company Data, Arqaam Capital Research
Exhibit 125: Change in deposits market share FY11A-FY10A
Source: Company Data, Arqaam Capital Research
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
QN
BK
MA
RK
KC
BK
QIIK
CB
QK
DH
BK
QIB
K
BK
MB
BK
SB
OIB
B
KFI
N
NB
K
BO
UB
YAN
BU
RG
GB
K
NB
AD
FGB
ENB
D
RA
KB
AN
K
AD
IB
UN
B
TAM
WEE
L
CB
D
AD
CB
MA
SQ DIB
BO
B
BLO
M
BYB
AU
DI
RJH
I
ALI
NM
A
BSF
R
SAB
B
BJA
Z
SAM
BA
AR
NB
ALB
I
AA
AL
RIB
L
SIB
C
CO
MI
NSG
B
CIE
B
HD
BK
EGB
E
QATAR OMAN KUWAIT UAE LEBANON KSA EGYPT
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
QN
BK
MA
RK
KC
BK
QIIK
CB
QK
DH
BK
QIB
K
BK
MB
BK
SB
OIB
B
KFI
N
NB
K
BO
UB
YAN
BU
RG
GB
K
NB
AD
FGB
ENB
D
RA
KB
AN
K
AD
IB
UN
B
TAM
WEE
L
CB
D
AD
CB
MA
SQ DIB
BO
B
BLO
M
BYB
AU
DI
RJH
I
ALI
NM
A
BSF
R
SAB
B
BJA
Z
SAM
BA
AR
NB
ALB
I
AA
AL
RIB
L
SIB
C
CO
MI
NSG
B
CIE
B
HD
BK
EGB
E
QATAR OMAN KUWAIT UAE LEBANON KSA EGYPT
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 105
Exhibit 126: Private and public growth by country in FY 12e
Source: Central Bank, Arqaam Capital Research
Exhibit 127: Gross loans growth
Source: Company Data, Arqaam Capital Research
-5%
0%
5%
10%
15%
20%
Qatar Egypt Oman KSA Lebanon Kuwait UAE
Private Sector Public Sector
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ALI
NM
AM
AR
KB
OU
BYA
NB
OB
QIB
KC
IEB
BLO
MC
OM
IA
UD
IB
JAZ
QN
BK
RA
KB
AN
KA
DIB
BYB
NSG
BD
IBEG
BE
BK
SBA
LBI
HD
BK
UN
BA
UB
KFI
NA
DC
BFG
BR
JHI
SIB
CC
BQ
KN
BA
DO
IBB
BSF
RD
HB
KB
KM
BQ
IIKN
BK
AR
NB
RIB
LSA
BB
CB
DSA
MB
AA
AA
LB
UR
GEN
BD
GB
KM
ASQ
TAM
WEE
LK
CB
K
FY 10A FY 11A
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 106
Exhibit 128: Deposits growth
Source: Company Data, Arqaam Capital Research
Deposit growth to outpace GDP growth
We use an economic model to forecast deposit growth: We forecast deposit growth for the
countries under our coverage based on:
1. domestic saving ratios and GDP (IMF forecasts)
2. conversion ratios (i.e. how much of domestic savings translate into net new deposits).
IMF forecasts for the GCC some very high gross national savings: Kuwait shows the highest
ratio (62.6%) as the government does not use its fiscal surpluses to stimulate the domestic
economy, followed by Qatar (56.6%), KSA (47.9%), Oman (44%), UAE (34.9%) and Bahrain
(33.0%). For Lebanon, IMF forecasts 13.3% and for Egypt 14.8%. IMF forecasts a reduction in
gross savings reflecting a reduction in oil prices and a further increase in government spending
(projects, social programs).
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ALI
NM
AM
AR
KQ
IBK
BO
UB
YAN
QN
BK
RA
KB
AN
KC
BQ
KB
JAZ
ALB
IA
DC
BB
OB
QIIK
AD
IBR
JHI
CO
MI
BYB
BK
SBB
KM
BN
SGB
HD
BK
FGB
UN
BSA
BB
AU
BD
HB
KEN
BD
BLO
MO
IBB
CIE
BA
UD
IB
UR
GK
FIN
CB
DB
SFR
AR
NB
NB
AD
RIB
LD
IBEG
BE
GB
KSI
BC
NB
KM
ASQ
AA
AL
KC
BK
SAM
BA
FY 10A FY 11A
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 107
Exhibit 129: National Savings ratios
Source: IMF, , Arqaam Capital Research
The next leg is the conversion ratio. We have analyzed the historical growth in outstanding
deposits and compared them to the national savings ratios. The conversion ratios were the
highest in Lebanon (as savings are not driven by national savings, but by inflows from
expatriates), followed by Egypt (with over half of national savings being deployed in bank
deposits). The conversion ratios are lower in the GCC (17-34%) as the strong savings are
invested in the domestic economy through projects, or are invested abroad, as banks are
unable to deploy the deposits into the domestic economy. Our forecasts are closely tied to the
historical average, though generally below.
Exhibit 130: Conversion ratios
Source: Central Bank, IMF, Arqaam Capital Research
FY 00A FY 01A FY 02A FY 03A FY 04A FY 05A FY 06A FY 07A FY 08A
United Arab Emirates 37.9% 30.6% 24.9% 27.0% 25.4% 31.6% 34.5% 30.6% 30.1%
Qatar 43.4% 56.4% 54.6% 60.1% 55.8% 63.7% 59.3% 59.1% 58.1%
Egypt 18.4% 18.2% 19.0% 19.4% 21.3% 21.2% 20.4% 22.6% 22.9%
Lebanon 2.2% 3.2% 3.7% 6.7% 7.2% 8.0% 16.6% 20.8% 20.7%
Saudi Arabia 26.3% 23.9% 25.9% 32.8% 39.8% 46.7% 46.4% 44.8% 50.5%
Kuwait 49.6% 38.1% 28.3% 36.3% 47.3% 56.8% 64.7% 57.2% 58.5%
Oman 31.5% 27.4% 25.6% 24.7% 29.1% 39.9% 39.6% 36.5% 37.8%
Bahrain 20.1% 15.5% 19.6% 22.9% 29.1% 35.4% 38.2% 42.7% 44.1%
FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e FY 17e
United Arab Emirates 27.1% 28.5% 31.7% 34.9% 33.8% 32.3% 32.0% 32.2% 32.6%
Qatar 46.2% 56.7% 54.3% 56.6% 55.9% 50.8% 45.0% 39.9% 36.7%
Egypt 16.8% 17.5% 15.1% 14.8% 15.8% 16.6% 17.9% 19.4% 21.7%
Lebanon 24.4% 22.3% 16.3% 13.3% 14.6% 15.5% 15.9% 16.1% 16.9%
Saudi Arabia 31.0% 37.6% 43.0% 47.9% 45.2% 43.2% 41.3% 40.4% 40.1%
Kuwait 42.3% 48.7% 59.6% 62.6% 60.6% 58.8% 58.0% 57.8% 58.8%
Oman 32.3% 35.7% 41.8% 44.0% 40.1% 34.9% 30.4% 27.0% 23.7%
Bahrain 30.2% 33.1% 28.6% 33.0% 35.5% 35.0% 34.3% 33.6% 32.2%
FY 01A FY 02A FY 03A FY 04A FY 05A FY 06A FY 07A FY 08A FY 09A
UAE 11% 27% 19% 42% 57% 39% 68% 56% 26%
Qatar 17% 8% 14% 12% 24% 27% 27% 19% 21%
Egypt 47% 69% 118% 57% 40% 39% 70% 32% 47%
Lebanon 423% 394% 466% 397% 131% 97% 121% 170% 215%
Saudi Arabia 13% 28% 14% 18% 20% 20% 10%
Kuwait 27% 14% 15% 28% 13% 20% 0% 27% 26%
Oman 0% 0% 139% 8% 14% 17% 31% 24% 9%
Bahrain 0% 0% 0% 0% 0% 214% 84% 58% 1%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e LT average
UAE 22% 5% 23% 25% 25% 25% 28% 38%
Qatar 23% 17% 12% 16% 18% 18% 18% 19%
Egypt 44% 18% 40% 50% 50% 50% 50% 58%
Lebanon 142% 143% 170% 170% 170% 170% 170% 268%
Saudi Arabia 10% 19% 14% 17% 17% 17% 17% 18%
Kuwait 6% 7% 8% 8% 9% 9% 11% 19%
Oman 17% 18% 15% 20% 20% 20% 20% 27%
Bahrain 44% 22% 22% 22% 22% 22% 22% 40%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 108
This is driving the strong deposit growth in the countries under our coverage. We expect
forecasts high single digit (Lebanon, Kuwait) to mid double digit growth (Oman, KSA). We
expect deposit growth to outpace GDP growth as a result, which is consistent with the same
trend for our countries under coverage over the last 10 years.
Exhibit 131: Deposit growth FY 01-16e
Source: Factset, Central Bank, Arqaam Capital Research
Exhibit 132: Deposits/GDP FY 01-16e
Source: Central Bank, IMF, Arqaam Capital Research
Exhibit 133: Deposits/GDP FY 01-16e
Source: Central Bank, IMF, Arqaam Capital Research
FY 01A FY 02A FY 03A FY 04A FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
UAE 8% 15% 11% 25% 41% 27% 38% 27% 8% 7% 2% 11% 10% 9% 9% 9%
Qatar 17% 8% 16% 15% 40% 41% 39% 27% 16% 24% 19% 13% 16% 14% 12% 10%
Egypt 12% 17% 28% 13% 9% 9% 20% 9% 11% 11% 4% 9% 13% 14% 15% 17%
Lebanon 6% 7% 15% 13% 4% 6% 10% 16% 23% 12% 8% 8% 9% 9% 9% 9%
Saudi Arabia n/a n/a 7% 20% 12% 21% 21% 18% 11% 5% 12% 15% 15% 13% 11% 10%
Kuwait 13% 5% 7% 21% 13% 25% 0% 33% 14% 4% 7% 9% 8% 8% 7% 9%
Oman n/a n/a n/a 8% 22% 26% 38% 32% 6% 15% 20% 16% 17% 13% 10% 8%
Bahrain n/a n/a n/a n/a n/a n/a 51% 29% 0% 13% 6% 7% 7% 6% 6% 6%
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12e FY 13e FY 14e FY 15e FY 16e
UAE 45% 48% 52% 51% 54% 62% 64% 76% 79% 99% 96% 81% 83% 90% 96% 102% 107%
Qatar 56% 67% 65% 62% 53% 53% 54% 58% 51% 69% 66% 57% 58% 66% 73% 78% 81%
Egypt 77% 82% 90% 105% 102% 101% 96% 95% 87% 82% 79% 72% 70% 69% 68% 67% 68%
Lebanon 221% 229% 226% 247% 256% 266% 275% 272% 262% 279% 293% 302% 304% 308% 316% 325% 334%
Saudi Arabia n/a n/a 48% 45% 46% 41% 44% 50% 47% 67% 58% 51% 52% 58% 64% 70% 74%
Kuwait 75% 92% 89% 77% 76% 64% 64% 58% 63% 93% 83% 65% 61% 67% 72% 76% 80%
Oman n/a n/a n/a 34% 32% 32% 33% 41% 37% 51% 47% 45% 48% 55% 62% 67% 71%
Bahrain n/a n/a n/a n/a n/a n/a 82% 106% 114% 131% 128% 116% 116% 120% 126% 132% 136%
0%
50%
100%
150%
200%
250%
300%
350%
400%
FY 0
6A
FY 0
7A
FY 0
8A
FY 0
9A
FY 1
0A
FY 1
1A
FY 1
2e
FY 1
3e
FY 1
4e
FY 1
5e
FY 1
6e
UAE Qatar Egypt Lebanon
Saudi Arabia Kuwait Oman Bahrain
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 109
Net interest margins
We expect margins to fall in most markets, particularly in Qatar, KSA and the UAE as lowering deposit rates has come to an end, while rivalry for new loans remains intense, despite some European banks withdrawing from the market. In addition to that, we see caps by Central banks in the UAE and Oman on personal loans.
In Egypt, we expect strongly improved margins, helped by higher yields on treasury bills, a return to local currency lending and a pick-up in SME lending.
We also expect pressure on net interest margins as banks prepare for Basel 3 liquidity ratios, with pressure on asset yields due to higher required liquidity and higher cost of funding (longer maturity deposits, raising wholesale debt). This is particularly relevant for NBAD, ENBD, Tamweel, NBK, SIB and AUB.
In the table on page 116 we analyze the evolution of net interest margins (FY 11A-14e) and
detail the main contributors to changes in asset yields and funding costs.
Exhibit 134: NIM FY11-14e
Source: Company Data, Arqaam Capital Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
RA
KB
AN
KR
JHI
AD
IBA
LIN
MA
CB
DFG
BD
HB
KN
SGB
CIE
BC
OM
IB
KM
BEG
BE
HD
BK
DIB
KFI
NC
BQ
KQ
IIKN
BK
QN
BK
UN
BA
LBI
AD
CB
BO
UB
YAN
QIB
KA
RN
BEN
BD
OIB
BN
BA
DK
CB
KB
KSB
MA
SQB
UR
GSI
BC
BSF
RR
IBL
TAM
WEE
LSA
MB
AA
AA
LSA
BB
BLO
MG
BK
BJA
ZA
UB
AU
DI
BYB
MA
RK
BO
B
FY 11A FY 14e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 110
Asset yields under pressure due to increased rivalry and increased liquidity
requirements
Exhibit 135: Asset Yields
Source: Company Data, Arqaam Capital Research
We expect asset yields to fall, except in Egypt, due to lower lending margins, due to:
Increasing rivalry as banks have increased appetite to lend driven by their bolstered capital positions and reduced credit spreads.
Increased liquidity requirements driven by Basel 3, which reduces the average yield on assets, particularly affecting UAE banks.
Regulatory changes retail caps in UAE and Oman.
For Egypt, we expect higher asset yields, helped by higher average rates on treasury bills.
For the Qatari banks, lower asset yields are driven by rate cuts of 100 bps that took place in
April 2011, an increase in the share of public sector loans, and rate caps applied to retail
lending. In 2011, Qatari banks were helped by investments in financial instruments issued by
the central bank and increased treasury bills investments, but it is uncertain whether this will
provide any help in the future on the margin.
In UAE and Oman, we have included regulatory changes, which fit into the global trend of
protecting the customers and regulating banks more strictly. We expect the UAE to go ahead
and to cap interest charges on credit cards at 1.5% per month (vs. a 2.5%-3% being
(over)charged by banks), while Oman central bank reduced personal loan rates from 8% to 7%.
In KSA we also expect continued pressure on loan margins. For UAE banks particularly, we
expect increased liquidity requirements under Basel 3 to be a headwind as well.
For KSA banks we expect loan margins to be under pressure. Loan growth should not increase
faster than deposit growth as such high cash balances continue to impact the asset yields for
the foreseeable future. The same applies to the Kuwaiti banks.
0%
2%
4%
6%
8%
10%
12%
RA
KB
AN
KH
DB
KC
IEB
NSG
BEG
BE
CO
MI
TAM
WEE
LB
LOM
BYB
AD
IBK
FIN
FGB
BO
BD
IBA
UD
IC
BD
UN
BA
DC
BC
BQ
KD
HB
KR
JHI
BK
MB
BK
SBM
ASQ
QIIK
ENB
DQ
NB
KQ
IBK
BU
RG
ALI
NM
AN
BK
AU
BB
OU
BYA
NG
BK
NB
AD
KC
BK
OIB
BSI
BC
ALB
IA
RN
BM
AR
KA
AA
LB
SFR
RIB
LB
JAZ
SAB
BSA
MB
A
FY 11A FY 14e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 111
And deposit rates unlikely to fall further
Exhibit 136: Deposit Rates
Source: Company Data, Arqaam Capital Research
We expect average cost of funding to stabilize or to move up:
We expect banks, particularly in the UAE, to issue wholesale debt as they prepare for liquidity ratios under Basel 3 (LCR and NSFR), which may increase the average cost of funding. Banks have successfully used the window that was created after the ECB addressed the liquidity shortfall in the European banking system and this helped open up the funding markets. We do not expect significant effects from resets of subordinated debt.
We do not expect deposit rates to come down any further across the board, particularly not in the UAE as the difference between AED denominated accounts and USD accounts has become too small, and UAE banks suffered significant deposit outflows since April 2011, though this has partly been reversed over the last few months. In KSA, we see no room whatsoever for cost of funding to fall as rates are already extremely low. Oman may be a positive exception and we see limited potential for a reduction in deposit rates.
We expect banks to extend the maturities of their deposits to at least 1 month (helping
their LCR) or 1 year (helping their NSFR) by incentivizing their clients to switch to time deposits. Boubyan, NBK, Burgan, Aliblad, Bank Muscat and KFN greatly rely on current accounts, whereas UNB, FGB, MARK and Al Khaliji have a very high share of time deposits and could potentially lower the cost of funding.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
HD
BK
EGB
EN
SGB
CIE
BTA
MW
EEL
CO
MI
BYB
BO
BB
LOM
AU
DI
MA
SQB
KSB
UN
BR
AK
BA
NK
AD
CB
KFI
NC
BQ
KD
IBEN
BD
AU
BB
UR
GQ
IIKFG
BG
BK
MA
RK
BK
MB
CB
DA
DIB
QN
BK
DH
BK
KC
BK
QIB
KB
OU
BYA
NN
BA
DN
BK
SIB
CO
IBB
BJA
ZA
AA
LR
IBL
ALI
NM
AB
SFR
SAB
BSA
MB
AA
RN
BR
JHI
ALB
I
FY 11A FY 14e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 112
Exhibit 137: Deposits breakdown in FY 11A
Source: Company Data, Arqaam Capital Research
We think there are several ways to increase liquidity ratios:
Extending the maturities of deposits to at least 1 month (helping LCR) or 1 year (NSFR). Raising wholesale debt Reducing lending and increasing marketable securities such as Treasury bills or corporate
bonds
Due to the technicalities and the stickiness of deposits, we think the trade-off between raising
wholesale debt (which cost an average of 150-300bps) and extending maturities of deposits is
22.5-45bps, and we think raising wholesale debt will probably be more cost efficient.
Unlikely increase in rates negative for Lebanese banks and positive for KSA banks
The ECB has successfully addressed the liquidity shortfall in the European banking system
which has helped open up the funding markets as well. Nevertheless, we run a separate
scenario to analyze the impact of an abrupt 25bps increase in funding costs.
We expect a negative impact of rate increases on all Lebanese banks, ENBD, ADCB, ADIB, Al
Khaliji, Bank Sohar, and Ahli United.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BO
UB
YAN
NB
K
BU
RG
ALB
I
BK
MB
KFI
N
SAM
BA
AA
AL
AR
NB
ALI
NM
A
SAB
B
BSF
R
RIB
L
RA
KB
AN
K
CB
D
RJH
I
QN
BK
OIB
B
ENB
D
BJA
Z
MA
SQ DIB
CB
QK
AD
IB
DH
BK
CO
MI
AD
CB
QIIK
NSG
B
GB
K
NB
AD
CIE
B
BK
SB
SIB
C
EGB
E
AU
B
BYB
AU
DI
BLO
M
QIB
K
KC
BK
BO
B
HD
BK
UN
B
MA
RK
FGB
Current Accounts Savings accounts Time deposits Others
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 113
Exhibit 138: NIM
Source: Company Data, Arqaam Capital Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
RA
KB
AN
KR
JHI
AD
IBA
LIN
MA
CB
DFG
BD
HB
KN
SGB
CIE
BC
OM
IB
KM
BEG
BE
HD
BK
DIB
KFI
NC
BQ
KQ
IIKN
BK
QN
BK
UN
BA
LBI
AD
CB
BO
UB
YAN
QIB
KA
RN
BEN
BD
OIB
BN
BA
DK
CB
KB
KSB
MA
SQB
UR
GSI
BC
BSF
RR
IBL
TAM
WEE
LSA
MB
AA
AA
LSA
BB
BLO
MG
BK
BJA
ZA
UB
AU
DI
BYB
MA
RK
BO
B
FY 11A FY 14e
May 21 2012
Region – Real Estate, Construction and Building Materials
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 114
Exhibit 139: Interest rates
Source: Arqaam Capital
FY 11A FY 14e Change FY 11A FY 14e ChangeLoan
margins
Impact
increased
liquidity
CB
investments
T-bill rate
impact
T-bill
investmentRetail caps
Credit card
capsRate cuts
Retail vs
Corporate
Loans
Public vs
Private
Loans (bps)
Local vs
USDFY 11A FY 14e Change
Deposit
marginsRate cuts Deposit mix
Net wholesale
debt issuance
ADCB 2.91% 2.76% (0.16%) 4.79% 4.68% (0.11%) 0.01% (0.12%) (0.00%) 2.06% 2.10% 0.04% 0.08% 0.02% (0.06%)
ADIB 4.08% 4.06% (0.03%) 5.36% 5.34% (0.02%) 0.12% (0.13%) (0.01%) 1.37% 1.37% (0.00%) (0.04%) 0.06% (0.03%)
CBD 3.75% 3.54% (0.21%) 4.94% 4.73% (0.21%) (0.17%) (0.03%) (0.01%) 1.39% 1.37% (0.02%) (0.08%) 0.09% (0.03%)
DIB 3.33% 3.04% (0.29%) 5.06% 4.68% (0.38%) (0.37%) (0.01%) (0.00%) 1.82% 1.70% (0.12%) (0.16%) 0.05% (0.00%)
ENBD 2.79% 2.72% (0.08%) 4.45% 4.42% (0.03%) 0.19% (0.19%) (0.03%) 1.80% 1.86% 0.06% (0.17%) 0.02% 0.22%
FGB 3.71% 3.49% (0.22%) 5.17% 4.91% (0.26%) 0.01% (0.19%) (0.07%) (0.01%) 1.62% 1.57% (0.05%) 0.20% (0.17%) (0.08%)
NBAD 2.70% 2.50% (0.21%) 3.73% 3.49% (0.24%) 0.25% (0.46%) (0.04%) 1.11% 1.10% (0.01%) 0.06% (0.01%) (0.06%)
UNB 3.05% 2.98% (0.07%) 4.91% 4.76% (0.15%) (0.21%) 0.08% (0.03%) 2.10% 2.00% (0.10%) 0.02% (0.09%) (0.02%)
TAMWEEL 2.41% 2.42% 0.01% 5.82% 5.60% (0.22%) (0.21%) (0.00%) --% 4.35% 4.10% (0.25%) (0.63%) 0.09% 0.28%
MASQ 2.63% 2.38% (0.25%) 4.58% 4.30% (0.28%) (0.17%) (0.09%) (0.02%) 2.40% 2.33% (0.07%) (0.07%) 0.00%
RAKBANK 9.07% 7.72% (1.35%) 10.81% 9.51% (1.30%) (1.31%) 0.01% --% 2.09% 2.20% 0.11% 0.33% (0.20%) (0.02%)
UAE banks
CBQK 3.22% 2.86% (0.36%) 4.78% 4.25% (0.53%) (0.45%) 0.13% (0.02%) (0.13%) (0.03%) (0.05%) 1.83% 1.53% (0.30%) (0.28%) (0.05%) 0.03%
DHBK 3.63% 3.35% (0.27%) 4.76% 4.47% (0.29%) 0.05% (0.12%) (0.03%) (0.13%) (0.01%) (0.05%) 1.29% 1.30% 0.01% 0.03% (0.00%) (0.01%)
QIBK 2.88% 3.37% 0.49% 4.13% 4.80% 0.67% 0.88% 0.02% (0.04%) (0.13%) (0.01%) (0.05%) 1.21% 1.20% (0.01%) (0.16%) (0.10%) 0.26%
QNBK 3.08% 2.83% (0.25%) 4.23% 3.98% (0.25%) 0.09% (0.06%) (0.02%) (0.13%) (0.09%) (0.05%) 1.31% 1.31% --% (0.05%) 0.04% 0.01%
MARK 1.64% 2.11% 0.47% 2.98% 3.30% 0.32% 0.54% 0.02% --% (0.13%) (0.06%) (0.05%) 1.58% 1.30% (0.28%) (0.08%) (0.30%) 0.10%
KCBK 2.70% 2.42% (0.28%) 3.70% 3.50% (0.20%) 0.07% 0.03% (0.11%) (0.13%) (0.02%) (0.05%) 1.28% 1.26% (0.02%) 0.13% (0.26%) 0.11%
QIIK 3.17% 2.82% (0.36%) 4.56% 4.14% (0.42%) (0.45%) 0.24% (0.02%) (0.13%) (0.01%) (0.05%) 1.64% 1.50% (0.14%) (0.41%) 0.07% 0.19%
Qatar banks
CIEB 3.54% 3.54% (0.00%) 7.51% 7.55% 0.04% (0.17%) (0.13%) 0.24% 0.00% 0.06% --% 0.04% 4.36% 4.30% (0.06%) (0.25%) 0.19% (0.00%)
COMI 3.48% 3.68% 0.20% 7.07% 7.26% 0.19% (0.10%) (0.20%) 0.42% (0.02%) 0.04% --% 0.04% 3.98% 4.00% 0.02% (0.24%) 0.26% 0.00%
HDBK 3.37% 3.47% 0.10% 8.98% 8.66% (0.32%) (2.13%) (0.02%) 1.86% (0.07%) --% --% 0.04% 6.40% 7.81% 1.41% 1.23% 0.32% (0.15%)
NSGB 3.56% 3.71% 0.15% 7.39% 7.52% 0.13% 0.00% (0.15%) 0.19% (0.00%) 0.06% --% 0.04% 4.38% 4.39% 0.01% (0.02%) 0.04% (0.01%)
EGBE 3.40% 3.38% (0.01%) 7.39% 7.55% 0.16% (0.16%) (0.18%) 0.41% (0.01%) 0.06% --% 0.04% 4.70% 4.70% (0.00%) (0.10%) 0.10% (0.00%)
Egypt banks
AUDI 1.95% 2.04% 0.09% 4.99% 5.10% 0.11% 0.45% (0.39%) 0.06% (0.00%) 3.27% 3.22% (0.05%) 0.15% (0.19%) (0.01%)
BLOM 2.33% 2.32% (0.00%) 5.53% 5.32% (0.21%) 0.02% (0.29%) 0.06% --% 3.50% 3.24% (0.26%) (0.38%) 0.13% (0.01%)
BYB 1.82% 1.72% (0.10%) 5.42% 5.32% (0.10%) 0.04% (0.21%) 0.06% --% 3.96% 3.98% 0.02% 0.23% (0.17%) (0.04%)
BOB 1.47% 1.61% 0.15% 5.06% 5.35% 0.29% 0.57% (0.34%) 0.06% --% 3.82% 3.85% 0.03% 0.29% (0.19%) (0.07%)
Lebanon banks
ARNB 2.81% 2.70% (0.11%) 3.06% 2.95% (0.11%) 0.06% (0.18%) 0.01% (0.00%) 0.29% 0.30% 0.01% (0.15%) 0.17% (0.01%)
RJHI 4.61% 4.19% (0.43%) 4.74% 4.28% (0.46%) (0.51%) 0.01% 0.04% --% 0.15% 0.11% (0.04%) (0.21%) 0.17% --%
BSFR 2.50% 2.37% (0.13%) 2.89% 2.76% (0.13%) (0.25%) 0.11% 0.01% (0.00%) 0.46% 0.43% (0.03%) 0.04% 0.11% (0.17%)
RIBL 2.46% 2.44% (0.02%) 2.88% 2.78% (0.10%) 0.00% (0.11%) 0.01% (0.00%) 0.50% 0.40% (0.10%) (0.19%) 0.06% 0.02%
SAMBA 2.39% 2.30% (0.10%) 2.65% 2.52% (0.13%) (0.10%) (0.03%) 0.01% (0.01%) 0.31% 0.27% (0.04%) (0.31%) 0.24% 0.03%
SABB 2.37% 2.22% (0.15%) 2.76% 2.62% (0.14%) (0.32%) 0.18% 0.01% (0.00%) 0.45% 0.45% 0.00% (0.16%) 0.14% 0.02%
AAAL 2.39% 2.16% (0.23%) 2.90% 2.70% (0.20%) (0.19%) (0.02%) 0.01% (0.00%) 0.59% 0.63% 0.04% (0.56%) 0.59% 0.01%
ALBI 2.96% 2.75% (0.22%) 3.07% 2.86% (0.21%) (0.67%) 0.45% 0.01% --% 0.12% 0.12% --% (0.58%) 0.55% 0.04%
BJAZ 2.27% 2.05% (0.22%) 2.81% 2.62% (0.19%) (0.28%) 0.08% 0.01% --% 0.61% 0.64% 0.03% 0.12% (0.06%) (0.03%)
SIBC 2.52% 2.31% (0.20%) 3.18% 3.00% (0.18%) (0.12%) (0.07%) 0.01% (0.00%) 0.76% 0.87% 0.11% (0.45%) 0.57% (0.01%)
ALINMA 3.78% 3.40% (0.38%) 4.03% 3.63% (0.40%) (0.57%) 0.17% 0.01% (0.01%) 0.47% 0.29% (0.18%) (0.36%) 0.18% --%
KSA banks 0.43% 0.41%
NBK 3.11% 2.96% (0.15%) 4.00% 4.00% 0.00% 0.11% (0.15%) 0.04% --% 1.01% 1.20% 0.19% (0.39%) 0.58%
KFIN 3.24% 3.04% (0.20%) 5.34% 4.86% (0.48%) (0.24%) (0.29%) 0.04% --% 2.01% 1.76% (0.25%) (0.25%) --%
GBK 2.30% 2.32% 0.02% 3.74% 3.61% (0.13%) (0.03%) (0.14%) 0.04% --% 1.59% 1.45% (0.14%) (0.02%) (0.11%) (0.01%)
BURG 2.59% 2.52% (0.07%) 4.13% 4.00% (0.13%) (0.02%) (0.14%) 0.04% --% 1.69% 1.62% (0.07%) (0.05%) (0.02%)
BOUBYAN 2.90% 2.89% (0.01%) 3.88% 3.92% 0.04% 0.26% (0.25%) 0.04% --% 1.14% 1.16% 0.02% 0.02% --%
Kuwait banks
BKMB 3.42% 3.22% (0.20%) 4.63% 4.46% (0.17%) (0.26%) 0.05% 0.04% (0.00%) 1.41% 1.43% 0.02% (0.49%) 0.60% (0.09%)
BKSB 2.64% 3.02% 0.38% 4.62% 4.50% (0.12%) (0.26%) 0.10% 0.04% (0.00%) 2.20% 1.60% (0.60%) (0.54%) (0.06%) 0.01%
OIBB 2.79% 2.78% (0.01%) 3.38% 3.35% (0.03%) (0.00%) (0.07%) 0.04% (0.00%) 0.68% 0.65% (0.03%) (0.39%) 0.36% --%
Oman banks
AUB 2.26% 2.38% 0.12% 3.89% 4.04% 0.15% 0.15% 0.08% (0.00%) 1.70% 1.76% 0.06% (0.01%) (0.09%) 0.16%
Bahrain banks
NIM Asset yield Of Which Funding costs Of which
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 115
Fees and commissions
We expect pressure on fees and commissions in the UAE due to lower retail charges. We expect an accelerating growth in brokerage and asset management fees due to the
buoyant markets, though we expect a slowdown vs. the strong Q1 12A. We expect continued strong growth in fees related to new net lending.
We expect growing fees and commissions for all our countries, but with the lowest growth in
the UAE, due to strict regulation capping retail charges. We expect acceleration in Saudi Arabia
as a result of higher new loan growth (partly due to margin lending) and increased trade
finance, brokerage, and asset management. The increase in fees in Lebanon is slightly subdued
due to lower net new loan growth. In Qatar, the double digit increase in fees and commissions
is driven by new lending and, to a much lesser extent, higher brokerage fees (resumption of
brokerage activities).
On average, fees and commissions comprise 20% of total revenue. They are driven mostly by
outstanding loan amounts and new lending (over 74%), trade finance (12%), brokerage (11%)
and asset management (6%).
But growth in brokerage (we expect 50% for FY 12e) and asset management (25%) should
mainly help, DFM and most Saudi banks (particularly Aljazira) and NBAD and Bank Audi, while
the brokerage activities of the Qatari banks are unlikely to be a significant generator of
revenues yet. Brokerage fees and asset management commissions comprise c. 16% of total fee
and commission revenue for most banks and are particularly high for Saudi banks (20% on
average) and the investment banks like Shuaa Capital.
Exhibit 140: FY 11A Fee Breakdown
Source: Company Data, Arqaam Capital Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
AD
CB
AD
IB
CB
D
DIB
ENB
D
FGB
NB
AD
TAM
WEE
L
RA
KB
AN
K
MA
SQ
CB
QK
DH
BK
QIB
K
QN
BK
MA
RK
QIIK
CEI
B
CO
MI
HD
B
NSG
B
EGB
E
AU
DI
BLO
M
BYB
BO
B
AR
NB
RJH
I
BSF
R
RIB
L
SAM
BA
SAB
B
ALI
NM
A
AA
AL
BJA
Z
SIB
C
NB
K
BU
RG
GB
K
KFI
N
BO
UB
YAN
AU
B
Brokerage Asset Management Trade Finance Other
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 116
Exhibit 141: Change in Fees as % of FY 12e Net Profit
Source: Company Data, Arqaam Capital Research
Exhibit 142: During FY 11A traded value was at its lowest point in 8years
Source: Bloomberg, Arqaam Capital Research
Exhibit 143: DFM would be fairly priced only if daily traded value goes back to FY 09A levels
Source: Bloomberg, DFM, Arqaam Capital Research
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
BJA
ZO
IBB
ALI
NM
AB
OU
BYA
NC
IEB
ALB
IB
OB
RIB
LTA
MW
EEL
EGB
ESI
BC
AA
AL
AR
NB
BSF
RSA
MB
ASA
BB
HD
BK
BK
MB
BYB
NSG
BB
KSB
RJH
IB
UR
GD
IBQ
IBK
CO
MI
KC
BK
GB
KN
BA
DK
FIN
CB
QK
ENB
DB
LOM
NB
KQ
NB
KD
HB
KC
BD
AU
BA
DIB
AU
DI
QIIK
MA
SQU
NB
RA
KB
AN
KFG
BA
DC
BM
AR
K
0
100
200
300
400
500
600
FY 04A FY 05A FY 06A FY 07A FY 08A FY 09A FY 10A FY 11A
Daily Traded Value in USD mn
I II III IV V
Excess of 2011 traded value 0% 44% 75% 300% 401%
Avergae dailt traded value for FY 11A 35
Average daily traded volume 35 50 61 140 175
Projected commission income 76,795 110,585 134,391 307,180 384,743
Other revenues 158,242 158,242 158,242 158,242 158,242
Cash Expenses 79,117 79,117 79,117 79,117 79,117
Cash income 155,920 189,710 213,517 386,305 463,868
Value 3,118,409 3,794,205 4,270,334 7,726,109 9,277,368
Per share 0.39 0.47 0.53 0.97 1.16
Upside/Downside (59%) (51%) (44%) 1% 21%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 117
Investment income: We do not include bond gains
We expect the balance sheet de-risking trend to be reinforced due to Basel 2.5 and Basel III (tripling risk weighted assets).
We expect part of gains on securities to move to other comprehensive income under IFRS 9.
We use normalized investment returns in our forecasts; we exclude bond gains as we believe they are not sustainable income, and use 5% gains on (private) equity investments.
De-risking of balance sheets
Banks have substantially reduced their investment portfolios, either in order to de-risk (Shuaa
Capital being the most obvious example) and improve their capital ratios, or to comply with
central bank requirements (such as in Qatar), or through reclassifying debt securities as held-
to-maturity. We expect this to continue as Basel 2.5 and Basel III should increase the risk
weighting of market weighted assets, though not to the same extent as for US and European
banks.
IFRS 9 could help Tier-1 ratios
Banks are now allowed to use International Financial Reporting Standards (IFRS) 9, which
covers the classification and measurement of financial assets, rather than International
Accounting Standards (IAS) 39, required previously. Early adoption is permitted starting from
2009, but banks are allowed to postpone adoption until 1 January 2015. Under IFRS 9, financial
assets may only be classified at fair value or at cost as the available-for-sale category no longer
exists. Also, part of investment gains will be included in other comprehensive income rather
than in the normal income statement.
For the banks that have adopted IFRS 9, the picture is mixed as illustrated below.
Exhibit 144: Effect of IFRS 9 adoption
Source: Company data
AED 000 Adopted Effect on Earnings Effect on Equity
ADIB Yes 43,851 (4,132)
DIB Yes 34,190 (36,070)
MASQ Yes -- --
TAMWEEL Yes -- --
LBP million Adopted Effect on Earnings Effect on Equity
AUDI Yes (101,875) (5,666)
BLOM* Yes -- (169,573)
BYBLOS* Yes na (67,642)
BOB* Yes na 39,000
SAR 000 Adopted Effect on Earnings Effect on Equity
BJAZ Yes 91,700 --
*Retrospective impact on earnings and equity in 2010
UAE
Lebanon
Saudi Arabia
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 118
In our forecasts, we continue to use 5% as a structural level for capital gains on equity and
private equity investments, and we gradually increase the earnings stream from associates as
returns start to normalize. We also include a normalized level of trading income from forex and
arbitrage in our forecasts. However, we still do not include capital gains on bonds as we do not
see them as a sustainable source of income.
We anticipate a significant negative effect on the earnings of Bank of Beirut and Byblos (due to
lower bond gains), CAE, Doha, Al Khaliji, QIIB, KFH and Ahli United. On the other hand, we
would expect DIB, UNB, BSFR, EGB, Riyad, Bank Muscat, SHB, Aljazeera, and SIB to benefit from
the normalization of investment returns.
In the following chart we include the impact on revenue of the normalization that we pencil in
for FY 12e.
Exhibit 145: Investment income as % of total income
Source: Company Data, Arqaam Capital Research
-4%
-2%
0%
2%
4%
6%
8%
KFI
NC
IEB
MA
RK
RA
KB
AN
KB
UR
GQ
IBK
QIIK
AU
DI
AD
IBB
OB
HD
BK
KC
BK
BYB
AU
BSA
BB
DH
BK
CO
MI
BLO
MB
KM
BC
BQ
KN
SGB
AD
CB
AR
NB
QN
BK
MA
SQB
SFR
SAM
BA
RIB
LA
LBI
AA
AL
NB
KC
BD
NB
AD
FGB
BK
SB DIB
SIB
CEN
BD
BJA
ZA
LIN
MA
TAM
WEE
LR
JHI
UN
BO
IBB
GB
KB
OU
BYA
NEG
BE
FY 11A FY 12e
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 119
Some cost/income convergence
We expect the biggest improvements in efficiency for Shuaa, Aljazeera, Alinma, Egyptian Gulf Bank and Al Khaliji due to increasing scale.
Cost/income ratios should move up moderately for CBD, Doha, EFG-Hermes, FGB, and QNB.
FGB, QNB, MARK and UNB are the most efficient banks, while Mashreq, RAK, ADIB, EGB, Albilad, Aljazeera, Alinma are the least efficient banks.
Sharp improvement in efficiency for some banks…
We expect cost/income ratios to improve dramatically over the next 4 years for a number of
banks, mainly Aljazeera, Alinma, Egyptian Gulf Bank and Al Khaliji due to increasing scale.
ENBD, Shuaa and HSBC Oman should benefit from 10-15% cost reductions.
…while others continue to invest
We anticipate a deterioration of efficiency ratios for FGB, CBD, NBAD, and QNB as we expect
modest upward pressure on their cost/income ratios, despite their relatively low cost bases,
due to continued expansion of branch networks and systems (and a new headquarters for
QNB) and continued business expansion to cope with increased activity levels and salary hikes.
Exhibit 146: Costs/RWAs: FY 12e vs. FY 15e
Source: Company Data, Arqaam Capital Research
-7
-6
-5
-4
-3
-2
-1
0
1
2
0%
1%
2%
3%
4%
5%
6%
7%
FGB
DIB
NB
AD
AD
IBA
DC
BQ
NB
KM
ASQ
MA
RK
QIB
KU
NB
BU
RG
AU
BA
UD
IC
BD
SIB
CB
OB
BSF
RTA
MW
EEL
DH
BK
ENB
DN
BK
GB
KQ
IIKB
LOM
SAM
BA
AA
AL
CB
QK
BK
MB
RIB
LB
KSB
KC
BK
BYB
SAB
BA
RN
BR
AK
BA
NK
CO
MI
RJH
IB
JAZ
HD
BK
ALI
NM
AB
OU
BYA
NN
SGB
ALB
IK
FIN
EGB
EO
IBB
CIE
BFY 12e FY15e Change (bps)
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 120
Asset Quality: loan loss charges unlikely to fall significantly
We become more optimistic as banks have substantially increased provisions, coverage has increased and net NPL formation is slowing down.
However, we continue to use cautious assumptions, especially for the real estate and construction sectors, as well as unsecured credit, and thus factor in continued restructurings and potential changes relating to UAE consumer loans.
We verify our screen with the latest stress test performed by 90 EU institutions.
Exhibit 147: Impact of restructured loans on DCF
Source: Arqaam Capital Research
Exhibit 148: Impact of re-renegotiation on fair value and provisioning
Source: Arqaam Capital Research
Cost of risk tapering off only slowly, but improving underlying trend
We use a very detailed granular approach, and divide loan books into 7 loan categories:
government loans, bank and financial institution loans, corporate property and construction
loans, corporate non-property and construction loans, SME loans, mortgages, and other retail
loans (unsecured credit, credit cards, car loans, etc). We categorize Dubai World and Dubai
Holding as NPLs and lower the LGD for corporate loans (without any change in total expected
loss). We estimate the probability of default (PD) and loss given default (LGD) for each
category and forecast the expected losses (EL). We apply a high variance with respect to the
probability of default and loss given default, depending on the underwriting standards of the
bank. We back test our non performing loans and losses given default with the EU stress test.
We also run a stress test for the MENA markets similar to the EU’s.
We expect loan loss charges to only slowly taper off for the following reasons:
Banks are required to build general reserves. UAE banks are required to build 1.5% of credit risk weighted assets as provisions, while SAMA implicitly demands coverage by 2015 of 150% of NPLs, while other banks add 1% of new loans. Cut off rates have been reduced for NPLs to 90 days from 180 days past due in the UAE.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 DCF
Standard loan
Interest 5% 5% 5%
Redemption 100%
Discount factor 0.952 0.907 0.864
DCF 4.8% 4.5% 90.7% 100.0%
Renegotiated loan
Interest 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Redemption 100%
Discount factor 0.952 0.907 0.864 0.823 0.784 0.746
DCF 2.4% 2.3% 2.2% 2.1% 2.0% 76.5% 87.3%
Standard Renegiotated Re-renegotiated Zombie
Fair value 0.0% 87.3% 80.7% 50.0%
Provisions 0.0% 12.7% 19.3% 50.0%
May 23 2012
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Important Notice. 121
Regulators and accounting boards are strongly in favor of using expected loss models rather than a fair value approach or the backward-looking incurred loss approach as defined under the current accounting standards in IAS 39. It is highly likely that the models will be based on expected losses estimated over the lifetime of a product. Loan loss charges should therefore tally with our asset quality screen, in which we estimate future expected losses.
Ongoing restructuring of loans. Some 25% of restructured loans ultimately return as Non Performing, while we cannot exclude a second round of restructuring on previously restructured loans. CBQ, Khaliji, CIB, RAK Bank, FGB and Mashreq have a particularly high share of restructured loans.
Past due but not impaired loans are relatively elevated, particularly in the UAE (UNB, ADCB, ENBD, CBD and RAKBank) & Kuwait (KFH, Khaliji and Gulf Bank).
New regulation forcing banks to be more lenient towards consumer credits, particularly towards nationals.
High concentration risks (single party). High exposures to Commercial Real Estate, where we see continued price pressure,
contrary to the residential market, where we have witnessed stabilization.
Having said that, we are becoming more optimistic on the underlying provisioning trend:
Global corporate default rates have fallen substantially. Banks have significantly increased provisions to 3.57% in FY 11A of loans vs. 2.32% in FY
08A, with UAE banks at 4.61% vs. merely 1.65% FY 08A. Coverage remains high (77%) despite an increase in reported NPLs and a large number of
restructurings Net NPL formation is slowing down. NPLs decreased by 0.32% in FY 11A while it increased
by 0.91% in FY 10A and 1.90% in FY 09A. Bottoming out of Dubai residential prices
Exhibit 149: Global Default Rates: Investment Grade vs. Speculative Grade
Standard & Poors
0%
2%
4%
6%
8%
10%
12%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Default rate Investment-grade default rate Speculative-grade default rate
May 23 2012
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Important Notice. 122
Exhibit 150: Past due but not impaired as % of total loans
Source: Company Data, Arqaam Capital Research
Exhibit 151: Restructured loans as % of total loans
Source: Company Data, Arqaam Capital Research
Exhibit 152: FY 11A Total NPLs
Source: Company Data, Arqaam Capital Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
ENB
DK
hal
ijiA
DC
BQ
IBR
akb
ank
KFH
Gu
lf B
ank
CB
DM
usc
atTa
mw
ee
lU
NB
AD
IBD
IBC
BQ
Alb
ilad
Byb
los
Au
di
BLO
MM
ASQ
NB
AD
HD
BD
oh
aFG
BA
UB
OIB
Soh
arB
SFR
SIB
SHB
EGB
SAB
BM
AR
KB
OB
CIB
CA
ER
iyad
Al R
ajh
iN
BK
QIIB
BJA
ZA
NB
QN
BSa
mb
aN
SGB
Alin
ma
FY 10A FY 11A
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
CO
MI
AD
CB
FGB
CB
QK
KC
BK
RA
KB
AN
K
UN
B
MA
SQ
BK
MB
EGB
E
NB
AD
AD
IB
BO
B
NSG
B
CB
D
QN
BK
AU
DI
HD
BK
DH
BK
BLO
M
CIE
B
BYB
BK
SB
QIB
K
MA
RK
QIIK
AU
B
FY 10A FY 11A
0%
5%
10%
15%
20%
25%
30%
GBK
BURG DI
BO
IBB
EGBE
ENBD CB
DM
ASQ
TAM
WEE
LKF
INAD
IBBJ
AZSI
BCHD
BKAL
BIAD
CBBL
OM
AUDI
FGB
UNB
DHBK
BKM
BNS
GBSA
MBA BY
BNB
ADCO
MI
AUB
RAKB
ANK
ARNB CIEB
SABB SH
BQ
IIKRJ
HIRI
BLBK
SBNB
KQ
IBK
CBQ
KBS
FRQ
NBK
KCBK
BOUB
YAN
BOB
MAR
KAL
INM
A
NPL Past Due Restructured
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 123
Underlying picture not as rosy for a few banks
In the chart below we have compared all balance sheet loan loss provisions with NPLs in a
broad sense, i.e. including past due but not impaired and restructured loans. On this metric,
Masraf Al Rayan, CBQ, AL Khaliji, Bank Sohar, RAKBank, UNB and ENBD score the worst. Of this
list, we only recommend UNB, but have already assumed a substantial increase in the cost of
risk.
Boubyan, Bank of Beirut, ANB, Al Rajhi and Samba are among the best covered banks.
Exhibit 153: FY 11e Coverage of total NPLs
Source: Company Data, Arqaam Capital Research
Exhibit 154: MENA Asset quality
Source: Company Data, Arqaam Capital Research
Exhibit 155: NPL Ratio per market
Source: Company Data, Arqaam Capital Research
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
BO
UB
YAN
BO
BA
RN
BR
JHI
SAM
BA
ALB
ISI
BC
NB
KSH
BSA
BB
CO
MI
HD
BK
EGB
EQ
NB
KN
SGB
BJA
ZC
IEB
RIB
LQ
IIKA
LIN
MA
BK
MB
AU
BB
SFR
KFI
NN
BA
DA
DIB
DH
BK
BYB
BU
RG
DIB
BLO
MQ
IBK
FGB
TAM
WEE
LO
IBB
GB
KA
UD
IEN
BD
CB
DA
DC
BU
NB
RA
KB
AN
KM
ASQ
BK
SBK
CB
KC
BQ
KM
AR
K
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
Provisions / Avg Loans NPL ratio Provisions / NPL
0%
2%
4%
6%
8%
10%
12%
UAE Kuwait Oman Egypt Lebanon Bahrain Saudi Qatar
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 124
Exhibit 156: Provision as % of loans
Source: Company Data, Arqaam Capital Research
Exhibit 157: Coverage ratio per country
Source: Company Data, Arqaam Capital Research
Our assumptions for PD and LGD
Exhibit 158: Comparison of our asset quality screen with Basel QIS5 and EU stress test
Source: Arqaam Capital Research
Government loans
We include government and public sector exposures, but not loans to government owned
private sector companies. We use a very low probability of default (0.3%), except for Egypt and
Lebanon, for which we assign a 5% probability of default. Our loss given default of 35% is in
line with the range suggested by Basel and the EU stress test.
Bank and financial institution loans
We include bank and financial institution loans, but not interbank exposures. We again use a
very low probability of default (0.3%). Our loss given default of 35% is in line with the range
suggested by Basel and the EU stress test.
Most cautious on corporate property and construction loans
We see the biggest stress in the property markets. For real estate lending, which comprises
construction and property finance, we prudently assume that 20%–40% of loans in the UAE
will eventually go into default, as we expect clients to walk away from property developments
and foresee significant pressure on rents for real estate finance companies. This may be
significantly cushioned by reduced interest rates and maturity extensions. Nevertheless, we
feel the possibility of a worst-case scenario should be taken into account as much as possible in
our estimates and especially in our valuations. Our probability of default is well ahead of the
historical level for real estate debt. We use a relatively high loss given default of 43%–50%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Kuwait UAE Egypt Bahrain Oman Lebanon Saudi Qatar
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Bahrain Saudi Egypt Qatar Lebanon Oman Kuwait UAE
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e
PD Government Banks & FI P&C Non-P&C SME Mortg. Non-mortg.
Arqaam Capital 0.3%-5% 0.30% 9%-40% 6%-60% 7.5%-30% 5%-20% 7%-25%
Basel II 0.12%-0.96% N/A 3.4%-5.9% 3.4%-5.9% 8.6%-17.2% 3.9%-6.1% 9.3%-45.4%
EU test 0%-0.8% 0.1%-0.4% 5.6%-16.8% 4.4%-12.4% 8.6%-19.5% 3.7%-11.2% 6%-15.6%
EU stress test 0%-1.6% 0.1%-1.2% 7%-16% 5.8%-12.5% 10%-20% 4%-12% 7%-15.6%
Arqaam Capital 35% 35% 30%-50% 20%-47% 40%-50% 35%-45% 65%
Basel II 27.7%-38.2% 39.4%-40.9% 35.2%-39.8% 35.2%-39.8% 31.1%-49.6% 11%-40.4% 42.2%-71.6%
EU test 15%-45% 25%-43% 22%-34% 35%-43% 25%-43% 12%-18% 38%-67%
EU stress test 17%-45% 25%-43% 23%-37% 36%-43% 25%-43% 12%-18% 38%-73%
May 23 2012
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Important Notice. 125
(historical average 25%–43%). This takes the total loan loss to 10% for NBAD and up to 20% for
ENBD. We see relatively low risk for Egypt as property prices have already soared over the last
few years and banks have been lending very little to hotels and the tourism sector. In Qatar,
we are relatively cautious due to a slump in real estate prices and aggressive investments in
property-related projects. For the other markets, we use NPL ratios of 9%–12.5%, again
conservative and ahead of historical averages, but a lower loss given default (30%–40%). We
are also concerned for the Bahraini real estate sector.
Exhibit 159: Dubai asking price index
Source: Colliers
Exhibit 160: Abu Dhabi asking price index
Source: Reidin
Exhibit 161: Real Estate probability of default
Source: Arqaam Capital Research
Corporate non-property and construction loans include Dubai Holding and Dubai World
We categorize Dubai World and Dubai Holding as NPLs and lower the LGD for corporate loans
(without any change in expected loss). We used a 15% loss for those exposures. For the other
markets, we use NPLs of 6%–17% and a loss given default of 43%. We also use a higher default
rate for corporate loans as some real estate exposure is reported under corporate loans.
We believe it is very positive that lenders have been able to restructure loans as a cost of a
default would be much higher (40%-50% as compared to a haircut of 10%-20% with
40
50
60
70
80
90
100
110
120
130
Q1
08
A
Q2
08
A
Q3
08
A
Q4
08
A
Q1
09
A
Q2
09
A
Q3
09
A
Q4
09
A
Q1
10
A
Q2
10
A
Q3
10
A
Q4
10
A
Q1
11
A
Q2
11
A
Q3
11
A
Q4
11
A
Apartment Villa All
40
50
60
70
80
90
100
110
120
130
Q1
08
A
Q2
08
A
Q3
08
A
Q4
08
A
Q1
09
A
Q2
09
A
Q3
09
A
Q4
09
A
Q1
10
A
Q2
10
A
Q3
10
A
Q4
10
A
Q1
11
A
Q2
11
A
Q3
11
A
Q4
11
A
Apartment Villa All
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
DIB
EMIR
ATE
S
MA
SQ
UN
B
CB
D
RA
KB
AN
K
KFI
N
AD
CB
AD
IB
FGB
TAM
WEE
L
NB
AD
Shu
aa
Gu
lf B
ank
QIB
K
AU
B
Bo
ub
yan
BU
RG
AU
DI
BLO
M
BYB
BO
B
MU
SCA
T
SOH
AR
OIB
QN
BK
DH
BK
CB
QK
MA
RK
QIIK
KC
BK
SHB
SIB
ALB
ILA
D
BJA
Z
Alin
ma
NB
K
NSG
B
CIE
B
HD
BK
HR
HO
EGB
E
SAM
BA
BSF
R
CO
MI
RIB
L
RJH
I
SAB
B
AN
B
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 126
restructuring). Provisioning should take into account the fair value loss that results from the
extension of the maturity and the softened interest rate charges.
We illustrate this with the following example. Consider a three year loan with a maturity of 3
years paying 5% per annum, which is being restructured into a loan with a 2.5% interest rate
and a maturity of 6 years. On a DCF basis, the fair value of the new loan is 87.3% that of the
original loan, so the shortfall should be covered by impairment charges of 12.7%. However,
some banks, like HSBC, Standard Chartered, and UNB, have provisioned less.
If the restructured loans would require further restructuring at the end of the maturity, this
could prompt another 6.6% value loss, while extending the loans into perpetuity would cut the
fair value by 50%, as bad as a straight default.
Exhibit 162: Impact of restructured loans on DCF
Source: Arqaam Capital Research
Exhibit 163: Impact of re-renegotiation on fair value and provisioning
Source: Arqaam Capital Research
Average to conservative assumptions for SME loans
We use a probability of default of 7.5%–30% for SME loans, which is in line with the range used
in the latest quantitative impact study performed by Basel and also with the base scenario in
the EU stress test. The loss given default we use is in line with Basel but is more conservative
than that used in the EU stress test.
Very conservative assumptions for mortgages
We use a probability of default of 5%–20% for retail mortgages, which is much more
conservative than the ranges used in the latest quantitative impact study performed by Basel
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 DCF
Standard loan
Interest 5% 5% 5%
Redemption 100%
Discount factor 0.952 0.907 0.864
DCF 4.8% 4.5% 90.7% 100.0%
Renegotiated loan
Interest 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Redemption 100%
Discount factor 0.952 0.907 0.864 0.823 0.784 0.746
DCF 2.4% 2.3% 2.2% 2.1% 2.0% 76.5% 87.3%
Standard Renegiotated Re-renegotiated Zombie
Fair value 0.0% 87.3% 80.7% 50.0%
Provisions 0.0% 12.7% 19.3% 50.0%
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 127
and in the EU stress test. Our loss given default is also much more conservative, justified by the
sharp drop in housing prices across the region.
Increased PDs for other retail loans due to new regulation in the UAE
We may see UAE banks being forced by the central bank to cancel interest on interest charges
and may have to help out some of their indebted clients. On the other hand, retail caps for
credit cards should reduce the probability of defaults, while the set up of a fund should also
have a positive impact on the asset quality of banks. For revolving and other retail credit, we
use a probability of default that is higher than those used in the Basel impact study and EU
stress test, but our loss given default (65%) remains conservative.
Our weighted cumulative probability of default is very conservative and is ahead or in line with
NPLs (broad definition including restructured loans and not impaired and past due) as
discussed on p. 126.
Exhibit 164: Weighted probability of default
Source: Arqaam Capital Research
0%
5%
10%
15%
20%
25%
30%
CB
D
DIB
AD
CB
ENB
D
KFH
Rak
ban
k
UN
B
Tam
we
el
Gu
lf B
ank
AD
CB
FGB
AD
IB
Bu
rgan
Bo
ub
yan
HD
B
QIB
BLO
M
NB
AD
Byb
los
Au
di
CA
E
BO
B
NSG
B
NB
K
EGB
QIIB CIB
MA
RK
CB
Q
Kh
aliji
SOH
AR
AU
B
AD
CB
DH
BK
MU
SCA
T
Alb
ilad
OIB
Alja
zee
ra
SIB
C
SAB
B
AA
AL
BSF
R
AN
B
QN
B
Sam
ba
Riy
ad
Alin
ma
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 128
Exhibit 165: Loan loss charges % loans
Source: Company Data, Arqaam Capital Research
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e
ADCB 0.81% 2.56% 2.29% 1.60% 1.55% 1.40% 1.30% 1.09%
ADIB 0.24% 2.51% 0.94% 1.13% 1.29% 1.28% 1.20% 0.98%
CBD 0.09% 1.33% 1.83% 1.65% 1.90% 1.80% 1.50% 1.08%
DIB 0.43% 1.22% 1.07% 1.59% 2.40% 2.40% 2.10% 1.37%
EMIRATES 0.76% 1.41% 1.37% 2.25% 2.20% 2.10% 2.00% 1.05%
FGB 0.90% 1.94% 1.71% 1.50% 1.35% 1.20% 1.05% 0.93%
NBAD 0.72% 1.07% 0.81% 0.88% 0.78% 0.78% 0.69% 0.55%
UNB 0.32% 0.53% 0.84% 1.01% 1.40% 1.29% 1.17% 0.80%
TAMWEEL 1.55% 1.32% 1.12% 0.18% 0.60% 0.60% 0.80% 1.03%
MASQ 0.61% 2.82% 3.24% 2.30% 2.40% 2.20% 2.00% 1.01%
RAKBANK --% 2.02% 1.77% 1.70% 1.80% 1.75% 1.70% 1.33%
UAE 0.58% 1.65% 1.51% 1.56% 1.63% 1.52% 1.38% 0.95%
CBQK 0.20% 1.38% 0.50% 0.62% 0.65% 0.66% 0.67% 0.68%
DHBK 0.25% 0.49% 1.14% 0.86% 0.60% 0.60% 0.60% 0.66%
QIBK (0.28%) 0.13% 0.17% 0.04% 1.16% 0.60% 0.60% 0.94%
QNBK 0.29% 0.26% 0.42% 0.61% 0.55% 0.50% 0.50% 0.58%
MARK --% 0.05% 0.01% 0.23% 0.70% 0.70% 0.68% 0.67%
KCBK 0.05% 3.12% (0.86%) 0.40% 0.47% 0.57% 0.71% 0.67%
QIIK --% 0.16% 0.15% 0.18% 0.40% 0.65% 0.70% 0.79%
Qatar 0.15% 0.51% 0.38% 0.47% 0.64% 0.57% 0.58% 0.66%
CIEB (0.29%) 0.30% 0.39% 1.21% 1.09% 0.95% 0.90% 0.91%
COMI 1.65% 0.03% 0.02% 0.81% 0.70% 0.70% 0.70% 0.75%
HDBK 0.09% 0.28% 0.92% 0.75% 1.00% 1.00% 1.09% 1.11%
NSGB 0.87% (1.02%) (0.24%) 0.40% 0.70% 0.73% 0.73% 0.85%
EGBE 0.61% 0.53% (0.65%) 0.51% 0.75% 0.75% 0.75% 0.79%
Egypt 0.90% (0.29%) 0.01% 0.66% 0.77% 0.77% 0.77% 0.83%
AUDI 0.09% 0.36% 0.40% 1.03% 0.89% 0.87% 0.87% 0.88%
BLOM 0.26% (0.09%) 0.35% 0.70% 0.88% 0.88% 0.89% 0.89%
BYB 0.14% 0.56% 0.54% 0.70% 0.75% 0.85% 0.87% 0.87%
BOB 0.27% (0.01%) (0.02%) 0.06% 0.47% 0.60% 0.70% 0.75%
Lebanon 0.15% 0.23% 0.33% 0.72% 0.80% 0.83% 0.85% 0.87%
ARNB 0.09% 0.73% 1.41% 0.86% 0.80% 0.75% 0.70% 0.64%
RJHI 1.11% 1.52% 1.46% 1.10% 0.83% 0.82% 0.82% 0.83%
BSFR 0.13% 0.71% 0.42% 0.18% 0.41% 0.47% 0.53% 0.59%
RIBL 0.42% 0.60% 0.86% 0.59% 0.56% 0.59% 0.59% 0.59%
SAMBA 0.29% 0.64% 0.65% 0.34% 0.40% 0.45% 0.52% 0.57%
SABB 0.52% 1.88% 1.60% 0.57% 0.61% 0.61% 0.61% 0.61%
AAAL 0.08% 2.97% 1.04% 0.43% 0.50% 0.58% 0.58% 0.59%
ALBI 0.27% 3.06% 1.99% 1.83% 1.30% 0.80% 0.70% 0.66%
BJAZ 0.39% 2.59% 2.01% 0.32% 0.48% 0.51% 0.53% 0.54%
SIBC 0.11% 1.68% 2.31% 0.92% 0.80% 0.75% 0.65% 0.65%
ALINMA --% --% 0.04% 0.61% 0.55% 0.55% 0.55% 0.53%
Saudi 0.39% 1.25% 1.14% 0.62% 0.58% 0.59% 0.60% 0.61%
NBK 0.81% 0.46% 0.14% 0.62% 0.45% 0.50% 0.55% 0.48%
KFH 2.73% 1.62% 1.96% 2.37% 1.60% 1.50% 1.00% 1.02%
Gulf Bank 8.69% 2.93% 3.31% 1.91% 1.80% 1.70% 1.60% 0.98%
Burgan 1.66% 3.48% 3.12% 1.27% 1.20% 1.10% 1.05% 0.85%
Boubyan 4.14% 6.49% 1.43% 1.15% 0.90% 0.80% 0.70% 0.71%
Kuwait 3.11% 1.75% 1.60% 1.47% 1.17% 1.13% 0.95% 0.82%
Bank Muscat 0.31% 2.16% 0.79% 0.61% 0.65% 0.65% 0.65% 0.67%
Bank Sohar 0.84% 0.34% 0.44% 0.34% 0.45% 0.50% 0.55% 0.67%
Oman Intn'l (1.00%) (0.11%) (0.10%) (0.39%) 0.25% 0.35% 0.45% 0.67%
Oman 0.20% 1.63% 0.63% 0.46% 0.56% 0.59% 0.61% 0.68%
Ahli United 0.71% 1.65% 1.06% 0.84% 0.79% 0.75% 0.67% 0.63%
Bahrain 0.71% 1.67% 1.02% 0.81% 0.79% 0.75% 0.67% 0.63%
May 23 2012
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Important Notice. 129
Limited refinance risks Dubai government and GREs
GREs in Dubai may have to repay c. USD 13bn of maturing loans this year and face a significant
amount of debt falling due in 2014 and 2015, according to the IMF. The IMF reiterated that
the UAE. should adopt further deleveraging and strengthening of impaired GRE balance sheets,
increased transparency, and improvements in corporate governance of GREs.
Exhibit 166: Dubai refinancing needs
Source: IMF, Arqaam Capital Research
Dubai government has relatively low refinance needs for FY 12e, and a very limited fiscal
deficit, which are fully manageable and fully absorbable by the domestic banking system,
Publicly-Held Debt in the Form of Bonds and Syndicated Loans 1/ 2/ (in mn of U.S. Dollars)
Debt Type 2012 2013 2014 2015 Beyond Total
Dubai World and subsidiaries
Bonds 2,043 -- 350 3,200 3,600 9,943
Loans 3,000 546 409 6,662 11,739 26,180
Total 5,043 546 759 9,862 15,339 36,123
Dubai Holding and subsidiaries
Bonds 500 93 995 -- 977 2,806
Loans -- -- 3,645 705 5,220 11,577
Total 500 93 4,640 705 6,197 14,383
Investment Corporation of Dubai and subsidiaries
Bonds 1,678 890 67 -- 2,543 6,712
Loans 2,282 2,080 93 510 3,273 12,619
Total 3,960 2,970 160 510 5,816 19,331
Other Dubai Inc. 4/
Bonds 1,250 871 -- 1,000 2,000 3/ 5,121
Loans 2,639 1,100 3,090 -- 2,163 8,992
Total 3,889 1,971 3,090 1,000 4,163 14,113
Total Dubai Inc. 13,392 5,580 8,649 12,077 31,515 71,213
Other Dubai Inc. 5/
Bonds 750 599 -- -- 220 1,569
Loans 1,000 -- -- -- 686 1,686
Total 1,750 599 -- -- 906 3,255
Government of Dubai
Bonds -- 1,770 20,479 -- -- 6/ 22,249
Loans 68 68 68 34 -- 238
Total 68 1,838 20,547 34 -- 22,487
Total Dubai Debt 15,210 8,017 29,196 12,111 32,421 96,955
% of Dubai 2010 GDP 13.8% 7.3% 26.5% 11.0% 29.4% 102.6%
Memornadum items:
Restructured Debt -- -- 5,400 10,005 15,100 30,505
Dubai Inc. Banks 20,484 10,995 13,576 5,473 33,722 84,251
Government guatanteed 7/ 1,515 2,737 226 812 2,658 7,949
Total GD including Guarantees 1,583 4,574 20,773 846 2,658 30,435
1/ Excluding bilateral bank loans and accounts payable
2/ Regardless of residency of debt holders
3/ Assuming DEW A fully draws its receivables-securitization program under Thor Asset Purchase (Cayman) Ltd
4/ Includes DEW A, DIFC, DAE, Borse Dubai, and others
5/ Dubai GREs with government owership below 50% (Emaar, DIB, CBD)
6/ Assuming Abu Dhabi direct and indirect support is fully drawn
7/ Mainly ICD holding level and DEW A debt, in addition to the governments
May 23 2012
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Important Notice. 130
insurance of bonds or borrowing from foreign banks. However a new UAE circular may make
refinancing more challenging.
Exhibit 167: UAE banks’ exposure to troubled entities
Source: Company Data, Arqaam Capital Research
Exhibit 168: ENBD’s government exposure
Source: Company Data, Arqaam Capital Research
AED bn Dubai World Source Dubai Holding Source
ADCB 6.7 Transferred to performing 0.0 Estimated
ADIB 0.0 No exposure 0.0 No disclosure
CBD 0.6 Estimated 0.7 Estimated
DIB 0.0 No exposure 0.0 Estimated
ENBD 7.1 Derived from disclosure 11.1 Derived from disclosure
FGB 0.9 Disclosed 0.6 Disclosed
MASQ 2.6 No disclosure 0.4 Estimated
NBAD 0.6 Press release 0.1 Estimated
Rakbank 0.0 No exposure 0.0 No exposure
UNB 1.6 Derived from disclosure 1.3 Estimated at 10% of capital
21.3 15.2
0%
5%
10%
15%
20%
25%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY 08A FY 09A FY 10A FY 11A
Government Exposure Governement Exposure/Total Assets
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 131
But UAE Central bank guidelines are not helping
The UAE's central bank has expanded its large exposure limit rules for commercial banks,
introducing new caps for loans made to local governments and their entities in the first such
change in nearly two decades.
UAE has updated a circular that introduced new limits for loans:
Exposures now include unfunded exposures. Exposures to local emirate governments are set at of 25% of capital base on an individual
basis and 100% on a group basis.
In addition to that, the circular lowers the following caps: The maximum exposure to GREs & single borrower is lowered to 25%. Shareholders who own 5% or more, a cap of 50% and 25% on a funded basis and 20% and
10% respectively on an individual basis is introduced. 25% maximum exposure to subsidiaries on a group basis & 10% on an individual basis 2% to bank employees or 20 month salary (excluding mortgages)
The full circular can be accessed through the following link: http://www.centralbank.ae/en/pdf/notices/Notice_209_2012_Amendment_of_a_number_of_pages_Circular_no_16-93.pdf We welcome the move as concentration risk remains one of the biggest risks faced by UAE
banks, especially in Dubai as GRE exposure was the main drag to asset quality in the system.
The main motivation of the circular, in our view, is to disinter-mediate and drive borrowers
into the capital markets; therefore despite anticipated short term disruptions, we believe the
circular will have positive long term effects on the UAE banking system as a whole.
May 23 2012
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Important Notice. 132
Exhibit 169: Government and PSE exposure as % of BIS
Source: Company Data, Arqaam Capital Research
However, it may pose debt (re)financing issues for the government of Dubai as ENBD is its
largest lender (c. 67%). ENBD has AED 60bn of loans to the Dubai government (which attract
0% RWAs), representing 132% of BIS, 207% of Tier-1, 28% of its loans and 21% of its assets.
Cutting back by AED 14bn (USD 3.7bn) by September (i.e. 5% of assets and 7% of loans) may
impact its income statement without helping its capital ratios. ENBD also has exposure to GREs
of 14% of loans or 55% of its BIS capital, and it might have to also reduce this exposure.
It may also reduce NBAD’s growth opportunities as the exposure to public sector entities is as
much as 178% of BIS capital. If NBAD were to be forced to reduce this to 100%, it may have to
sell AED 26.5bn in loans (10% of assets, 16% of loans) though it is much more difficult to
estimate the impact on NBAD.
49%
132%
49%
1% 16% 3%
128%
35%
41%
31% 15%24%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
NBAD ENBD UNB FGB CBD ADIB
Gov. As % of BIS PSE as % of BIS
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 133
Stress testing:
In this section we have included a number of stress tests:
A reduction in asset & loan growth. We see on average a negative effect of c. 3% on our TPs.
An increase in the cost of equity of 25bps. Cost of funds by 25bps due to a sudden shock in the funding markets. An increase of 10bps of annual loan loss charges. This mainly affects banks with already
low returns and low pre-provisioning income like ENBD, ADCB and Sohar. A 10% increase in loan loss provisions for Dubai Holding & Dubai World.
Exhibit 170: Public sector exposure at FY 11A
Source: Company Data, Arqaam Capital Research
Exhibit 171: 3% decrease in FY 12e assets and loan growth
Source: Company Data, Arqaam Capital Research
Exhibit 172: 25bps increase in CoE
Source: Company Data, Arqaam Capital Research
0%
50%
100%
150%
200%
250%
300%
0%
5%
10%
15%
20%
25%
30%
35%
40%
QN
BK
MA
RK
NB
AD
ENB
DU
NB
ALI
NM
AC
BQ
KSA
MB
AM
ASQ
FGB
KC
BK
DH
BK
CB
DQ
IBK
AD
IBD
IBQ
IIKB
SFR
AA
AL
AU
BSA
BB
AD
CB
AU
DI
BK
MB
OIB
BSI
BC
BK
SBA
RN
BR
IBL
TAM
WEE
LR
AK
BA
NK
CIE
BC
OM
IH
DB
KN
SGB
EGB
EB
LOM
BYB
BO
BR
JHI
ALB
IB
JAZ
NB
KK
FIN
GB
KB
UR
GB
OU
BYA
N
Public exposure as % of total assets Public exposure as % of total equity (RHS)
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
TA
MW
EE
L
MA
SQ
NB
K
KF
IN
RIB
L
CB
D
GB
K
AA
AL
OIB
B
CB
QK
UN
B
SA
MB
A
DIB
EN
BD
RJH
I
EG
BE
QN
BK
MA
RK
AL
BI
CO
MI
BJA
Z
BU
RG
SIB
C
NS
GB
BK
MB
SA
BB
DH
BK
NB
AD
AR
NB
FG
B
AD
CB
BL
OM
BS
FR
AU
B
KC
BK
AL
INM
A
QII
K
QIB
K
RA
KB
AN
K
BY
B
BO
B
BO
UB
YA
N
AU
DI
CIE
B
BK
SB
AD
IB
-6%
-5%
-4%
-3%
-2%
-1%
0%
EG
BE
TA
MW
EE
L
KF
IN
DIB
RA
KB
AN
K
CB
D
HD
BK
BL
OM
UN
B
MA
SQ
SIB
C
QIB
K
FG
B
NB
K
QN
BK
CO
MI
SA
MB
A
BJA
Z
DH
BK
RIB
L
AA
AL
AL
BI
MA
RK
AU
DI
NB
AD
CIE
B
KC
BK
NS
GB
OIB
B
QII
K
CB
QK
AD
CB
RJH
I
BK
MB
AL
INM
A
AR
NB
BY
B
GB
K
BU
RG
BO
UB
YA
N
EN
BD
SA
BB
AD
IB
AU
B
BO
B
BS
FR
BK
SB
May 23 2012
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Important Notice. 134
Exhibit 173: 25bps increase in cost of funding
Source: Company Data, Arqaam Capital Research
Exhibit 174: 10bps increase in LLP
Source: Company Data, Arqaam Capital Research
Exhibit 175: Impact of a further 10% provisioning on Dubai World and Dubai Holding on target price in UAE
Source: Company Data, Arqaam Capital Research
Exhibit 176: Impact of a further 10% provisioning on Dubai World and Dubai Holding on CET1 ratio in the UAE
Source: Company Data, Arqaam Capital Research
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
NS
GB
EG
BE
GB
K
TA
MW
EE
L
BS
FR
RA
KB
AN
K
RJH
I
KF
IN
DIB
KC
BK
NB
K
QN
BK
CB
D
CO
MI
SA
MB
A
MA
RK
AL
BI
AR
NB
RIB
L
DH
BK
QIB
K
SIB
C
AL
INM
A
FG
B
QII
K
BU
RG
BK
MB
SA
BB
OIB
B
AA
AL
CB
QK
UN
B
HD
BK
NB
AD
MA
SQ
BO
UB
YA
N
BY
B
CIE
B
BL
OM
BJA
Z
AU
B
AU
DI
BK
SB
AD
CB
AD
IB
EN
BD
BO
B
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
TA
MW
EE
L
KF
IN
RJH
I
RA
KB
AN
K
NB
K
BL
OM
CO
MI
SA
MB
A
DIB
AL
BI
BU
RG
QN
BK
RIB
L
CB
D
AU
DI
NS
GB
SIB
C
MA
RK
AR
NB
DH
BK
QII
K
QIB
K
CB
QK
AA
AL
FG
B
CIE
B
OIB
B
BK
MB
NB
AD
AL
INM
A
SA
BB
MA
SQ
BY
B
KC
BK
EG
BE
GB
K
BO
UB
YA
N
HD
BK
BJA
Z
BS
FR
AU
B
BO
B
BK
SB
AD
CB
EN
BD
AD
IB
UN
B
-7.2%
-3.6%
-2.4%-2.0%
-1.4%
-0.5%-0.1% 0.0% 0.0% 0.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
ENB
D
AD
CB
MA
SQ
UN
B
CB
D
FGB
NB
AD
AD
IB
DIB
Rak
ban
k
-0.3%
-0.3% -0.3%
-0.2%
-0.2%
-0.1%
0.0%0.0% 0.0% 0.0%
-0.4%
-0.3%
-0.3%
-0.2%
-0.2%
-0.1%
-0.1%
0.0%
ENBD
AD
CB
MA
SQ
UN
B
FGB
CBD
NBA
D
AD
IB
DIB
Rak
bank
May 23 2012
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Important Notice. 135
MENA banks – more resilient to any liquidity shortage scenarios
We believe the MENA region is much more resilient in terms of liquidity and certainly
better positioned to face an unlikely freeze in funding.
Egypt and Lebanon top the region with exceptionally strong medium-term liquidity
(surpassing the 400% for Audi and BLOM), while NBAD, Boubyan, and Tamweel are the
weakest on this metric.
MENA banks are at generally comfortable loan/deposit ratios, but most UAE banks, in
addition to NBK and CBQ, will likely need to raise cash balances and/or wholesale
funding. We don’t see the funding market in the region facing any major obstacle, but
margins may come under pressure as banks target meeting the LCR standards by 2015.
Funding in the Euro zone shows hints of moderation and seems to be better managed than last
year; in two separate long-term refinancing operations in December and February, the ECB
injected more than USD 1,300bn into European banks in an attempt to avert a looming credit
crunch. In parallel, Euro zone banks are proactively raising wholesale debt as the region
witnessed bond issuance in the first 3 months equal to the entire amount raised last year.
However, the euro zone is posing serious threats for the global economic outlook. As
illustrated below, interbank rates in the GCC are behaving well and have not increased
substantially, while liquidity markets continues to function well.
Exhibit 177: 1 Month Interbank Rates
Source: Bloomberg
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12
EIBO1M Index QRIFR1M Index SAIB1M Index US0001M Index
May 23 2012
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Important Notice. 136
Exhibit 178: 3 Month Interbank Rates
Source: Bloomberg
MENA banks score higher liquidity ratios than European peers
We run a liquidity screen for the banks under coverage, calculating the 2 ratios introduced by
the Basel Committee at the end of 2009: (1) the 30-day liquidity coverage ratio (LCR) to
improve the banks’ resilience towards potential short-term funding markets’ disruptions by
maintaining a stock of “high quality liquid assets” and (2) the net stable funding ratio (NSFR) to
address longer-term structural liquidity in banks’ balance sheets.
The introduction of these measures came as a result of a lesson following the crisis resulting
from the over reliance of commercial and investment banks on short-term funding to finance
longer-term activities. Although banks have until 2015 to meet the LCR requirement and until
2018 to meet that of the NSFR, the central banks have planned to begin monitoring these
ratios earlier. We study these ratios carefully as adequate liquidity positions would help avoid
future funding crises, but could also impact the banks’ margins to some extent.
Short-term liquidity coverage could be a problem to a minority that includes some UAE
banks and Boubyan
The purpose of the Liquidity Coverage Ratio is to establish a minimum level of high quality
liquid assets to withstand an acute stress scenario lasting 30 days, and therefore provides the
potential net cash drain. Given that the liquidity buffer solely consists of high quality liquid
assets which provide relatively low yields, this measure can be costly and is expected to put
pressure on margin growth as these banks target meeting the requirements by 2015.
The LCR will help ensure that global banks have sufficient unencumbered, high quality liquid
assets to offset the net cash outflows it could encounter under an acute short-term stress
scenario. The specified scenario is built upon circumstances experienced in the global financial
crisis that began in 2007 and entails both institution-specific and systemic shocks. The scenario
entails a significant stress, albeit not a worst-case scenario, and assumes the following:
a significant downgrade of the institution’s public credit rating;
0
0.5
1
1.5
2
2.5
Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12
EIBO3M Index QRIFR3M Index SAIB3M Index US0003M Index
May 23 2012
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Important Notice. 137
a partial loss of deposits;
a loss of unsecured wholesale funding;
a significant increase in secured funding haircuts; and
increases in derivative collateral calls and substantial calls on contractual and non contractual
off-balance sheet exposures, including committed credit and liquidity facilities.
We estimate the ratios for the banks under our coverage based on FY 11A results, but note
that the calculations should be interpreted as rough guidance as some had to be estimated
using the limited reporting in some countries under coverage.
Exhibit 179: Short-term liquidity coverage ratio
Source: Company Data, Arqaam Capital Research
Most MENA banks score better than their global peers with Lebanese and Egyptian banks
outlying the rest of the region, with the most robust LCRs (surpassing 400% for Audi and
BLOM), driven by their investments in treasury bonds, strong cash positions, and extremely
low loan/deposit ratios.
Saudi banks, except for Saudi Investment Bank, also mark impressive liquidity coverage ratios,
exceeding 110%, supported by their investment portfolios, cash, and treasury holdings.
The UAE banks remain at the bottom of our coverage universe due to their high undrawn loan
commitments, negative interbank positions, and relatively small holdings of liquid investments.
ENBD is already proactively addressing its liquidity shortage and has issued a 5-year USD 1bn
bond and enjoyed a strong inflow of deposits in Q1 12A. The latter also applies to NBAD,
helped by an influx from government deposits (33% YTD increase). Kuwaiti banks score
relatively good, expect for NBK for which we calculate an LCR of 79%. Tamweel also addressed
its poor liquidity position with the launch of a bond and increased its cash balances
substantially.
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
1000%
AU
DI
BLO
MA
LBI
BO
BB
YB DIB
CO
MI
BJA
ZB
OU
BYA
NB
KM
BA
DIB
RJH
ISA
BB
SAM
BA
QIB
KA
AA
LB
SFR
OIB
BA
RN
BC
BQ
KM
ASQ
QN
BK
KC
BK
AD
CB
UN
BR
IBL
BK
SBA
LIN
MA
NSG
BFG
BG
BK
MA
RK
DH
BK
CIE
BB
UR
GK
FIN
CB
DA
UB
EGB
ESI
BC
RA
KB
AN
KEN
BD
NB
KN
BA
DTA
MW
EEL
HD
BK
May 23 2012
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Important Notice. 138
How costly will it be for MENA banks to address their short-term liquidity deficit?
In order to address their short-term liquidity gap, MENA banks with low LCR ratios can issue
medium-term debt and increase their cash positions. This carry trade, however, comes with a
cost and expensing it could put pressure on margins.
We illustrate in the chart below the cost that the MENA banks have to carry in order to close
their short-term liquidity gap. Assuming a carrying cost of 150bps, the impact on net interest
margins can be up to 17bps and up to 9% on pre-tax earnings. The highest impact is on NBAD
(9.4% of earnings and 17bps on NIM) and NBK (4.9% of earnings and 0.13% impact on NIM).
Most banks, especially UAE banks like NBAD and ENBD, have already addressed their short-
term liquidity gaps by aggressively issuing medium-term notes and significantly cutting their
loan/deposit ratios. We thus expect the impact to be smaller going forward.
Exhibit 180: Impact on NIM & net profit of closing liquidity gap
Source: Company Data, Arqaam Capital Research
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
0.1%
0.2%
0.3%
0.4%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
NBAD Tamweel ENBD NBK HDB SIB RAKBANK EGB AUB
Impact on PBT Impact on NIM
May 23 2012
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Important Notice. 139
Exhibit 181: Bond issuances in the region
Source: Bloomberg, Company Data, Arqaam Capital Research
Ticker Coupon Currency Issue Amount (mn) Issue Date Maturity
NBAD UH 4.60% HKD 100 Jan-2011 Jan-2021
FGB UH 3.00% CHF 200 Feb-2011 Feb-2016
ADCB UH 3.00% CHF 150 Mar-2011 Dec-2015
BJAZ AB 2.63% SAR 1,000 Mar-2011 Mar-2021
Emirates UH 1.99% USD 332 May-2011 May-2018
Emirates UH 1.67% USD 200 Jun-2011 Jun-2013
BYB LB 7.00% USD 300 Jun-2011 Jun-2021
NBAD UH 2.60% JPY 10,000 Jul-2011 Jul-2026
FGB UH 3.80% USD 650 Jul-2011 Jul-2016
NBAD UH 4.80% USD 20 Sep-2011 Sep-2036
Emirates UH 2.04% USD 193 Nov-2011 Nov-2013
ADCB UH 4.07% USD 500 Nov-2011 Nov-2016
Emirates UH 1.60% USD 5 Jan-2012 Jul-2012
Emirates UH 1.89% USD 25 Jan-2012 Jan-2014
Emirates UH 1.75% USD 6 Feb-2012 Aug-2012
Emirates UH 1.94% USD 100 Feb-2012 Feb-2014
Emirates UH 1.70% USD 4 Feb-2012 Aug-2012
Emirates UH 3.74% USD 20 Feb-2012 Feb-2017
QNB QD 3.38% USD 1,000 Feb-2012 Feb-2017
Emirates UH 1.52% USD 7 Mar-2012 Sep-2012
Emirates UH 4.88% CNY 1,000 Mar-2012 Mar-2015
MASQ UH 2.17% USD 50 Mar-2012 Mar-2014
Emirates UH 1.92% USD 15 Mar-2012 Mar-2014
Emirates UH 2.25% USD 4 Mar-2012 Mar-2013
Emirates UH 2.22% USD 15 Mar-2012 Mar-2013
Emirates UH 2.14% USD 8 Mar-2012 Mar-2013
NBAD UH 3.25% USD 750 Mar-2012 Mar-2017
Emirates UH 4.63% USD 1,000 Mar-2012 Mar-2017
SABB AB 2.09% SAR 1,500 Mar-2012 Mar-2017
Emirates UH 3.77% USD 5 Mar-2012 Mar-2017
Emirates UH 1.55% USD 20 Mar-2012 Sep-2012
Emirates UH 1.60% USD 36 Mar-2012 Sep-2012
Emirates UH 2.21% USD 32 Mar-2012 Apr-2013
CBQ QD 3.76% USD 500 Mar-2012 Mar-2017
ADCB UH 5.10% USD 50 Apr-2012 Apr-2027
NBAD UH 3.95% HKD 335 Apr-2012 Apr-2022
Emirates UH 2.10% USD 6 Apr-2012 Apr-2013
Emirates UH 1.32% USD 19 Apr-2012 Oct-2012
DIB UH 4.75% USD 500 May-2012 May-2017
May 23 2012
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Important Notice. 140
Net stable funding ratio: MENA banks more liquid than most global banks on longer term
structural ratio
The second measure introduced by the Basel committee, the Net Stable Funding Ratio (NSFR)
is a more structural measure with the purpose of addressing longer-term liquidity. It insures
that longer-term assets are funded by more stable medium or longer-term liability and equity
financing. The NSFR aims to limit over-reliance on short-term wholesale funding during times
of buoyant market liquidity and encourage better assessment of liquidity risk across all on- and
off-balance sheet items. The ratio specifies a minimum required amount of funding that is
expected to be stable over a 1-year horizon based on liquidity risk factors assigned to assets
and off-balance sheet liquidity.
Exhibit 182: Net stable funding ratio
Source: Company Data, Arqaam Capital Research
We calculate net stable funding ratios as of end of FY 11A based on the banks’ asset and
liability maturity profiles. Saudi banks top our NSFR calculations with an average of 140%,
while Lebanese and Egyptian banks also remain very liquid given the long-term nature of term
deposits, high liquidity of government securities and the high share of short-term corporate
loans held by Egyptian banks. Worst off are Al Khaliji (67%), AUB (68%), QIB (74%), NBAD
(81%), FGB (87%) and CBQ (71%). However, we expect GCC Central banks to apply a less
punitive approach regarding government deposits and corporate deposits as only retail
deposits are considered sticky by the Basel Committee, and therefore their NSFR could
substantially end up higher.
We calculate an average NSFR for Saudi banks in excess of 140% (Alinma the lowest but
remains higher than 100% and Bank Al Jazira the best at 238%), 184% for Lebanese banks,
114% for Egyptian banks (EGB the worst at 94% and CAE the best with 127%), 105% for Omani
banks, 91% for Qatari banks (Al Khaliji the worst at 67% and QIIB the best at 138%), 99% for
UAE banks (with NBAD being the lowest but still not far from the 100% threshold and
proactively working to improve its liquidity by issuing medium-term debt securities), 107% for
Kuwaiti banks with Gulf Bank the worst at 90%. These calculations take into account a
relatively harsh treatment of corporate and government deposits and we do not rule out local
0%
50%
100%
150%
200%
250%
BJA
ZH
DB
KA
UD
IB
LOM
SAM
BA
AA
AL
SAB
BQ
IIKB
OU
BYA
NSI
BC
BSF
RA
RN
BC
IEB
ALB
IR
IBL
RJH
ID
IBB
UR
GM
ASQ
NSG
BC
OM
IA
LIN
MA
OIB
BM
AR
KB
YBB
KSB
AD
IBC
BD
BK
MB
TAM
WEE
LN
BK
UN
BR
AK
BA
NK
EGB
EEN
BD
KFI
NA
DC
BD
HB
KG
BK
QN
BK
FGB
NB
AD
QIB
KC
BQ
KA
UB
KC
BK
BO
B
May 23 2012
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Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 141
central banks taking a more lenient approach, considering the historically high stickiness of the
deposits.
Both of the LCR and NSFR measures address the fragilities identified by previous crises and
attempt to increase the resilience of banks to liquidity shocks by establishing minimum levels
of buffers and structurally matching the term structure of both sides of the balance sheet.
Although these measures have been highlighted among the most challenging aspects of the
new capital and liquidity framework, we don’t see the region vulnerable to a liquidity crisis
such as the one experienced in Ireland.
Net interbank position: NBK, AUB, Gulf Bank, Al Khaliji weakest
We also look at another liquidity measure, the net interbank position, which gives us further
insight into banks' liquidity positions. We would be concerned if a bank has a high reliance on
interbank funding, as it would be depending on short term money which can easily vanish,
making it harder for the bank to withstand a distressed financial market. Kuwait and some of
the Qatari banks had poor interbank positions with NBK, Ahli United and Al Khaliji being the
weakest, although most banks had positive net interbank positions once their cash positions
were included.
Exhibit 183: Net interbank position as percentage of total assets
Source: Company Data, Arqaam Capital Research
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
BLO
M
BYB
CIE
B
NSG
B
QIIK
ALB
I
AU
DI
AD
IB
CO
MI
ALI
NM
A
BJA
Z
OIB
B
MA
SQ
EGB
E
QN
BK
BO
B
MA
RK
BU
RG
CB
D
UN
B
CB
QK
RA
KB
AN
K
SAB
B
BK
SB
RJH
I
HD
BK
BO
UB
YAN
FGB
QIB
K
DH
BK
BSF
R
ENB
D
AD
CB
DIB
RIB
L
SIB
C
BK
MB
SAM
BA
GB
K
TAM
WEE
L
AA
AL
AR
NB
NB
AD
KFI
N
KC
BK
AU
B
NB
K
FY 10A FY 11A FY 12e
May 23 2012
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Important Notice. 142
Exhibit 184: Net interbank position as percentage of total assets excluding cash
Source: Company Data, Arqaam Capital Research
Exhibit 185: Net interbank position as percentage of total assets including investments
Source: Company Data, Arqaam Capital Research
Exhibit 186: FY 12e Redemptions (LCUmn)
Source: Company Data
-30%
-20%
-10%
0%
10%
20%
30%
QIIK
AD
IBA
LBI
BLO
MB
JAZ
MA
RK
ALI
NM
AB
YBA
UD
IU
NB
EGB
EC
IEB
QIB
KA
DC
BC
OM
IN
SGB
FGB
SIB
CR
AK
BA
NK
BK
SBC
BD
MA
SQQ
NB
KR
JHI
HD
BK
BO
BB
SFR
BO
UB
YAN
SAB
BC
BQ
KTA
MW
EEL
OIB
BEN
BD
DIB
RIB
LB
KM
BA
AA
LK
FIN
BU
RG
NB
AD
AR
NB
SAM
BA
DH
BK
KC
BK
AU
BG
BK
NB
K
FY 10A FY 11A FY 12e
0%
10%
20%
30%
40%
50%
60%
70%
BYB
BLO
MC
IEB
BU
RG
NSG
BA
LIN
MA
QIIK
MA
SQA
LBI
AU
DI
OIB
BD
HB
KC
OM
IA
DIB
QIB
KG
BK
BO
BQ
NB
KB
JAZ
BO
UB
YAN
BK
MB
UN
BEG
BE
CB
QK
AU
BK
CB
KC
BD
SAM
BA
MA
RK
SIB
CK
FIN
ENB
DN
BK
SAB
BB
KSB
RJH
IR
IBL
NB
AD
DIB
RA
KB
AN
KH
DB
KA
DC
BFG
BB
SFR
AR
NB
AA
AL
TAM
WEE
L
FY 10A FY 11A FY 12e
UAE KSA Qatar Kuwait Egypt Oman Lebanon Bahrain
ADCB 9,556 ARNB - CBQK 2,548 NBK - CIEB na BKMB 70 AUDI - AUB 2,151
ADIB - RJHI - DHBK - KFIN - COMI 83 BKSB - BLOM -
CBD - BSFR - QIBK - GBK - HDBK 346 OIBB - BYB -
DIB 2,357 RIBL - QNBK 6,732 BURG - NSGB na BOB -
ENBD 8,465 SAMBA - MARK - BOUBYAN - EGBE na
FGB 6,612 SABB - KCBK -
NBAD 3,546 AAAL - QIIK -
UNB - ALBI -
TAMWEEL 350 BJAZ -
MASQ - SIBC -
RAKBANK - ALINMA -
May 23 2012
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Important Notice. 143
Exhibit 187: Maturity Gap as percentage of total assets
Source: Company Data, Arqaam Capital Research
AL Rajhi has the largest liquidity mismatch, followed by Bank Audi. However, most of the
mismatch comes from sticky deposits and we are therefore not overly concerned with those
positions.
We expect banks to extend the maturities of their deposits to at least 1 month (helping their
LCR) or 1 year (helping their NSFR) by incentivizing their clients to switch to time deposits. NBK,
Burgan and Boubyan, Bank Muscat and the KSA banks greatly rely on current accounts
whereas UNB, FGB, MARK and Al Khaliji have a very high share of time deposits and could
potentially lower the cost of funding.
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
RJH
IA
UD
IRA
KBA
NK
QN
BKKC
BKA
DIB
BLO
MCB
QK
NBA
DD
HBK
ALB
IBO
BBY
BG
BKA
DCB
QIB
KRI
BLN
BKQ
IIKU
NB
SABB
SAM
BAEN
BD FGB
ALI
NM
AA
AA
LM
ARK
CBD
BKSB
MA
SQ DIB
BSFR
KFIN
BURG
AU
BBO
UBY
AN
BKM
BSI
BCA
RNB
BJA
ZTA
MW
EEL
< 3 months 3 months - 1 year > 1 year
*LCU mn (except Lebanon in LCU bn)
May 23 2012
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Important Notice. 144
Exhibit 188: Deposits breakdown in FY 11A
Source: Company Data, Arqaam Capital Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BO
UB
YA
N
NB
K
BU
RG
AL
BI
BK
MB
KF
IN
SA
MB
A
AA
AL
AR
NB
AL
INM
A
SA
BB
BS
FR
RIB
L
RA
KB
AN
K
CB
D
RJH
I
QN
BK
OIB
B
EN
BD
BJA
Z
MA
SQ
DIB
CB
QK
AD
IB
DH
BK
CO
MI
AD
CB
QII
K
NS
GB
GB
K
NB
AD
CIE
B
BK
SB
SIB
C
EG
BE
AU
B
BY
B
AU
DI
BL
OM
QIB
K
KC
BK
BO
B
HD
BK
UN
B
MA
RK
FG
B
Current Accounts Savings accounts Time deposits Others
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 145
M & A: Banks to become more confident: What to play?
We see continued merger and acquisition activity in the MENA region. This is driven by:
Sellers being short in capital, e.g. SG, CASA, Dexia, NBG and RBS, the parent companies of NSGB, Credit Agricole, DenizBank, Finansbank and core shareholder of SHB respectively.
Strong need for weaker players to become part of better capitalized and better managed financial institutions (DIB purchased Tamweel, ENBD purchased Dubai Bank. We expect ENBD or DIB to purchase Amlak).
Acquirers drive to expand geographically and into all business lines, i.e. NBK (given large surplus capital and limited growth in Kuwait), QNB (strong capital base, willing to become a regional leader), FGB (well capitalized, particularly eying Egypt), Qinvest buying the investment bank of EFG-Hermes.
We also expect consolidation in a fragmented market in insurance, with too many very small players with low profitability.
Saudi Hollandi bank: A new core shareholder could be appositive catalyst
We believe a 40% stake in Saudi Hollandi Bank is up for sale by RBS, which it acquired in 2007
when it purchased ABN AMRO, who itself had been looking to sell its stake. We believe RBS’s,
willingness to sell should increase because of a more punitive capital deduction under Basel III,
where 100% of its stake will need to be deducted from Tier-1 instead of only 50%, further
reducing its already weak capital base. RBS has qualified its SHB’s stake as non-core.
We see the well capitalized NBK, Standard Chartered, QNB, FGB and Barclays as potential
buyers, as the first two already expressed an interest in the stake back in FY 09A. With a new
strategic investor, we believe SHB could again implement a growth strategy, which could make
it a more compelling investment. An acquisition at the current market price would result in an
ROI of 11.1% in year 1 and 12.3% in year 2, which we believe is attractive, despite the more
punitive treatment of associates under Basel 3.
Boubyan too expensive, may fall if NBK is not allowed to buy 100% of company
Boubyan, at over 4x tNAV12e and a P/E13e of 22.6x is already extremely expensive, and we
think that after NBK acquires the 12.7% it is allowed to buy, the shares would fall substantially,
as the implicit valuation support from NBK buying up shares would fall away. We do not expect
the Kuwait Central Bank to allow NBK to buy 100% of the company, though the bank has
expressed its willingness to buy 100% at some point. The acquisition would only yield an ROI of
4% for NBK, well below its cost of capital. It is hard to view this acquisition as being in the best
interests of NBK’s shareholders, even though organic growth opportunities are very limited in
Kuwait and Boubyan offers an opportunity to accelerate NBK’s growth outlook.
Egyptian Gulf Bank: too expensive for any M&A deal to succeed, CAE way more attractive
Egyptian Gulf Bank is also too expensive for a take-over to succeed and as a consequence is
unlikely to Outperform. A nil premium offer would result in an ROI of only 7% and would
require substantial paid goodwill. On the other hand, we see Credit Agricole Egypt as an
attractive take-over target given its valuation (we calculate an ROI 17% in year 1 and 20.8% in
year 2) and the tight capital base of Credit Agricole SA, its parent company. The potential sale
May 23 2012
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Important Notice. 146
by CASA is highly dependent on lobbying efforts with the EU Committee to allow double
counting of capital.
We also expect the French banks to be willing to sell other assets such as Credit du Maroc (77%
owned by Credit Agricole SA, Not rated) or Union Internationale de Banq in Tunisia (57%
owned by SocGen, Not Rated). Additionally, we expect NBG to divest Finansbank, its Turkish
subsidiary. Dexia is in the process of selling DenizBank.
The acquisition of Denizbank at P/tNAV11 of c. 1.3x would add 9.7% to EPS and would reduce
QNB’s Tier-1 by 7.9% to 15.8%.
EFG still below its Fair value, but unlikely to close gap in short-term
EFG-Hermes should enjoy a capital gain with the tie up with Qinvest. We expect EFG-Hermes
to exercise its put option after 12 months and divest its remaining stake of 40% in the
investment banking platform for c. USD 165mn. Tangible NAV is only EGP 8.6 ps. However,
valuing CL at P/E13e 7x, EGP4.7 ps may be recoverable of the goodwill. Moreover, EFG has a
Private Equity business that we could value at EGP 1.4 ps (7x EGP 144mn in fees in FY 11A
minus 5% of assets under management as a capital requirement). Together with the capital
gain of EGP 2.1, the potential Fair Value could be c. EGP 16.6, 41% above the share price. But it
highly depends on the potential exit price of CL and Private Equity, and the distribution of
further cash dividend after the EGP 4 may take a while and the exit of the remaining take of
40% can only be done after 12-36 months, and hence the stock could continue trading at
below its fair value, as the surplus capital should be generating returns that are below the cost
of equity.
Large increase in intangibles for Dubai bank, but not subtracted from Tier-1 capital
ENBD acquired Dubai bank for virtually nil. It created AED 2.7bn loan loss provisions which
wiped out the Tier-1 of Dubai Bank, but on top of that created AED 1.2bn provision offset by
AED 1.2bn of new intangibles reflecting the valuation of deposits & government guarantees,
which are included in Tier-1. Usually intangibles are not included in Tier-1 capital.
May 23 2012
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Important Notice. 147
Exhibit 189: Potential takeover targets
Source: Arqaam Capital Research
Societe Generale also owns a 57.2% stake in Union Internationale de Banq in Tunisia (with
loans of EUR4,735mn and deposits of EUR6,638mn).
SELLER BUYER
CAE CASA QNB, QIB, FGB, NBK
NSGB SG QNB, QIB, FGB, NBK
Egypt Gulf Bank MISR, Al Naeem
Deniz Bank Dexia QNB
Credit du Maroc Credit Agricole QNB
40% Saudi Hollandi stake RBS Barclays, STAN, FGB, QNB, NBK
Beltone Shareholders
Amlak Dubai gov ENBD, DIB
Anything in Africa & GCC EFG
Boubyan NBK
Maltese bank Burgan
May 23 2012
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Important Notice. 148
Exhibit 190: M&A Scenarios
Source: Company data, Arqaam capital
FGB's Acquisition of NSGB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (AED) 1.22 1.40 1.59 1.22 1.40 1.59
EPS: new (AED) 1.38 1.60 1.85 1.35 1.57 1.82
Change 12.4% 14.1% 16.4% 10.1% 12.0% 14.6%
Return on investment 11.5% 13.5% 16.2% 9.2% 10.8% 12.9%
Tier-1 ratio: old 18.0% 17.7% 17.3% 18.0% 17.7% 17.3%
Tier-1 ratio: new 13.2% 13.2% 13.0% 12.3% 12.4% 12.3%
Net impact on T1 from the acquisition (4.8%) (4.5%) (4.3%) (5.7%) (5.3%) (5.1%)
CET1 ratio: old 13.8% 13.6% 13.4% 13.8% 13.6% 13.4%
CET1 ratio: new 9.9% 10.3% 10.5% 9.0% 9.5% 9.8%
Net impact on CET1 from the acquisition (3.8%) (3.3%) (2.8%) (4.7%) (4.1%) (3.6%)
tNAV: old 7.55 8.51 9.18 7.55 8.51 9.18
tNAV: new 6.96 8.10 9.01 6.44 7.56 8.47
Net impact on tNAV (7.8%) (4.8%) (1.8%) (14.7%) (11.2%) (7.7%)
FGB's Acquisition of CAE 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (AED) 1.22 1.40 1.59 1.22 1.40 1.59
EPS: new (AED) 1.26 1.45 1.66 1.25 1.44 1.65
Change 2.8% 3.4% 4.4% 2.3% 3.0% 4.0%
Return on investment 11.5% 14.1% 18.0% 9.2% 11.2% 14.4%
Tier-1 ratio: old 18.0% 17.7% 17.3% 18.0% 17.7% 17.3%
Tier-1 ratio: new 16.3% 16.1% 15.8% 16.1% 15.9% 15.6%
Net impact on T1 from the acquisition (1.7%) (1.6%) (1.5%) (1.9%) (1.8%) (1.7%)
CET1 ratio: old 13.8% 13.6% 13.4% 13.8% 13.6% 13.4%
CET1 ratio: new 12.4% 12.4% 12.2% 12.2% 12.1% 12.0%
Net impact on CET1 from the acquisition (1.3%) (1.2%) (1.1%) (1.5%) (1.5%) (1.3%)
tNAV: old 7.55 8.51 9.18 7.55 8.51 9.18
tNAV: new 7.44 8.43 9.14 7.32 8.30 9.01
Net impact on tNAV (1.4%) (0.9%) (0.4%) (3.0%) (2.4%) (1.7%)
FGB's Acquisition of EGB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (AED) 1.22 1.40 1.59 1.22 1.40 1.59
EPS: new (AED) 1.23 1.41 1.59 1.22 1.40 1.59
Change 0.2% 0.3% 0.5% (0.2%) (0.0%) 0.2%
Return on investment (earnings/price paid) 5.6% 6.1% 7.2% 4.5% 4.9% 5.8%
Tier-1 ratio: old 18.0% 17.7% 17.3% 18.0% 17.7% 17.3%
Tier-1 ratio: new 17.3% 17.0% 16.7% 17.1% 16.9% 16.6%
Net impact on T1 from the acquisition (0.7%) (0.7%) (0.6%) (0.9%) (0.8%) (0.8%)
CET1 ratio: old 13.8% 13.6% 13.4% 13.8% 13.6% 13.4%
CET1 ratio: new 13.1% 13.0% 12.8% 12.9% 12.8% 12.6%
Net impact on CET1 from the acquisition (0.7%) (0.6%) (0.6%) (0.8%) (0.8%) (0.8%)
tNAV: old 7.55 8.51 9.18 7.55 8.51 9.18
tNAV: new 7.43 8.40 9.08 7.35 8.31 8.99
Net impact on tNAV (1.6%) (1.3%) (1.0%) (2.7%) (2.3%) (2.0%)
FGB's Acquisition of 40% of SHB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (AED) 1.22 1.40 1.59 1.22 1.40 1.59
EPS: new (AED) 1.30 1.48 1.69 1.28 1.47 1.67
Change 6.0% 5.9% 6.3% 4.5% 4.6% 5.2%
Return on investment 10.0% 10.6% 11.8% 8.0% 8.5% 9.4%
Tier-1 ratio: old 18.0% 17.7% 17.3% 18.0% 17.7% 17.3%
Tier-1 ratio: new 15.2% 15.1% 15.0% 14.5% 14.5% 14.4%
Net impact on T1 from the acquisition (2.8%) (2.6%) (2.4%) (3.5%) (3.2%) (3.0%)
CET1 ratio: old 13.8% 13.6% 13.4% 13.8% 13.6% 13.4%
CET1 ratio: new 12.9% 13.0% 13.0% 12.2% 12.3% 12.4%
Net impact on CET1 from the acquisition (0.9%) (0.6%) (0.4%) (1.6%) (1.3%) (1.0%)
Nil premium 25% premium
Nil premium 25% premium
Nil premium 25% premium
Nil premium 25% premium
May 23 2012
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Important Notice. 149
Exhibit 191: M&A scenarios (continued)
Source: Company Data, Arqaam Capital
QNB's Acquisition of NSGB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93 11.91 13.17 14.93
EPS: new (QAR) 12.70 14.12 16.11 12.57 13.99 15.98
Change 6.6% 7.2% 7.9% 5.5% 6.2% 7.0%
Return on investment 12.5% 14.0% 16.2% 10.0% 11.2% 12.9%
Tier-1 ratio: old 23.6% 23.7% 22.7% 23.6% 23.7% 22.7%
Tier-1 ratio: new 17.7% 18.4% 18.0% 16.8% 17.6% 17.4%
Net impact on T1 from the acquisition (5.9%) (5.4%) (4.7%) (6.8%) (6.2%) (5.4%)
CET1 ratio: old 23.1% 23.2% 22.4% 23.1% 23.2% 22.4%
CET1 ratio: new 17.6% 18.1% 18.0% 16.7% 17.3% 17.3%
Net impact on CET1 from the acquisition (5.6%) (5.1%) (4.4%) (6.5%) (5.9%) (5.1%)
tNAV: old 59.85 68.12 76.53 59.85 68.12 76.53
tNAV: new 56.91 66.00 75.40 54.60 63.65 73.06
Net impact on tNAV (4.9%) (3.1%) (1.5%) (8.8%) (6.6%) (4.5%)
QNB's Acquisition of CAE 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93 11.91 13.17 14.93
EPS: new (QAR) 12.10 13.41 15.25 12.07 13.38 15.22
Change 1.6% 1.8% 2.1% 1.4% 1.6% 1.9%
Return on investment 13.4% 15.5% 18.9% 10.7% 12.4% 15.1%
Tier-1 ratio: old 23.6% 23.7% 22.7% 23.6% 23.7% 22.7%
Tier-1 ratio: new 21.4% 21.6% 20.8% 21.1% 21.4% 20.7%
Net impact on T1 from the acquisition (2.3%) (2.2%) (1.9%) (2.5%) (2.3%) (2.1%)
CET1 ratio: old 23.1% 23.2% 22.4% 23.1% 23.2% 22.4%
CET1 ratio: new 20.9% 21.1% 20.6% 20.7% 20.9% 20.4%
Net impact on CET1 from the acquisition (2.2%) (2.1%) (1.8%) (2.4%) (2.3%) (2.0%)
tNAV: old 59.85 68.12 76.53 59.85 68.12 76.53
tNAV: new 59.45 67.85 76.44 58.95 67.35 75.93
Net impact on tNAV (0.7%) (0.4%) (0.1%) (1.5%) (1.1%) (0.8%)
QNB's Acquisition of EGB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93 11.91 13.17 14.93
EPS: new (QAR) 11.92 13.19 14.97 11.90 13.17 14.95
Change 0.1% 0.1% 0.2% -0.1% 0.0% 0.1%
Return on investment 5.6% 6.1% 7.2% 4.5% 4.9% 5.8%
Tier-1 ratio: old 23.6% 23.7% 22.7% 23.6% 23.7% 22.7%
Tier-1 ratio: new 22.9% 23.0% 22.1% 22.7% 22.9% 22.0%
Net impact on T1 from the acquisition (0.8%) (0.7%) (0.6%) (0.9%) (0.8%) (0.7%)
CET1 ratio: old 23.1% 23.2% 22.4% 23.1% 23.2% 22.4%
CET1 ratio: new 22.3% 22.4% 21.7% 22.2% 22.3% 21.6%
Net impact on CET1 from the acquisition (0.8%) (0.8%) (0.7%) (1.0%) (0.9%) (0.8%)
tNAV: old 68.12 76.53 86.20 68.12 76.53 86.20
tNAV: new 67.54 76.01 85.75 67.15 75.63 85.36
Net impact on tNAV (0.8%) (0.7%) (0.5%) (1.4%) (1.2%) (1.0%)
QNB's Acquisition of 40% of SHB 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93
EPS: new (QAR) 12.16 13.44 15.23
Change 2.1% 2.0% 2.0%
Tier-1 ratio: old 23.6% 23.7% 22.7%
Tier-1 ratio: new 22.3% 22.6% 21.7%
Net impact on T1 from the acquisition (1.3%) (1.2%) (1.0%)
CET1 ratio: old 23.1% 23.2% 22.4%
CET1 ratio: new 20.5% 20.8% 20.4%
Net impact on CET1 from the acquisition (2.6%) (2.3%) (2.0%)
Nil premium 25% premium
Nil premium 25% premium
Nil premium 25% premium
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 150
Exhibit 192: M&A Scenarios (continued)
Source: Company Data, Arqaam Capital
QNB's Acquisition of Deniz Bank 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93 11.91 13.17 14.93
EPS: new (QAR) 13.30 14.76 16.74 12.99 14.45 16.42
Change 11.7% 12.1% 12.1% 9.1% 9.7% 10.0%
Return on investment (earnings/price paid) 14.5% 16.0% 17.6% 11.2% 12.3% 13.5%
Tier-1 ratio: old 23.6% 23.7% 22.7% 23.6% 23.7% 22.7%
Tier-1 ratio: new 16.1% 16.8% 16.8% 15.0% 15.8% 16.0%
Net impact on T1 from the acquisition (7.6%) (7.0%) (5.9%) (8.7%) (7.9%) (6.7%)
CET1 ratio: old 23.1% 23.2% 22.4% 23.1% 23.2% 22.4%
CET1 ratio: new 15.7% 16.4% 16.6% 14.6% 15.4% 15.7%
Net impact on CET1 from the acquisition (7.4%) (6.8%) (5.8%) (8.5%) (7.7%) (6.6%)
tNAV: old 59.85 68.12 76.53 59.85 68.12 76.53
tNAV: new 59.60 69.78 80.29 56.05 66.19 76.70
Net impact on tNAV (0.4%) 2.4% 4.9% (6.4%) (2.8%) 0.2%
QNB's Acquisition of 40% Finansbank 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (QAR) 11.91 13.17 14.93 11.91 13.17 14.93
EPS: new (QAR) 12.34 13.68 15.53 12.25 13.59 15.44
Change 3.6% 3.9% 4.0% 2.9% 3.2% 3.4%
Return on investment (earnings/price paid) 11.0% 12.1% 13.3% 8.8% 9.7% 10.7%
Tier-1 ratio: old 23.6% 23.7% 22.7% 23.6% 23.7% 22.7%
Tier-1 ratio: new 19.7% 20.2% 19.8% 19.0% 19.6% 19.3%
Net impact on T1 from the acquisition (4.0%) (3.5%) (2.9%) (4.6%) (4.1%) (3.4%)
tNAV: old 68.12 76.53 86.20 68.12 76.53 86.20
tNAV: new 66.33 75.38 85.77 64.54 73.59 83.98
Net impact on tNAV (2.6%) (1.5%) (0.5%) (5.3%) (3.8%) (2.6%)
ENBD's Acquisition of Amlak Finance 2012e 2013e 2014e 2012e 2013e 2014e
ENBD’s capital base 45,592 28,905 23,794 47,304 31,436 26,669
Capital base after consolidation 47,097 30,410 25,298 49,185 33,316 28,549
Change 3.3% 5.2% 6.3% 4.0% 6.0% 7.1%
ENBD’s RWA 222,075 222,075 222,075 244,118 244,118 244,118
Combined RWA 233,661 233,661 233,661 255,705 255,705 255,705
Change 5.2% 5.2% 5.2% 4.7% 4.7% 4.7%
Amlak’s loan portfolio write-off: 10% 762 762 762 762 762 762
Amlak’s investment portfolio write-off: 50% 1,985 1,985 1,985 1,985 1,985 1,985
Adjusted capital 44,350 27,663 22,552 46,438 30,570 25,803
Adjusted capital adequacy ratio (new) 18.98% 11.84% 9.65% 18.16% 11.96% 10.09%
ENBD’s stand-alone capital adequacy ratio (old) 20.53% 13.02% 10.71% 19.38% 12.88% 10.92%
Impact (1.5%) (1.2%) (1.1%) (1.2%) (0.9%) (0.8%)
NBK's Acquisition of CAE 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (KWD) 0.07 0.07 0.08 0.07 0.07 0.08
EPS: new (KWD) 0.08 0.08 0.08 0.08 0.08 0.08
Change 3.1% 3.9% 4.7% 2.6% 3.5% 4.3%
Return on investment (earnings/price paid) 13.4% 16.3% 20.1% 10.7% 13.1% 16.1%
Tier-1 ratio: old 19.0% 19.7% 20.2% 19.0% 19.7% 20.2%
Tier-1 ratio: new 11.4% 12.1% 12.7% 11.2% 11.9% 12.5%
Net impact on T1 from the acquisition (7.5%) (7.6%) (7.5%) (7.7%) (7.8%) (7.7%)
CET1 ratio: old 0.18 0.19 0.19 0.18 0.19 0.19
CET1 ratio: new 0.11 0.12 0.12 0.11 0.11 0.12
Net impact on CET1 from the acquisition (7.1%) (7.2%) (7.1%) (7.3%) (7.4%) (7.3%)
tNAV: old 0.49 0.53 0.54 0.49 0.53 0.54
tNAV: new 0.48 0.53 0.54 0.48 0.52 0.53
Net impact on tNAV (1.1%) (0.7%) (0.2%) (2.4%) (1.8%) (1.3%)
Nil premium 25% premium
25% premium
20% premium 30% premium
Nil premium 25% premium
Nil premium
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 151
Exhibit 193: M&A Scenarios (continued)
Source: Company Data, Arqaam Capital
NBK's Acquisition of NSGB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (KWD) 0.07 0.07 0.08 0.07 0.07 0.08
EPS: new (KWD) 0.08 0.08 0.09 0.08 0.08 0.09
Change 12.5% 13.9% 15.9% 10.3% 11.9% 14.1%
Return on investment (earnings/price paid) 12.3% 13.6% 15.8% 9.8% 10.9% 12.7%
Tier-1 ratio: old 19.0% 19.7% 20.2% 19.0% 19.7% 20.2%
Tier-1 ratio: new 9.0% 9.8% 10.5% 8.1% 9.0% 9.7%
Net impact on T1 from the acquisition (10.0%) (9.9%) (9.7%) (10.8%) (10.7%) (10.5%)
CET1 ratio: old 0.18 0.19 0.19 0.18 0.19 0.19
CET1 ratio: new 0.09 0.09 0.10 0.08 0.09 0.09
Net impact on CET1 from the acquisition (9.3%) (9.2%) (9.1%) (10.2%) (10.0%) (9.8%)
tNAV: old 0.49 0.53 0.54 0.49 0.53 0.54
tNAV: new 0.45 0.50 0.53 0.42 0.47 0.50
Net impact on tNAV (7.7%) (5.1%) (2.5%) (13.7%) (10.6%) (7.6%)
NBK's Acquisition of 40% of SHB 2012e 2013e 2014e 2012e 2013e 2014e
EPS: old (KWD) 0.07 0.07 0.08 0.07 0.07 0.08
EPS: new (KWD) 0.08 0.08 0.08 0.08 0.08 0.08
Change 4.1% 4.1% 4.2% 4.1% 4.1% 4.2%
Return on investment (earnings/price paid) 10.0% 10.6% 11.8% 8.0% 8.5% 9.4%
Tier-1 ratio: old 19.0% 19.7% 20.2% 19.0% 19.7% 20.2%
Tier-1 ratio: new 17.1% 17.9% 18.6% 17.1% 17.9% 18.6%
Net impact on T1 from the acquisition (1.8%) (1.7%) (1.6%) (1.8%) (1.7%) (1.6%)
CET1 ratio: old 17.9% 18.7% 19.3% 17.9% 18.7% 19.3%
CET1 ratio: new 0.14 0.15 0.16 0.13 0.14 0.15
Net impact on CET1 from the acquisition (3.7%) (3.5%) (3.2%) (4.6%) (4.3%) (4.0%)
NBK's Acquisition of 12.7% Boubyan 2012e 2013e 2014e
EPS: old (KWD) 0.07 0.07 0.08
EPS: new (KWD) 0.07 0.07 0.08
Change (1.1%) (0.6%) (0.2%)
Return on investment (earnings/price paid) 1.5% 2.5% 3.5%
Tier-1 ratio: old 19.0% 19.7% 20.2%
Tier-1 ratio: new 17.1% 17.6% 18.0%
Net impact on T1 from the acquisition (1.9%) (2.1%) (2.2%)
CET1 ratio: old 17.9% 18.7% 19.3%
CET1 ratio: new 0.17 0.18 0.18
Net impact on CET1 from the acquisition (0.9%) (1.1%) (1.1%)
tNAV: old 0.53 0.54 0.55
tNAV: new 0.45 0.47 0.49
Net impact on tNAV (15.1%) (13.2%) (11.3%)
Nil premium 25% premium
Nil premium 25% premium
Nil premium
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 152
RORWA: The true strengths of a franchise
We strongly prefer to focus on RORWA (net profit/risk weighted assets) rather than on RoE as
the latter could easily be distorted by the banks’ capital position. A strong capital position – a
source of value as this allows for dividend payments or loan growth - reduces RoE, while a high
leverage, which caps future growth and dividend payments, boosts RoE and gives an inflated
view of the underlying performance. Having said that, RORWA is still distorted by contributions
from associates that do not generate risk weighted assets, but that are deducted from capital
ratios. We therefore adjust our RORWA analysis by grossing up all investments in associates,
including all nonfinancial associates.
Best in class: Rakbank, QNB, and Al Rajhi Bank
When comparing countries, it is clear that the Qatari banks are doing the best, followed by the
Egyptian banks. The least profitable markets are the UAE (due to lower net interest margins
and the highest cost of risk) and Lebanon (due to sharply increased capital requirements for
treasury bonds in foreign currencies).
Our RORWA rankings reveal that Rakbank, Al Rajhi Bank, QNB, QIIB and NBK should
consistently be the most profitable franchises within our coverage. Al Rajhi Bank enjoys an
extremely cheap deposit base and higher asset yields thanks to its retail and Islamic finance
tilt. However, QNB looks less profitable now than it did under our previous RORWA calculation
due to its high amount of associate interests. Nevertheless, QNB is helped by its very low cost
base and government guaranteed lending (resulting in a low risk weighting of assets and a low
structural cost of risk). Rakbank and FGB are the most profitable banks in the UAE (thanks to
their retail tilt, though regulatory changes should have a negative effect), while NBAD is doing
well too due to its solid asset quality and focus on public sector (same reasons as QNB), while
BLOM is the most profitable bank in Lebanon, thanks to its low cost/income ratio and slightly
higher asset quality. In Kuwait, NBK is doing best, followed by Burgan bank.
Worst: Shuaa Capital and DIB
At the bottom of the range are Shuaa Capital, DIB (because of low margins and the worst
structural cost of risk due to its real estate exposure), ENBD (due to very high loan loss
charges), Tamweel (due to its relatively high cost of funding and lack of noninterest revenue)
and HDB (as we assign much higher RWAs to its property activities).
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 153
Exhibit 194: FY 12e RWA/Assets
Source: Company Data, Arqaam Capital Research
Exhibit 195: FY 12e Revenues/RWA
Source: Company Data, Arqaam Capital Research
Exhibit 196: FY 12e Costs/RWA
Source: Company Data, Arqaam Capital Research
0%
20%
40%
60%
80%
100%
120%
ALI
NM
AD
IBB
SFR
RIB
LM
ASQ
TAM
WEE
LU
NB
BK
MB
BK
SBSA
MB
AA
AA
LK
CB
KB
JAZ
DH
BK
AR
NB
CB
DA
DIB
FGB
KFI
NC
BQ
KSA
BB
HD
BK
ENB
DSI
BC
OIB
BR
JHI
ALB
IA
DC
BN
SGB
AU
BR
AK
BA
NK
NB
AD
QIIK
EGB
EM
AR
KC
OM
IB
UR
GB
OB
NB
KA
UD
IB
YBG
BK
CIE
BB
LOM
QIB
KB
OU
BYA
NQ
NB
K
0%
2%
4%
6%
8%
10%
12%
14%
RA
KB
AN
KC
IEB
CO
MI
QN
BK
NSG
BR
JHI
QIB
KA
LBI
EGB
EN
BK
BO
UB
YAN
AU
DI
QIIK
CB
DG
BK
BU
RG
AD
IBB
LOM
KFI
NO
IBB
DH
BK
MA
RK
MA
SQ FGB
ENB
DC
BQ
KB
YBB
KM
BN
BA
DD
IBA
RN
BA
DC
BSA
BB
AU
BB
OB
BJA
ZSI
BC
UN
BSA
MB
AA
AA
LR
IBL
HD
BK
BK
SBA
LIN
MA
BSF
RK
CB
KTA
MW
EEL
-7
-6
-5
-4
-3
-2
-1
0
1
2
0%
1%
2%
3%
4%
5%
6%
7%
FGB
DIB
NB
AD
AD
IBA
DC
BQ
NB
KM
ASQ
MA
RK
QIB
KU
NB
BU
RG
AU
BA
UD
IC
BD
SIB
CB
OB
BSF
RTA
MW
EEL
DH
BK
ENB
DN
BK
GB
KQ
IIKB
LOM
SAM
BA
AA
AL
CB
QK
BK
MB
RIB
LB
KSB
KC
BK
BYB
SAB
BA
RN
BR
AK
BA
NK
CO
MI
RJH
IB
JAZ
HD
BK
ALI
NM
AB
OU
BYA
NN
SGB
ALB
IK
FIN
EGB
EO
IBB
CIE
B
FY 12e FY15e Change (bps)
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 154
Exhibit 197: FY 12e Cost/Income
Source: Company Data, Arqaam Capital Research
Exhibit 198: FY 12e PPP/RWA
Source: Company Data, Arqaam Capital Research
Exhibit 199: FY 12e Cost of Risk/RWA
Source: Company Data, Arqaam Capital Research
0%
10%
20%
30%
40%
50%
60%
70%
HD
BK
BJA
ZA
LBI
OIB
BA
LIN
MA
BK
SBB
OU
BYA
NK
FIN
BO
BC
IEB
MA
SQK
CB
KEG
BE
BYB
AU
DI
RA
KB
AN
KA
DIB
BK
MB
BLO
MSI
BC
BU
RG
DIB
RIB
LA
RN
BA
AA
LD
HB
KN
SGB
TAM
WEE
LC
OM
IEN
BD
AD
CB
QIB
KC
BQ
KN
BA
DA
UB
SAB
BB
SFR
NB
KC
BD
GB
KSA
MB
AR
JHI
UN
BQ
IIKFG
BQ
NB
KM
AR
K
0%
1%
2%
3%
4%
5%
6%
7%
8%
RA
KB
AN
KQ
NB
KR
JHI
CO
MI
NSG
BQ
IBK
NB
KQ
IIKC
IEB
MA
RK
CB
DG
BK
FGB
EGB
EB
UR
GB
LOM
ALB
ID
HB
KA
UD
IC
BQ
KU
NB
ENB
DN
BA
DA
DIB
SAB
BB
OU
BYA
NA
DC
BSA
MB
AA
UB
AR
NB
DIB
BK
MB
KFI
NM
ASQ
BSF
RSI
BC
AA
AL
BYB
OIB
BR
IBL
TAM
WEE
LB
OB
KC
BK
BK
SBB
JAZ
ALI
NM
AH
DB
K
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
GB
KEN
BD
RA
KB
AN
KD
IBC
BD
AD
CB
QIB
KA
DIB
MA
SQK
FIN
BO
UB
YAN
UN
BFG
BTA
MW
EEL
AU
BB
UR
GA
LBI
CIE
BQ
NB
KN
BA
DM
AR
KR
JHI
EGB
EN
SGB
SIB
CA
RN
BC
OM
IN
BK
BK
MB
DH
BK
CB
QK
AU
DI
SAB
BH
DB
KB
LOM
BK
SBR
IBL
AA
AL
ALI
NM
AB
YBB
JAZ
KC
BK
QIIK
BSF
RB
OB
OIB
BSA
MB
A
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 155
Exhibit 200: FY 12e Cost of Risk/Operating Profit
Source: Company Data, Arqaam Capital Research
Exhibit 201: FY 12e Zakat/Tax as % of Operating Profit
Source: Company Data, Arqaam Capital Research
Exhibit 202: FY 12e RoRWA*
Source: Company Data, Arqaam Capital Research
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
GB
KEN
BD
RA
KB
AN
KD
IBC
BD
AD
CB
QIB
KA
DIB
MA
SQK
FIN
BO
UB
YAN
UN
BFG
BTA
MW
EEL
AU
BB
UR
GA
LBI
CIE
BQ
NB
KN
BA
DM
AR
KR
JHI
EGB
EN
SGB
SIB
CA
RN
BC
OM
IN
BK
BK
MB
DH
BK
CB
QK
AU
DI
SAB
BH
DB
KB
LOM
BK
SBR
IBL
AA
AL
ALI
NM
AB
YBB
JAZ
KC
BK
QIIK
BSF
RB
OB
OIB
BSA
MB
A
0%
5%
10%
15%
20%
25%
NSG
BC
IEB
CO
MI
EGB
EH
DB
KA
UD
IB
YBB
OB
BU
RG
BLO
MB
KSB
RJH
IB
KM
BO
IBB
SAB
BA
RN
BA
UB
BO
UB
YAN
NB
KA
LBI
GB
KA
LIN
MA
KFI
NSI
BC
SAM
BA
RIB
LA
AA
LB
JAZ
NB
AD
KC
BK
BSF
RM
ASQ
AD
CB
UN
BEN
BD
DIB
QN
BK
QIB
KD
HB
KR
AK
BA
NK
CB
DA
DIB
FGB
TAM
WEE
LM
AR
KC
BQ
KQ
IIK
0%
1%
2%
3%
4%
5%
6%
RA
KB
AN
KQ
NB
KR
JHI
QIIK
NB
K*
ALB
IC
OM
IM
AR
KQ
IBK
NSG
BA
UD
IC
BQ
KD
HB
KFG
BSA
MB
AB
LOM
CB
DSA
BB
CIE
BB
SFR
NB
AD
AR
NB
AA
AL
EGB
ESI
BC
RIB
LO
IBB
BK
MB
AU
BB
UR
GU
NB
BO
UB
YAN
GB
KB
OB
AD
IBK
CB
KB
JAZ
BYB
ALI
NM
AA
DC
BB
KSB
KFI
NM
ASQ DIB
TAM
WEE
LH
DB
KEN
BD
* Albilad is 1.9% without special gains
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 156
Exhibit 203: RoRWA adjusted (in time)
Source: Company Data, Arqaam Capital Research
Exhibit 204: FY 12e: ROaE vs. Adjusted ROE
Source: Arqaam Capital Research
0%
1%
2%
3%
4%
5%
6%
RA
KB
AN
KR
JHI
QN
BK
ALB
IC
OM
IQ
IIKN
SGB
AU
DI
DH
BK
SAM
BA
FGB
MA
RK
QIB
KB
LOM
CB
DN
BK
CIE
BSA
BB
BSF
RN
BA
DA
AA
LA
RN
BO
IBB
RIB
LB
UR
GU
NB
BK
MB
CB
QK
SIB
CG
BK
EGB
EK
CB
KB
OB
BJA
ZB
YBA
UB
ALI
NM
AB
OU
BYA
NA
DIB
AD
CB
BK
SBM
ASQ
TAM
WEE
LD
IBK
FIN
HD
BK
ENB
D
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
RJH
IC
OM
IA
LBI
AU
DI
RA
KB
AN
KN
SGB
CIE
BQ
NB
KB
LOM
BO
BSA
BB
NB
AD
DH
BK
MA
RK
SAM
BA
FGB
BK
MB
AA
AL
AU
BQ
IIKB
SFR
AR
NB
NB
KA
DIB
CB
QK
BU
RG
CB
DB
KSB
RIB
LB
YBU
NB
BJA
ZQ
IBK
OIB
BK
FIN
SIB
CG
BK
DIB
EGB
EA
DC
BK
CB
KM
ASQ
BO
UB
YAN
HD
BK
ENB
DA
LIN
MA
TAM
WEE
L
ROaE Adjusted ROE
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 157
Insurance:
Robust GWP growth in conjunction with sustainable profitability
renders insurance sector very lucrative
We have a positive view on the GCC insurance sector names:
We expect double digit premium growth driven by the very low base. The market could increase 5 fold to catch up to the global average, driven by higher awareness, compulsory insurance, new distribution channels and increasing acceptance of Takaful insurance.
Insurance companies enjoy low combined ratios, though should edge up due to increasing competition and increased claims.
Robust capital positions allow for more aggressive asset allocation and future growth (increasing the leverage).
We expect consolidation to create economies of scale. Valuations are still very attractive, though we prefer a selective approach.
GCC offers tremendous long-term revenue growth for insurers
The GCC insurance industry is relatively small with very low levels of insurance penetration and
density, with the lowest penetration in Qatar, followed by KSA, while the UAE enjoys the
highest penetration in the region. The penetration rate in the GCC averaged 1.3%, well below
the global average of 6.9% according to Swiss Re. Particularly, the life insurance penetration is
very low at 0.16% of GDP vs. the global average of 4.0%.
Exhibit 205: We believe Qatar has the highest potential for growth for countries under our coverage, having the lowest premiums as % of GDP per capita
Source: IMF, BMI, Arqaam Capital Research
KSAQatar
UAE
Kuwait
Bahrain
Oman
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
2.4%
2.8%
10,000 30,000 50,000 70,000 90,000 110,000
GDP per capita in USD on X axis
Penetration rate on Y axis
May 23 2012
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UAE expected to experience the slowest growth, while KSA expected to experience to
toughest competition
We expect double digit growth in GWP in KSA and Qatar amid GDP growth and rising
demand for insurance services: In an effort to diversify away from hydrocarbons, as well as to
improve the social and health infrastructure of the nation, governments have embarked on
multiple projects funded by surging oil prices, spurring demand for several types of non-life
insurance services. The economic environment remains favorable, with the IMF estimating
growth of 2.6-5% real GDP growth for FY 12e in the GCC region, with Qatar (driven by
expanding natural gas exports) and Saudi Arabia taking the lead. Furthermore, we expect
positive contribution from a wider acceptance of Takaful and Islamic finance products, a wider
distribution such as bancassurance (now mostly conducted through direct sales and brokers),
improved awareness and increased mandatory coverage (motor liability is mandatory in all
GCC, medical insurance only in UAE and KSA). Growth should continue to be dominated by
motor, fire, property insurance and health insurance.
KSA insurance sector still has a long way: Life insurance is widely expected to grow in KSA,
with the introduction of family Takaful. Non-life insurance is also expected to grow as the
underserved market with a 0.78% penetration rate grows at a 5 year FY 11-16e CAGR of 10.8%.
We expect the Medical insurance segment to grow at a 5 year CAGR of c. 13%, as a result of an
increased penetration rate of that segment.
Exhibit 206: Rising penetration rates are expected to compound the growth driven by GDP
Source: BMI, IMF, Arqaam Capital Research
Exhibit 207: Insurance premiums (SARmn) are expected to grow at a 5 year CAGR of 11.0%
Source: BMI, IMF, Arqaam Capital Research
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
1.1%
1.2%
1.3%
1,000
1,500
2,000
2,500
3,000
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Nominal GDP (LHS) Penetration rate (RHS)
0%
6%
12%
18%
24%
30%
36%
5,000
10,000
15,000
20,000
25,000
30,000
35,000
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Insurance Premiums (LHS) Growth (RHS)
May 23 2012
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Qatar insurance sector expected to grow the most: Hikes in government expenditure and
overall vibrant economic activity coalesce to grow insurance premiums at the highest rate in
the region from a very low base. We expect non-life premiums to grow at a 5 year FY 11-16e
CAGR of 11.7%.
Exhibit 208: Rising penetration rates are expected to compound the growth driven by GDP
Source: BMI,IMF, Arqaam Capital Research
Exhibit 209: Insurance premiums (QARmn) are expected to grow at a 5 year CAGR of 11.8%
Source: BMI,IMF, Arqaam Capital Research
A more mature UAE insurance sector to experience moderate growth: Insurance penetration
rates stand at 1.86%, more than twice that of Qatar or KSA, though still well below the global
average. However a reviving economy is expected to boost demand, with non-life premiums
expected to grow at a 9.2% 5 year FY 11-16e CAGR.
Exhibit 210: Rising penetration rates (RHS) are expected to compound the growth driven by GDP (LHS)
Source: BMI,IMF, Arqaam Capital Research
Exhibit 211: Insurance premiums (AEDmn) are expected to grow at a 6 year CAGR of 9.4%
Source: BMI,IMF, Arqaam Capital Research
0.6%
0.7%
0.8%
0.9%
1.0%
1.1%
300
400
500
600
700
800
900
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Nominal GDP (LHS) Penetration rate (RHS)
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Insurance Premiums (LHS) Growth (RHS)
1.0%
1.5%
2.0%
2.5%
3.0%
700
900
1,100
1,300
1,500
1,700
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Nominal GDP (LHS) Penetration rate (RHS)
0%
4%
8%
12%
16%
20%
24%
28%
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Insurance Premiums (LHS) Growth (RHS)
May 23 2012
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Multitude of challenges (claims and price pressure), but RoE to remain high
Exhibit 212: Combined ratios have stabilized at 94% leaving room for possible rising loss ratios
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 213: Improving investment income should improve earnings margins going forward
Source: Company Data, Zawya, Arqaam Capital Research
Increased competition from local and foreign insurers may reduce margins: An increasing
number of foreign insurers have entered local markets through JVs or representative offices or
are serviced from foreign offices, and have been steadily growing market share. That, along
with the existence of numerous local insurers, has resulted in intense rivalry despite the strong
demand. There are currently 26 insurers in KSA and 57 in the UAE. Although the top 3 local
insurers in Qatar have a joint 65% of total market share, with over 50% for QIC, we expect the
entry and expansion of foreign insurers to exert pressure on locals, taking away their market
share. Therefore, we expect local insurers including QIC to cede market share to foreign
entrants. Particularly in health insurance, the fastest growing segment, we expect margin
pressure and rising combined ratios driven by consumers who are price sensitive, in addition to
increasing claims. We believe numerous insurance companies are currently enduring losses
due to rising combined ratios, especially in KSA and the UAE. We expect these companies to
exit the market within a few years, or to become more rational in their price setting and
underwriting policies, leaving room for higher profitability for the leading insurance
companies. The Kingdom’s largest insurers incurred loss ratios of 72%-75% in FY 11A and we
expect this figure to increase to 82%-87% in FY 12e and FY 13e.
Exhibit 214: Increasing number of insurers
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 215: Top 3 insurers dominate the Kuwait and Qatar
Source: Company Data, Zawya, Arqaam Capital Research
64%62%
60% 61%
64% 64%
34%30% 33% 33% 33% 32%
99%91% 93% 94%
97% 96%
25%
40%
55%
70%
85%
100%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Net Loss Ratio Expense Ratio Combined Ratio
13%
10%9% 9%
7%8%
15%
12% 12% 12%
11%12%
6%
8%
10%
12%
14%
16%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Underwriting Profit Margin Earnings Margin
0
10
20
30
40
50
60
70
UAE Bahrain Kuwait KSA Oman Qatar
10%
20%
30%
40%
50%
60%
70%
80%
90%
Kuwait Qatar KSA Bahrain Oman UAE
May 23 2012
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We expect RoE to remain stable in the medium term as we expect:
Rising investments yields to compensate for declining underwriting profitability:
Return on the investment portfolios for most companies under our coverage currently stands
at very low levels, below 1.5%, and well below the sector average of 5-5.5%. The main reason
behind this is the conservative investment strategy with a heavy reliance on money markets
and low yield bonds, and the generally low yields on good quality assets. We expect the
situation to improve as companies shift towards corporate bonds, mutual funds and more
equities as they become more sophisticated, gain better insight in claim behavior and gear
their investment portfolios. We expect the subsequent increase in investment yields to partly
compensate for deteriorating underwriting profitability.
Exhibit 216: Exposure to investment income remains a critical factor when examining RoE and overall profitability
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 217: Insurance companies carry little debt while investment portfolios still small
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 218: Considerable equity investments maintain sector yields at moderate rates
Source: Company Data, Zawya, Arqaam Capital Research
Lower cessation rates: Currently cessation rates are c. 50% of gross premiums, significantly
higher than European/U.S firms, as insurers do not have sufficient underwriting capabilities
and avoid concentration risks. We expect cessation rates to come down as concentration risks
39%
57%
51%55%
58% 59%
28%23%
22% 21%18%
19%
15%
25%
35%
45%
55%
65%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Investment Income/Earnings ROE
0.30x
0.28x 0.27x
0.26x 0.27x
0.29x
0.27x
0.19x0.21x
0.26x0.27x
0.27x
0.10x
0.15x
0.20x
0.25x
0.30x
0.35x
0.40x
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Investments/Assets Debt/Equity
5.9%
7.5%
5.6%5.7% 5.6%
5.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Yields on Investment
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Important Notice. 162
become smaller due to growing business volumes and as insurers improve their underwriting
expertise. Reinsurance is still attractive in the GCC due to a lack of catastrophes.
Exhibit 219: Lack of underwriting ability upholds cession ratios at high levels
Source: Zawya, Arqaam Capital Research
Re-leveraging of balance sheets: We expect the insurers’ companies to re-leverage their
balance sheets by growing GWP faster than their capital base, thus supporting their returns.
Insurance companies are maintaining very solid solvency ratios. Even when we apply a
Solvency I ratios of 200% and applying 50% charge on equity investments (to simulate Solvency
II), we arrive at strong capital positions for insurers under our coverage.
Insurers in the region generally use very little outstanding debt and have strong balance sheets
with shareholders’ equity accounting for over 40% of total assets. Companies have been
building up their policy reserves over the past few years, with some insurance companies such
as QIC reaching over 2.5x net premiums and 1.0x book value of equity. We expect younger
insurers to continue building their policy reserves, such as MedGulf and Tawuniya, reaching
1.5x net earned premium within 5 years from current levels of 1.1x.
Exhibit 220: There is an upward trend in building reserves
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 221: Low gearing keeps equity levels high
Source: Company Data, Zawya, Arqaam Capital Research
51.8%48.3%
49.9% 50.9% 50.4%49.7%
53.2%
56.2%57.5%
55.0%56.0%
56.5%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Cession ratio NEP/GWP
1.33x
1.81x
1.99x 1.90x 1.92x 1.94x
0.83x 0.75x 0.81x0.89x
0.95x 1.02x
0.60x
0.80x
1.00x
1.20x
1.40x
1.60x
1.80x
2.00x
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Policy reserves/Net premiums Policy reserves/Equity
0.41x0.42x
0.41x 0.41x 0.40x 0.39x
0.27x
0.19x0.21x
0.26x0.27x 0.27x
0.16x
0.20x
0.24x
0.28x
0.32x
0.36x
0.40x
0.44x
0.48x
FY 08A FY 09A FY 10A FY 11A FY 12e FY 13e
Equity/Assets Debt/Equity
May 23 2012
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Increasing cost efficiency: We expect operating costs to come down as a percentage of gross
written premiums when business volumes increase. Expense ratios in the region hover around
c. 33%, compared to c. 29% in mature markets.
Fragmented market and further consolidation expected
The market is highly fragmented. We expect some consolidation to create efficiency gains and
economies of scale; however, the growth outlook strong enough that we do not expect a
significant wave of M&A in the medium term. We also expect foreign entrants, as entry
restrictions are being relaxed. We ultimately think this will reduce the demand for reinsurance,
and cessation rates should fall, boosting net premiums. We believe consolidations in the sector
would induce cost saving synergies, dropping expense ratios to as low as c. 26%.
A small reduction in commission expense to brokers: Brokers continue to dominate
distribution channels. However, as business volumes grow, we could see fees coming down.
Other than in the US or Europe, insurers expense the commission costs and do not capitalize
them. We also expect an increase in JVs with banks (bancassurance) and direct sales which
may help reduce fees paid out to brokers.
Analyzing key drivers of the 4 insurers under our coverage
High profitability (RoE) to be driven by a combination of underwriting profitability and
investment returns:
Consistently low net loss ratios render underwriting profitable: Net loss ratios in the region
have generally resided at around 60%-64%. Along with moderate c. 33% expense ratios,
insurance companies in the region are able to achieve combined ratios of 93%-94%, well below
European/U.S. peers of 98%-100%. In addition to commission revenue, underwriting margins
have generally stood at c. 11.7%. However some companies such as Salama have combined
ratios of c. 100% and underwriting margins of 1.5%, and hence have to rely heavily on low yield
investment income to generate profits of c. 2.6%, similarly to European and U.S. insurers.
Salama’s high combined ratio is a reflection of its high expense ratio, mainly related to high
commissions paid to the broker channel, while its claim ratio is the lowest amongst peers.
Medgulf, on the other hand, has the lowest expense ratios (a sign of its operational efficiency),
but the highest claim ratio, due to the competitive nature of health care insurance.
May 23 2012
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Exhibit 222: QIC net loss ratios jumped 12% in FY 11A due to reinsurance claims from the Fukushima disaster
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 223: Salama’s combined ratios are the highest at 100%, leaving little room for underwriting profit
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 224: Catastrophes in the far east pumped QIC’s net loss ratios in FY 11A and FY 12e
Source: Company Data, Arqaam Capital Research
Exhibit 225: Salama’s combined ratio is expected to stabilize at 99%, diminishing underwriting profit
Source: Company Data, Arqaam Capital Research
Exhibit 226: Tawuniya’s exposure to the medical segment will increase net loss ratios to 74% in the long run
Source: Company Data, Arqaam Capital Research
Exhibit 227: MedGulf’s heavy reliance on the medical segment is pushing combined ratios up
Source: Company Data, Arqaam Capital Research
10%
15%
20%
25%
30%
35%
40%
45%
50%
50% 55% 60% 65% 70% 75% 80%
QIC Salama Tawuniya MedGulf Sector
101%100%
90%
80%
70%
94%
93%
94%91%
10%
15%
20%
25%
30%
35%
40%
45%
50%
50% 55% 60% 65% 70% 75% 80%
QIC Salama Tawuniya MedGulf Sector
100%
90%
80%
70%
81%
93%
87%
91%
100%
52%
65% 66%
57%58% 59% 59%
29% 28%27% 27% 26% 26% 26%
81%
93% 93%
84% 85% 85% 84%
25%
40%
55%
70%
85%
100%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Net loss ratio Expense ratio Combined ratio
56% 59%65%
60%60% 60% 60%
45% 42%38% 39% 39% 39% 39%
100%101% 103%
99% 99% 99% 99%
30%
45%
60%
75%
90%
105%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Net loss ratio Expense ratio Combined ratio
58%
68%
78%75% 74% 74% 74%
28%23%
23% 22% 22% 22% 22%
87%91%
101% 97% 96% 96% 96%
15%
30%
45%
60%
75%
90%
105%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Net loss ratio Expense ratio Combined ratio
72% 73%78% 79% 77% 77% 77%
19%21%
20% 20% 20% 20% 20%
91%94% 98% 98% 97% 97% 98%
15%
30%
45%
60%
75%
90%
105%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
Net loss ratio Expense ratio Combined ratio
FY 10A
Net loss ratio on X axis
Expense ratio on Y axis
FY 11A
Net loss ratio on X axis
Expense ratio on Y axis
May 23 2012
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Exhibit 228: Tawuniya and QIC have low operating RoEs due to high net loss ratios for FY 12e which are not expected to persist
Source: Company Data, Arqaam Capital Research
High net loss ratios distort QIC and Tawuniya’s underwriting profitability: High net loss ratios
due to competition in the Saudi medical segment, and reinsurance claims for catastrophes in
the Far East have pushed Tawuniya and QIC’s net loss ratios above the levels of the previous
years. We do not expect these high net loss ratios to persist, however, we do expect lower
underwriting profits as compared to FY 10A. We expect underwriting profitability to be capped
by rising net loss ratios amid tightening competition. Similarly Medgulf’s small investment
portfolio has yet to contribute significantly to RoE. As the investment book grows, we expect
larger contributions from their investment portfolio.
Exhibit 229: We expect RoEs to stabilize starting FY 16e amid a more rational insurance sector
Source: Company Data, Arqaam Capital Research
Some companies’ high RoEs are more reliant on investment income: RoEs in the region stood
at an impressive c. 22.6% over the last three years, with an earnings margin at c. 9.6%.
Several insurers in the region such as QIC rely heavily on investment income, with large
positions in equities, and to a lesser extent, properties, to achieve their high RoEs of c. 18%. A
figure too high could indicate possible volatility in earnings; however a figure too low could
mean the company is not properly benefiting from investments and is losing at a non-
operating level. Such RoEs are highly exposed to the volatility of the markets, and are generally
less attractive than if driven by underwriting profits.
However a large number of Islamic insurers such as Tawuniya an MedGulf have little exposure
to equities, having the majority of their investments in sukuk and low yield money markets,
and rely much less on investment income. Tawuniya and MedGulf’s investment income
accounted for 21.5% and 1.3% of total earnings respectively during FY 11A, with RoEs of 22.6%
and 18.3% in FY 11A.
The sector has been achieving net earnings margin of 2-3pp above underwriting profit margins;
we expect this gap to widen to 3.5%-4.0% in the next few years. We believe Tawuniya and
Medgulf’s current gaps of c. 0.1% will improve as yields rise, reaching c. 3%-3.5% by FY 16e
amid improving earnings margins reaching 10.4% for Tawuniya and 7.8% for Medgulf.
QIC however, is clearly seen heavily relying on investment returns to boost earnings margin,
and we expect that the current high yield may not be fully recurring.
Profit
MarginNEP/Equity
Operating
ROE
Investment
Yields
Investments
/ AssetsLeverage
Investments
ROE
Investment
properties
Inv.
Prop./AssetsLeverage
Inv.
Properties
ROE
ROE
QIC 8.3% 40% 3.3% 9.5% 54% 232% 11.8% 10.0% 5.4% 232% 1.3% 16.3%
Salama -0.8% 121% (1.0%) 4.5% 32% 320% 4.6% 3.6% 5.2% 320% 0.6% 4.3%
Tawuniya 2.7% 156% 4.2% 7.0% 50% 346% 12.2% --% --% 346% --% 16.3%
MedGulf 7.9% 162% 12.9% 3.0% 14% 344% 1.5% --% --% 344% --% 14.4%
Profit
MarginNEP/Equity
Operating
ROE
Investment
Yields
Investments
/ AssetsLeverage
Investments
ROE
Investment
properties
Inv.
Prop./AssetsLeverage
Inv.
Properties
ROE
ROE
QIC 17.0% 50% 8.5% 6.4% 57% 264% 9.5% 10.0% 4.2% 264% 1.1% 19.1%
Salama 3.6% 40% 1.4% 3.6% 39% 375% 5.3% 3.6% 3.6% 375% 0.5% 7.2%
Tawuniya 6.6% 141% 9.3% 4.5% 54% 338% 8.3% --% --% 338% --% 17.6%
MedGulf 7.6% 167% 12.6% 4.5% 29% 382% 4.9% --% --% 382% --% 17.5%
May 23 2012
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Important Notice. 166
Exhibit 230: Despite falling investment yields ROEs are expected to remain high for QIC
Source: Company Data, Arqaam Capital Research
Exhibit 231: Improving investment yields and a growing investment book will drive Salama’s ROEs upwards
Source: Company Data, Arqaam Capital Research
Exhibit 232: We expect Tawuniya’s ROEs to recover back to 20% after a drop in FY 12e and FY 13e
Source: Company Data, Arqaam Capital Research
Exhibit 233: MedGulf’s RoEs are expected to recover to 18% from a drop in FY 12e and FY 13e
Source: Company Data, Arqaam Capital Research
18%
17%16%
20% 19% 18%19%
8.2% 7.6%
6.8%8.0% 7.3%
7.1% 7.1%
6%
8%
10%
12%
14%
16%
18%
20%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
ROaE ROaA
3.2%3.7% 4.0%
7.2%7.0% 6.8%
7.1%
3.7%
4.2% 4.5%
8.1% 7.7%7.5% 7.7%
1.4% 1.4% 1.3%
2.2% 2.0%1.9% 1.9%
1%
2%
3%
4%
5%
6%
7%
8%
9%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
ROaE ROaE excl. Intangibles ROaA
35%
23%
17% 17% 18% 19% 18%
39%
25%
18% 18%20% 20% 19%
7.4% 5.8%4.6% 4.7% 5.1% 5.2% 5.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
ROaE ROaE excl. Intangibles ROaA
20%18%
15% 15%18% 18% 18%
39%
32%
24% 24%
27%26%
24%
5.9% 5.2%4.3% 4.4%
5.1% 5.0% 4.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY 10A FY 11A FY 12e FY 13e FY 14e FY 15e FY 16e
ROaE ROaE excl. Intangibles ROaA
May 23 2012
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Important Notice. 167
Exhibit 234: Investment income elevates QIC’s earnings margins to 26%, despite underwriting margins of 4%
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 235: Contrary to the sector, Medgulf’s earnings margin are lower than underwriting margins
Source: Company Data, Zawya, Arqaam Capital Research
Investment income accounts for 50% of total earnings on average: In QIC and Salama’s case
however, investment income accounted for c. 70% of total earnings.
We expect yields to dramatically improve for Medgulf, Tawuniya and Salama:
Build up of investment portfolio when premium income is being received, particularly given a time lag between premium income and actual claims being paid.
A move away from very liquid assets towards higher yielding corporate bonds and equities
This should help their net profit margin by 1.7%, 1.6% and 1.1% by FY 16e. We expect equities
to yield 9%, money markets 2%, funds 7% and corporate fixed income to yield 5%. We
anticipate a blended return of 4.5%. We expect QIC’s blended return to be higher due to its
very solid capital position, which allows for a higher share of equities.
Exhibit 236: We expect QIC to maintain relatively higher investment returns by FY 16e due to substantial investments in equities & high yield bonds
Source: Company Data, Arqaam Capital Research- *Includes returns on funds classified with F.I and M.M
QIC
Salama
Tawuniya
Medgulf
Sector
0%
5%
10%
15%
20%
25%
30%
0% 2% 4% 6% 8% 10% 12%
QIC
Salama
Tawuniya
Medgulf
Sector
0%
5%
10%
15%
20%
25%
30%
0% 2% 4% 6% 8% 10% 12%
Equities Yield F.I + M.M Yield Funds Yield Total Yield
QIC 43.0% 9.0% 54.2% 4.2% 2.9% 7.0% 6.3%
Salama 1.0% 9.0% 69.0% 2.7% 30.0% 5.6% 3.6%
Tawuniya 29.0% 9.0% 71.0% 2.7% 4.5%
MedGulf 5.5% 9.0% 40.0% 2.5% 54.5% 5.6% 4.5%
FY 11A - Underwriting profit on X axis. Profit margins on Y axis FY 10A - Underwriting profit on X axis. Profit margins on Y axis
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 168
Exhibit 237: Medgulf’s substantially low yields disable investments from contributing to earnings
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 238: Investment returns are a major component of Salama’s income due to low underwriting margins
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 239: Combined ratios and RoEs generally move in parallel in the long run
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 240: High combined ratios reduce Salama’s RoEs far lower than industry levels
Source: Company Data, Zawya, Arqaam Capital Research
Improvement in underwriting ability should push cession ratios down: High cession ratios in
the sector have capped NEP/GWP, lowering profitability. Salama’s NEP/GWP remains relatively
low in contrast to its low cession ratios, due to large movements in unearned premiums of
6.3% in FY 11A and FY 10A compared to 3.1% and 3.9% in the sector. Tawuniya also
experienced large movements in unearned premiums in FY 11A of 7.6%.
QICSalama
Tawuniya
Medgulf
Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 2% 4% 6% 8% 10% 12%
QIC
Salama
Tawuniya
Medgulf
Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
0% 2% 4% 6% 8% 10%
QIC
Salama
Tawuniya
Medgulf
Sector
2%
6%
10%
14%
18%
22%
26%
84% 86% 88% 90% 92% 94% 96% 98% 100% 102%
QIC
Salama
Tawuniya
Medgulf Sector
2%
6%
10%
14%
18%
22%
26%
30%
34%
80% 82% 84% 86% 88% 90% 92% 94% 96% 98% 100% 102%
FY 11A – Investment yield on X axis. Investment Income/Earnings on Y axis FY 10A – Investment yield on X axis. Investment Income/Earnings on Y axis
FY 11A – Combined Ratio on X axis. ROE on Y axis FY 10A – Combined Ratio on X axis. ROE on Y axis
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 169
Exhibit 241: Companies in KSA cede smaller portions of their GWP, pushing NEP/GWP upwards
Source: Company Data, Zawya, Arqaam Capital Research
Exhibit 242: Cession ratios of c.45% push down QIC’s NEP/GWP to near 55% levels
Source: Company Data, Zawya, Arqaam Capital Research
Stock recommendations
All in all, we believe the sector universe under our coverage is undervalued, and does not
reflect the strong underwriting profitability (though likely to deteriorate), high RoEs, strong
balance sheets and investment return potential.
Salama: Low RoE to improve through new business line and higher yielding investment
portfolio
We strongly recommend Salama, on its very low valuation and improving returns. It offers a
strong growth in Takaful insurance (while avoiding the competitive health insurance market).
We expect combined ratios to fall from the current high levels as the company increases the
share of family insurance and reduces the share of reinsurance. We also anticipate RoE to
benefit from growing business volume and a pick-up in its investment yield. The stock is
trading at P/E13e of 5.8x, P/BV12e of 0.4x and P/tNAV12e of 0.5x and our TP of AED 0.93
offers 52% upside, particularly after the 36% pull back after reaching a 16 month high by the
end of February.
QIC: Investment yields could fall
We also initiate QIC with a Buy recommendation. It is the national champion in the fastest
growing market, with one of the lowest penetration rates. Nevertheless we expect some
headwinds from a potentially lower yield on its investment portfolio, which may cap its
earnings growth. QIC is also impacted by global catastrophe related claims in the short-run. Its
capital position is strong, but adjusted for its high equity exposure (we use a harsh 50% capital
allocation for equity risk), we arrive at small capital deficit. The stock is trading at P/E13e of
9.3x, P/BV12e of 1.8x and P/tNAV12e of 1.8x and our TP of QAR 95 offers 26.8% upside,
despite a strong re-rating of c. 17%.
QIC
Salama
Tawuniya
Medgulf
Sector
10%
15%
20%
25%
30%
35%
40%
45%
50%
52% 56% 60% 64% 68% 72% 76% 80%
QIC
Salama
Tawuniya
Medgulf
Sector
10%
15%
20%
25%
30%
35%
40%
45%
50%
50% 54% 58% 62% 66% 70% 74% 78%
FY 11A – NEP/GWP on X axis. Cession Ratio on Y axis FY 10A – NEP/GWP on X axis. Cession Ratio on Y axis
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 170
Tawuniya: Higher claims in health, but higher yields on investments expected
We also recommend Tawuniya, though with less upside than Salama & QIC. It offers a high
quality of earnings and under geared investment portfolio, and is the market leader in KSA. We
have penciled in some headwinds in health insurance stemming from increased claims and
cost of claims, while price increases are difficult to implement. After a transitional FY 12e, we
expect earnings growth to pick up helped by higher investment yields and strong top-line
growth. The shares offer a cheap entry point after the sharp fall after its Q1 12 results, which
were impacted by a substantial increase in medical claims. The stock is trading at P/E13e of
11.1x, P/BV12e of 1.6x and P/tNAV12e of 1.8x and our TP of SAR 61 offers 23.8% upside
Medgulf: Highly exposed to competitive health insurance market, potential goodwill
impairments
Our least preferred name in insurance is Medgulf. It has the highest exposure to health
insurance with potentially lower margins, while it also has substantial capitalized intangibles,
which it may need to impair if it fails to meet aggressive growth rates. The stock is also
expensive (P/E13e of 11.4x, P/BV12e of 1.8x and P/tNAV12e of 3.0x) and our TP of SAR 24.6
leaves 15.6% downside, despite its recent pull back.
Exhibit 243: QIC is the least volatile stock, contrary to Salama and MedGulf which are mostly volatile to hikes in net loss ratios
Source: Company Data, Arqaam Capital Research
TP New TP % Change New TP % Change New TP % Change New TP % Change New TP % Change
Salama 0.93 0.77 (16.6%) 0.58 (37.5%) 1.13 21.4% 1.26 35.4% 1.10 18.4%
QIC 95 86 (9.6%) 92 (3.2%) 100 4.9% 102 7.0% 97 2.5%
Tawuniya 61.1 52.8 (13.7%) 54.7 (10.6%) 65.8 7.6% 65.4 7.0% 62.5 2.2%
Medgulf 24.6 20.7 (15.9%) 21.3 (13.7%) 26.1 5.9% 25.5 3.5% 25.0 1.5%
1% increase in cost of
equity
1% increase in net loss
ratio50 bps increase in yields
2% increase in GWP
growth
5% increase in FY12e
GWP
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 171
Credit Quality Screen
Exhibit 244: Asset quality screen
Source: Company Data, Arqaam Capital Research
Bank Total loansGovernment
loans
Banks &
other FI
Total loans
(excl. Public
lending and FI)
EL from govtEL from
banks & FI
EL from corp.
P&C
EL from
corp. Non-
P&C
EL from
SMEs
EL from
mortgages
EL from non-
mortgages
Total EL FY 11A-
FY 14e
(in m)
Total EL FY 10A-FY
14e
(in bp)
Avg EL FY
10A-FY 14e
(in bp)
Stock of
provisions as
of year-end
FY 11A
Remaining NPL provisions
(after deducting EL for
existing NPLs, adj for DH)
EL to be
covered during
FY 10A-FY 14e
Provisions
FY 10A
Provisions
FY 11A
Remaining
provisions for
FY 12e, FY13e,
FY14e
Forecast
provisions
FY 12e, FY 13e,
FY 14e
Addition/
(deduction)
to valuation
UAE (AED'000) net_provis ions
ADCB 130,466,613 2,916,734 9,153,417 118,396,462 3,063 9,611 5,179,069 2,341,154 1,454,501 300,000 2,601,755 11,889,153 911 182 5,711,876 1,141,196 10,747,956 2,859,578 2,082,360 7,888,378 6,352,158 (1,536,220)
ADIB 51,841,547 2,799,419 1,268,509 47,773,619 2,939 1,332 616,502 833,629 60,118 53,088 2,645,984 4,213,592 813 163 3,010,206 505,844 3,707,748 557,262 745,056 3,150,486 2,691,300 (459,187)
CBD 28,596,159 1,291,833 319,605 26,984,721 1,356 336 674,215 1,251,198 449,872 76,502 131,687 2,585,165 904 181 1,781,072 (80,806) 2,665,971 526,451 470,348 2,139,520 1,640,765 (498,755)
DIB 55,517,325 2,563,280 3,293,881 49,660,164 2,691 3,459 3,431,823 766,631 -- 1,030,970 1,109,202 6,344,776 1,143 229 3,931,237 (25,089) 6,369,865 653,436 977,300 5,716,429 4,241,008 (1,475,421)
ENBD 216,037,331 59,958,816 31,422,122 124,656,393 62,957 32,993 8,207,070 3,537,877 921,223 530,100 5,629,582 18,921,801 876 175 12,897,018 596,678 18,325,123 2,926,037 4,747,708 15,399,086 13,476,280 (1,922,807)
FGB 108,341,454 9,545,731 -- 98,795,723 10,023 -- 3,093,427 1,795,330 92,525 271,150 3,165,628 8,428,084 778 156 3,621,655 1,210,701 7,217,383 1,639,087 1,553,091 5,578,296 4,625,612 (952,684)
NBAD 164,322,884 62,639,633 23,390,878 78,292,373 65,772 24,560 3,766,020 1,025,467 88,000 104,000 2,422,297 7,496,116 456 91 4,800,706 2,333,930 5,162,186 1,113,517 1,339,182 4,048,669 4,594,766 546,097
UNB 59,213,827 15,062,881 4,630,841 39,520,105 15,816 4,862 2,064,789 721,928 448,158 15,453 1,108,092 4,379,098 740 148 1,632,516 (515,877) 4,894,975 466,706 600,336 4,428,269 2,568,109 (1,860,160)
TAMWEEL 9,643,757 -- -- 9,643,757 -- -- 122,958 -- -- 703,030 -- 825,988 857 171 344,154 (91,171) 917,159 113,240 17,030 803,919 219,734 (584,184)
RAKBANK 18,706,448 -- 15,213 18,691,235 -- 16 76,838 349,060 -- 283,090 1,371,046 2,080,051 1,112 222 337,978 68,718 2,011,333 269,774 301,018 1,741,559 1,110,438 (631,121)
MASQ 40,354,206 6,594,878 3,081,299 30,678,029 6,925 3,235 759,037 1,546,496 -- 436,480 630,471 3,382,644 838 168 1,279,346 (2,243,048) 5,625,693 1,527,175 974,972 4,098,518 2,993,444 (1,105,074)
883,041,551 163,373,205 76,575,765 643,092,581 171,542 80,405 27,991,748 14,168,772 3,514,396 3,803,863 20,815,744 70,546,468 9,427 1,885 39,347,764 2,901,076 67,645,392 12,652,263 13,808,401 54,993,129 44,513,614 (10,479,515)
Qatar (QAR'000)
QNBK 196,623,399 33,454,959 -- 163,168,440 23,418 -- 1,815,867 2,877,250 39,000 11,000 908,065 5,674,601 289 58 2,680,172 1,711,717 3,962,883 537,664 1,034,767 3,425,219 3,972,622 547,403
QIBK 29,958,495 264,471 -- 29,694,024 185 -- 665,410 291,532 17,829 75,188 364,311 1,414,455 472 94 310,745 133,239 1,281,216 49,979 13,001 1,231,237 980,143 (251,094)
DHBK 31,475,243 1,444,076 -- 30,031,167 1,011 -- 467,949 234,779 -- 132,000 202,052 1,037,791 330 66 668,314 204,914 832,877 311,838 256,864 521,039 750,041 229,002
CBQK 42,161,206 651,353 -- 41,509,853 456 -- 633,673 536,799 10,400 88,000 157,629 1,426,957 338 68 394,402 175,692 1,251,265 166,523 239,403 1,084,742 1,106,803 22,061
MARK 34,853,053 3,332,053 -- 31,521,000 2,332 -- 567,543 403,427 181,236 21,640 -- 1,176,178 337 67 79,832 36,031 1,140,146 1,477 70,866 1,138,669 1,101,597 (37,072)
QIIK 10,747,688 584,130 -- 10,163,558 409 -- 264,316 4,057 -- -- 155,577 424,359 395 79 116,600 26,803 397,556 16,064 19,343 381,492 298,735 (82,757)
KCBK 11,498,959 -- -- 11,498,959 -- -- 117,802 234,097 -- -- 31,173 383,071 333 67 170,878 143,916 239,155 (70,165) 38,035 309,320 300,327 (8,993)
357,318,043 39,731,042 -- 317,587,001 27,812 -- 4,532,561 4,581,941 248,465 327,827 1,818,806 11,537,411 323 81 4,420,943 2,432,313 9,105,098 1,013,380 1,672,279 8,091,718 8,510,269 418,551
Egypt (EGP'000)
COMI 42,522,740 -- 1,433,545 41,089,195 -- 1,505 29,517 989,184 258,862 7,560 302,330 1,588,958 374 75 1,457,360 915,761 673,197 6,163 320,649 667,034 1,166,569 499,535
NSGB 36,216,476 -- -- 36,216,476 -- -- 25,706 893,041 188,326 2,740 430,489 1,540,301 425 85 1,117,443 604,738 935,563 (71,306) 137,725 1,006,869 997,510 (9,359)
CIEB 11,848,607 -- -- 11,848,607 -- -- 5,106 258,181 82,940 5,835 186,842 538,904 455 91 376,993 267,209 271,695 38,426 139,630 233,269 453,795 220,526
HDBK 6,855,590 -- -- 6,855,590 -- -- 52,390 15,882 95,978 4,221 212,935 381,406 556 111 350,326 143,640 237,766 59,452 51,413 178,314 258,218 79,904
EGBE 3,569,039 -- -- 3,569,039 -- -- 2,517 97,090 -- 1,093 40,976 141,676 397 79 341,410 159,228 (17,551) (24,337) 19,734 6,786 102,724 95,938
101,012,452 -- 1,433,545 99,578,907 -- 1,505 115,235 2,253,378 626,106 21,449 1,173,572 4,191,246 2,207 441 3,643,531 2,090,575 2,100,670 8,399 669,151 2,092,271 2,978,816 886,545
Lebanon (LBPmn)
AUDI 13,324,464 382,218 1,611,211 11,331,035 6,689 1,692 129,874 145,695 128,549 18,629 147,273 578,400 434 87 237,820 7,327 571,073 47,503 136,868 523,570 424,740 (98,830)
BLOM 8,676,307 -- -- 8,676,307 -- -- 51,785 147,646 64,135 24,650 98,530 386,746 446 89 190,386 37,937 348,809 24,892 59,121 323,917 283,706 (40,210)
BYB 6,304,894 -- -- 6,304,894 -- -- 29,211 145,695 16,517 13,381 70,598 275,401 437 87 146,534 63,763 211,639 29,272 42,586 182,367 194,361 11,994
BOB 5,104,483 -- 206,576 4,897,907 -- 217 20,453 170,788 -- -- -- 191,458 375 75 37,028 27,460 163,998 (862) 3,158 164,860 117,113 (47,746)
33,410,148 382,218 1,817,787 31,210,143 6,689 1,909 231,322 609,823 209,202 56,660 316,400 1,432,005 429 107 611,769 136,487 1,295,518 100,805 241,733 1,194,713 1,019,920 (174,793)
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 172
Exhibit 245: Asset quality screen (continued)
Source: Company Data, Arqaam Capital Research
Bank Total loansGovernment
loans
Banks &
other FI
Total loans
(excl. Public
lending and FI)
EL from govtEL from
banks & FI
EL from corp.
P&C
EL from
corp. Non-
P&C
EL from
SMEs
EL from
mortgages
EL from non-
mortgages
Total EL FY 11A-
FY 14e
(in m)
Total EL FY 10A-FY
14e
(in bp)
Avg EL FY
10A-FY 14e
(in bp)
Stock of
provisions as
of year-end
FY 11A
Remaining NPL provisions
(after deducting EL for
existing NPLs, adj for DH)
EL to be
covered during
FY 10A-FY 14e
Provisions
FY 10A
Provisions
FY 11A
Remaining
provisions for
FY 12e, FY13e,
FY14e
Forecast
provisions
FY 12e, FY 13e,
FY 14e
Addition/
(deduction)
to valuation
KSA (SAR'000)
SAMBA 92,550,190 565,519 6,474,705 85,509,966 396 6,798 177,664 1,710,210 -- 94,168 662,288 2,651,523 286 57 3,438,761 2,234,667 416,856 558,792 301,412 (141,936) 1,508,482 1,650,418
RIBL 114,971,308 6,697 7,281,019 107,683,592 5 7,645 280,073 1,810,889 6,303 66,002 1,235,730 3,406,647 296 59 1,998,544 1,152,435 2,254,212 935,074 661,712 1,319,138 2,288,999 969,861
RJHI 143,951,251 -- -- 143,951,251 -- -- 413,219 1,097,537 -- 114,286 4,368,922 5,993,965 416 83 3,555,632 2,281,212 3,712,753 1,753,587 1,475,680 1,959,166 4,480,406 2,521,240
BSFR 93,863,772 2,680,756 1,326,330 89,856,686 1,877 1,393 260,717 1,931,877 -- 18,794 536,067 2,750,724 293 59 1,538,730 1,051,395 1,699,330 339,344 157,908 1,359,986 1,584,340 224,355
SABB 86,892,010 2,239,257 -- 84,652,753 1,567 -- 170,011 1,714,987 -- 64,398 695,883 2,646,847 305 61 2,080,723 1,336,591 1,310,256 1,243,079 468,788 67,177 2,026,191 1,959,014
ARNB 75,448,667 9,357 3,223,158 72,216,152 7 3,384 134,877 1,191,410 -- 15,428 1,083,849 2,428,954 322 64 2,604,897 1,764,167 664,788 964,407 617,897 (299,619) 1,982,619 2,282,238
SHB 38,814,947 1,067,209 1,593,928 36,153,810 747 1,674 154,846 741,353 6,001 -- 238,355 1,140,554 294 59 1,069,648 769,950 370,604 388,726 160,776 (18,122) 790,927 809,049
SIBC 29,359,693 86,922 1,361,174 27,911,597 61 1,429 51,662 573,599 996 -- 321,350 947,608 323 65 2,245,600 1,439,519 (491,911) 738,000 288,000 (1,229,911) 749,859 1,979,770
ALBI 14,663,825 -- -- 14,663,825 -- -- 81,540 174,146 711 44,381 183,740 484,518 330 66 884,079 577,965 (93,447) 242,303 252,242 (335,750) 515,328 851,078
BJAZ 24,517,895 -- 711,692 23,806,203 -- 747 120,111 547,044 -- -- -- 667,155 272 54 1,210,444 473,317 193,839 362,232 70,352 (168,393) 496,020 664,414
ALINMA 25,386,233 6,346,022 -- 19,040,211 4,442 -- 173,963 247,672 -- -- 254,418 676,053 266 53 5,766 2,356 673,698 3,000 124,699 670,698 692,268 21,570
740,419,791 13,001,739 21,972,006 705,446,046 9,101 23,071 2,018,683 11,740,724 14,011 417,457 9,580,602 23,794,548 321 80 20,632,824 13,083,571 10,710,978 7,528,544 4,579,466 3,182,434 16,423,171 13,911,436
Oman (OMR'000)
BKMB 4,995,926 26,319 216,539 4,753,068 28 227 13,748 75,925 2,250 20,522 54,537 167,237 335 67 176,494 111,069 56,168 32,941 30,601 23,227 129,679 106,452
BKSB 1,033,113 -- 54,201 978,912 -- 57 6,179 13,506 -- 3,863 10,763 34,368 333 67 13,559 6,758 27,610 3,984 3,467 23,626 20,021 (3,605)
OIBB 720,723 3,100 39,716 677,907 3 42 771 11,581 -- 3,058 8,518 23,973 333 67 32,539 (4,970) 28,942 (676) (2,888) 29,618 16,433 (13,186)
6,749,762 29,419 310,456 6,409,887 31 326 20,698 101,012 2,250 27,443 73,817 225,578 334 67 222,592 112,857 112,721 36,249 31,180 76,472 166,132 89,661
Kuwait (KWD'000)
NBK 8,502,050 -- 425,103 8,076,948 -- 446 53,563 151,803 -- -- 135,884 341,697 402 80 319,824 259,753 81,944 11,792 52,393 70,152 143,175 73,023
BURG 2,347,756 -- -- 2,347,756 -- -- 21,794 81,530 -- 474 40,564 144,362 615 123 95,408 (26,338) 170,700 71,756 29,122 98,944 101,357 2,414
GBK 3,564,187 -- 405,555 3,158,632 -- 426 97,583 111,013 -- -- 82,533 291,555 818 164 195,960 (32,118) 323,672 113,840 67,910 209,832 203,043 (6,790)
KFIN 7,236,475 -- 1,987,245 5,249,230 -- 2,087 200,371 411,764 -- -- -- 614,222 849 170 557,687 279,277 334,945 134,124 171,495 200,821 383,932 183,111
BOUBYAN 1,064,887 -- -- 1,064,887 -- -- -- 45,456 -- -- 17,314 62,770 589 118 34,803 32,196 30,574 12,173 12,226 18,401 35,190 16,788
22,715,355 -- 2,817,903 19,897,453 -- 2,959 373,312 801,566 -- 474 276,295 1,454,605 640 128 1,203,682 512,770 941,835 343,685 333,146 598,150 866,696 268,546
Bahrain (USD'000)
AUB 16,046,376 476,101 1,167,184 14,403,091 500 1,226 150,584 192,664 -- 28,276 132,374 505,624 315 63 349,786 179,960 325,664 151,671 129,847 173,993 417,799 243,806
16,046,376 476,101 1,167,184 14,403,091 500 1,226 150,584 192,664 -- 28,276 132,374 505,624 315 63 349,786 179,960 325,664 151,671 129,847 173,993 417,799 243,806
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 173
Exhibit 246: Average PD and LGD
Source: Company Data, Arqaam Capital Research
% of loans % of loans % of loans % of loans % of loans % of loans % of loans PD PD PD PD PD PD PD Weighted LGD LGD LGD LGD LGD LGD LGD Weighted EL EL EL EL EL EL EL Total Total
Govt Banks & FI P&C Non-P&C SMEs mortgagesnon morgtages Govt Banks & FI P&C Non-P&C SMEs mortgagesnon morgtages PD Govt Banks & FIP&C Non-P&C SMEs mortgagesnon morgtages LGD GovtBanks & Fi P&C Non-P&C SMEs mortgagesnon morgtages EL LLR
UAE (AED'000)
ADCB 100% 2% 7% 29% 20% 17% 4% 20% 0.3% 0.3% 30.0% 37.0% 13.0% 15.0% 15.0% 22.1% 35% 35% 45% 24% 50% 40% 65% 45% 11 11 1,350 901 650 600 975 911 182
ADIB 100% 5% 2% 9% 23% 2% 2% 56% 0.3% 0.3% 30.0% 15.0% 12.5% 14.0% 14.0% 14.6% 35% 35% 43% 47% 50% 40% 65% 56% 11 11 1,275 698 625 560 910 813 163
CBD 100% 5% 1% 15% 51% 21% 3% 4% 0.3% 0.3% 35.0% 32.9% 15.0% 18.0% 16.0% 26.4% 35% 35% 45% 26% 50% 45% 65% 37% 11 11 1,575 863 750 810 1,040 904 181
DIB 100% 5% 6% 31% 18% 0% 23% 18% 0.3% 0.3% 40.0% 17.5% 15.0% 18.0% 17.0% 22.7% 35% 35% 50% 45% 50% 45% 65% 49% 11 11 2,000 788 750 810 1,105 1143 229
ENBD 100% 28% 15% 19% 14% 5% 3% 16% 0.3% 0.3% 40.0% 60.3% 16.0% 19.0% 25.0% 21.9% 35% 35% 50% 19% 50% 45% 65% 41% 11 11 2,000 1,132 800 855 1,625 876 175
FGB 100% 9% 0% 22% 25% 1% 13% 30% 0.3% 0.3% 30.0% 18.9% 13.0% 5.0% 15.0% 16.8% 35% 35% 43% 35% 50% 40% 65% 47% 11 11 1,275 663 650 200 975 778 156
NBAD 100% 38% 14% 20% 11% 1% 1% 15% 0.3% 0.3% 29.0% 15.1% 11.0% 13.0% 15.0% 10.0% 35% 35% 40% 39% 50% 40% 65% 41% 11 11 1,160 590 550 520 975 456 91
UNB 100% 25% 8% 24% 11% 13% 0% 19% 0.3% 0.3% 37.0% 56.8% 12.0% 14.0% 15.0% 19.5% 35% 35% 40% 20% 50% 40% 65% 42% 11 11 1,480 1,118 600 560 975 740 148
TAMWEEL 100% 0% 0% 10% 0% 0% 90% 0% 0.3% 0.3% 30.0% 20.0% 12.0% 18.0% 17.0% 19.2% 35% 35% 43% 45% 50% 45% 65% 45% 11 11 1,275 900 600 810 1,105 857 171
RAKBANK 100% 0% 0% 3% 18% 0% 20% 59% 0.3% 0.3% 35.0% 23.0% 15.0% 17.0% 19.0% 19.8% 35% 35% 43% 45% 50% 45% 65% 57% 11 11 1,488 1,035 750 765 1,235 1112 222
MASQ 100% 16% 8% 9% 43% 0% 12% 12% 0.3% 0.3% 40.0% 22.7% 12.0% 20.0% 20.0% 18.3% 35% 35% 50% 40% 50% 45% 65% 43% 11 11 2,000 900 600 900 1,300 838 168
Qatar (QAR'000)
QNBK 100% 17% 0% 23% 49% 0% 0% 10% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 6.6% 35% 35% 40% 43% 50% 40% 65% 43% 7 11 400 298 650 220 455 289 58
QIBK 101% 1% 0% 31% 31% 1% 10% 27% 0.2% 0.3% 17.7% 7.5% 13.0% 6.0% 7.0% 10.5% 35% 35% 40% 43% 50% 40% 65% 48% 7 11 708 319 650 240 455 472 94
DHBK 100% 5% 0% 37% 25% 0% 19% 14% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 7.5% 35% 35% 40% 43% 50% 40% 65% 44% 7 11 400 298 650 220 455 330 66
CBQK 100% 2% 0% 38% 43% 0% 9% 8% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 7.9% 35% 35% 40% 43% 50% 40% 65% 43% 7 11 400 298 650 220 455 338 68
MARK 100% 10% 0% 41% 39% 8% 3% 0% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 8.0% 35% 35% 40% 43% 50% 40% 65% 41% 7 11 400 298 650 220 455 337 67
QIIK 100% 5% 0% 61% 1% 0% 0% 32% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 8.5% 35% 35% 40% 43% 50% 40% 65% 48% 7 11 400 298 650 220 455 395 79
KCBK 100% 0% 0% 26% 68% 0% 0% 6% 0.2% 0.3% 10.0% 7.0% 13.0% 5.5% 7.0% 7.8% 35% 35% 40% 43% 50% 40% 65% 43% 7 11 400 298 650 220 455 333 67
0
Egypt (EGP'000) 0
COMI 100% 0% 3% 3% 73% 10% 1% 10% 5.0% 0.3% 9.0% 7.5% 12.0% 6.0% 11.0% 8.1% 35% 35% 30% 43% 50% 30% 65% 45% 175 11 270 319 600 180 715 374 75
NSGB 100% 0% 0% 2% 73% 8% 0% 17% 5.0% 0.3% 9.5% 8.0% 13.0% 7.0% 11.0% 8.9% 35% 35% 30% 43% 50% 30% 65% 46% 175 11 285 340 650 210 715 425 85
CIEB 100% 0% 0% 2% 64% 10% 2% 22% 5.0% 0.3% 9.5% 8.0% 14.0% 7.0% 11.0% 9.3% 35% 35% 30% 43% 50% 30% 65% 48% 175 11 285 340 700 210 715 455 91
HDBK 100% 0% 0% 27% 7% 20% 3% 43% 5.0% 0.3% 9.5% 8.0% 14.0% 7.0% 11.0% 10.9% 35% 35% 30% 43% 50% 30% 65% 50% 175 11 285 340 700 210 715 556 111EGBE 100% 0% 0% 2% 80% 0% 1% 16% 5.0% 0.3% 9.5% 8.0% 14.0% 7.0% 11.0% 8.5% 35% 35% 30% 43% 50% 30% 65% 46% 175 11 285 340 700 210 715 397 79
Lebanon (LBPmn)
AUDI 100% 3% 12% 21% 27% 16% 6% 15% 5.0% 0.3% 13.5% 9.0% 12.0% 7.0% 11.0% 9.4% 35% 35% 35% 43% 50% 35% 65% 44% 175 11 473 383 600 245 715 434 87
BLOM 100% 0% 0% 13% 44% 15% 12% 16% 5.0% 0.3% 13.5% 9.0% 12.0% 7.0% 11.0% 10.1% 35% 35% 35% 43% 40% 35% 65% 44% 175 11 473 383 480 245 715 446 89
BYB 100% 0% 0% 10% 60% 5% 9% 16% 5.0% 0.3% 13.5% 9.0% 12.0% 7.0% 11.0% 9.7% 35% 35% 35% 43% 40% 35% 65% 45% 175 11 473 383 480 245 715 437 87
BOB 100% 0% 4% 8% 87% 0% 0% 0% 5.0% 0.3% 13.5% 9.0% 12.0% 7.0% 11.0% 9.0% 35% 35% 35% 43% 40% 35% 65% 42% 175 11 473 383 480 245 715 375 75
KSA (SAR'000)
SAMBA 100% 1% 7% 7% 67% 0% 6% 13% 0.2% 0.3% 9.5% 6.5% 10.0% 5.0% 8.5% 6.4% 35% 35% 30% 43% 40% 35% 65% 44% 7 11 285 276 400 175 553 286 57
RIBL 100% 0% 6% 9% 62% 0% 3% 19% 0.2% 0.3% 9.0% 6.0% 10.0% 5.0% 8.5% 6.4% 35% 35% 30% 43% 40% 35% 65% 45% 7 11 270 255 400 175 553 296 59
RJHI 100% 0% 0% 11% 30% 0% 5% 55% 0.2% 0.3% 9.0% 6.0% 10.0% 5.0% 8.5% 7.6% 35% 35% 30% 43% 40% 35% 65% 53% 7 11 270 255 400 175 553 416 83
BSFR 100% 3% 1% 10% 75% 0% 1% 10% 0.2% 0.3% 9.5% 6.5% 10.0% 5.0% 8.5% 6.7% 35% 35% 30% 43% 40% 35% 65% 43% 7 11 285 276 400 175 553 293 59
SABB 100% 3% 0% 7% 71% 0% 4% 14% 0.2% 0.3% 9.0% 6.5% 10.0% 5.0% 8.5% 6.7% 35% 35% 30% 43% 40% 35% 65% 44% 7 11 270 276 400 175 553 305 61ARNB 100% 0% 4% 7% 62% 0% 1% 26% 0.2% 0.3% 9.0% 6.0% 10.0% 5.0% 8.5% 6.6% 35% 35% 30% 43% 40% 35% 65% 47% 7 11 270 255 400 175 553 322 64
SHB 93% 3% 4% 13% 69% 0% 0% 10% 0.2% 0.3% 10.0% 6.5% 10.0% 5.0% 8.5% 6.7% 35% 35% 30% 43% 40% 35% 70% 41% 7 11 300 276 400 175 595 294 59
SIBC 95% 0% 5% 6% 71% 0% 0% 18% 0.2% 0.3% 10.0% 6.5% 10.0% 5.0% 8.5% 6.8% 35% 35% 30% 43% 40% 35% 70% 45% 7 11 300 276 400 175 595 323 65ALBI 100% 0% 0% 19% 43% 0% 17% 21% 0.2% 0.3% 10.0% 6.5% 10.0% 5.0% 8.5% 7.3% 35% 35% 30% 43% 40% 35% 70% 45% 7 11 300 276 400 175 595 330 66BJAZ 97% 0% 3% 16% 81% 0% 0% 0% 0.2% 0.3% 10.0% 6.5% 10.0% 5.0% 8.5% 6.9% 35% 35% 30% 43% 40% 35% 70% 39% 7 11 300 276 400 175 595 272 54ALINMA 75% 25% 0% 23% 35% 0% 0% 17% 0.2% 0.3% 10.0% 6.5% 10.0% 5.0% 8.5% 6.0% 35% 35% 30% 43% 40% 35% 70% 34% 7 11 300 276 400 175 595 266 53
Oman (OMR'000)
BKMB 100% 1% 4% 8% 48% 1% 20% 19% 0.3% 0.3% 11.0% 7.5% 10.0% 6.0% 9.0% 7.5% 35% 35% 30% 43% 50% 35% 65% 44% 11 11 330 319 500 210 585 335 67
BKSB 100% 0% 5% 18% 41% 0% 18% 18% 0.3% 0.3% 11.0% 7.5% 10.0% 6.0% 9.0% 7.8% 35% 35% 30% 43% 50% 35% 65% 43% 11 11 330 319 500 210 585 333 67
OIBB 100% 0% 6% 3% 50% 0% 20% 20% 0.3% 0.3% 11.0% 7.5% 10.0% 6.0% 9.0% 7.2% 35% 35% 30% 43% 50% 35% 65% 45% 11 11 330 319 500 210 585 333 67
Kuwait (KWD'000)NBK 100% 0% 5% 21% 47% 0% 0% 27% 0.3% 0.3% 10.0% 9.0% 13.0% 8.0% 9.0% 8.8% 35% 35% 30% 43% 50% 35% 65% 46% 11 11 300 383 650 280 585 402 80BURG 100% 0% 0% 19% 63% 0% 0% 18% 0.3% 0.3% 14.0% 13.0% 13.0% 12.0% 15.0% 13.5% 35% 35% 35% 43% 50% 35% 65% 45% 11 11 490 553 650 420 975 615 123GBK 100% 0% 11% 36% 29% 0% 0% 24% 0.3% 0.3% 22.0% 25.0% 13.0% 13.0% 15.0% 18.7% 35% 35% 35% 43% 50% 35% 65% 44% 11 11 770 1,063 650 455 975 818 164KFIN 100% 0% 27% 25% 48% 0% 0% 0% 0.3% 0.3% 32.0% 28.0% 13.0% 13.0% 15.0% 21.4% 35% 35% 35% 43% 50% 35% 65% 39% 11 11 1,120 1,190 650 455 975 849 170BOUBYAN 100% 0% 0% 0% 77% 0% 0% 23% 0.3% 0.3% 15.0% 13.0% 13.0% 8.0% 11.0% 12.5% 35% 35% 30% 43% 50% 35% 65% 48% 11 11 450 553 650 280 715 589 118
Bahrain (USD'000)AUB 100% 3% 7% 20% 47% 0% 8% 14% 0.3% 0.3% 15.5% 6.0% 10.0% 6.0% 9.0% 7.8% 35% 35% 30% 43% 50% 35% 65% 42% 11 11 465 255 500 210 585 315 79
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 174
Exhibit 247: Asset quality screen: Government loans
Source: Company Data, Arqaam Capital Research
Tangible equity Total loan book
Of which:
government
loans
Govt. Loans
as % of total
loans
Probability of
default (%)
Loss given
default (%)
Estimated
total expected
loss (in bps)
Expected Loss
from
government
UAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 2,916,734 2% 0.3% 35% 11 3,063
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 2,799,419 5% 0.3% 35% 11 2,939
Commerica l Bank of Dubai 4,670,242 28,596,159 1,291,833 5% 0.3% 35% 11 1,356
Dubai Is lamic Bank 9,532,023 55,517,325 2,563,280 5% 0.3% 35% 11 2,691
Emirates NBD 25,437,884 216,037,331 59,958,816 28% 0.3% 35% 11 62,957
Firs t Gul f Bank 25,526,113 108,341,454 9,545,731 9% 0.3% 35% 11 10,023
National Bank of Abu Dhabi 25,335,726 164,322,884 62,639,633 38% 0.3% 35% 11 65,772
Union National Bank 11,708,695 59,213,827 15,062,881 25% 0.3% 35% 11 15,816
Tamweel 2,291,625 9,643,757 -- --% 0.3% 35% 11 --
RAK Bank 5,265,668 18,706,448 -- --% 0.3% 35% 11 --
Mashreq 13,041,929 40,354,206 6,594,878 16% 0.3% 35% 11 6,925
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 33,454,959 17% 0.2% 35% 7 23,418
Qatar Is lamic Bank 11,017,834 29,958,495 264,471 1% 0.2% 35% 7 185
Doha Bank 8,611,267 31,475,243 1,444,076 5% 0.2% 35% 7 1,011
Commercia l Bank of Qatar 14,567,254 42,161,206 651,353 2% 0.2% 35% 7 456
Masraf Al Rayan 9,567,526 34,853,053 3,332,053 10% 0.2% 35% 7 2,332
QIIB 4,957,312 10,747,688 584,130 5% 0.2% 35% 7 409
Al Khal i ji 5,190,638 11,498,959 -- --% 0.2% 35% 7 --
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 -- --% 5.0% 35% 175 --
NSGB 8,265,057 36,216,476 -- --% 5.0% 35% 175 --
Credit Agricole Egypt 2,079,915 11,848,607 -- --% 5.0% 35% 175 --
Hous ing and Development Bank 2,460,987 6,855,590 -- --% 5.0% 35% 175 --
Egypt Gul f Bank 1,135,362 3,569,039 -- --% 5.0% 35% 175 --
Lebanon (LBPmn) 35%
Bank Audi 3,069,841 13,324,464 382,218 3% 5.0% 35% 175 6,689
Blom Bank 2,825,492 8,676,307 -- --% 5.0% 35% 175 --
Byblos Bank 2,008,686 6,304,894 -- --% 5.0% 35% 175 --
Bank of Beirut 825,618 5,104,483 -- --% 5.0% 35% 175 --
KSA (SAR'000)
Samba 30,960,078 92,550,190 565,519 1% 0.2% 35% 7 396
Riyad Bank 31,252,703 114,971,308 6,697 0% 0.2% 35% 7 5
Al Rajhi 35,833,626 143,951,251 -- --% 0.2% 35% 7 --
BSFR 24,565,383 93,863,772 2,680,756 3% 0.2% 35% 7 1,877
SABB 21,933,304 86,892,010 2,239,257 3% 0.2% 35% 7 1,567
ANB 17,979,407 75,448,667 9,357 0% 0.2% 35% 7 7
SHB 8,820,107 38,814,947 1,067,209 3% 0.2% 35% 7 747
SIB 9,066,468 29,359,693 86,922 0% 0.2% 35% 7 61
Bank Albi lad 4,262,986 14,663,825 -- --% 0.2% 35% 7 --
Bank Al -Jazi ra 5,954,295 24,517,895 -- --% 0.2% 35% 7 --
Al inma 16,511,688 25,386,233 6,346,022 25% 0.2% 35% 7 4,442
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 26,319 1% 0.3% 35% 11 28
Sohar 148,404 1,033,113 -- --% 0.3% 35% 11 --
Oman International 330,959 720,723 3,100 0% 0.3% 35% 11 3
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 -- --% 0.3% 35% 11 --
Nurgan 333,360 2,347,756 -- --% 0.3% 35% 11 --
Gul f Bank 473,025 3,564,187 -- --% 0.3% 35% 11 --
Kuwait Finance Hoouse 1,238,888 7,236,475 -- --% 0.3% 35% 11 --
Boubyan 260,812 1,064,887 -- --% 0.3% 35% 11 --
Bahrain
Ahl i United 1,929,221 16,046,376 476,101 3% 0.3% 35% 11 500
Total 497,280,888 2,161,098,140 216,993,723 10% 0.3% 35.0% 10 215,674
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 175
Exhibit 248: Asset quality: Banks & FI loans
Source: Company Data, Arqaam Capital Research
Tangible equity Total loan book
Of which: Banks
and other FI
loans
Banks & FI as
% of total
loans
Probability
of default
(%)
Loss given
default
(%)
Estimated
total expected
loss (in bps)
Expected Loss
from banks &
FIUAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 9,153,417 7% 0.3% 35% 11 9,611
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 1,268,509 2% 0.3% 35% 11 1,332
Commerica l Bank of Dubai 4,670,242 28,596,159 319,605 1% 0.3% 35% 11 336
Dubai Is lamic Bank 9,532,023 55,517,325 3,293,881 6% 0.3% 35% 11 3,459
Emirates NBD 25,437,884 216,037,331 31,422,122 15% 0.3% 35% 11 32,993
Firs t Gul f Bank 25,526,113 108,341,454 -- --% 0.3% 35% 11 --
National Bank of Abu Dhabi 25,335,726 164,322,884 23,390,878 14% 0.3% 35% 11 24,560
Union National Bank 11,708,695 59,213,827 4,630,841 8% 0.3% 35% 11 4,862
Tamweel 2,291,625 9,643,757 -- --% 0.3% 35% 11 --
RAK Bank 5,265,668 18,706,448 15,213 0% 0.3% 35% 11 16
Mashreq 13,041,929 40,354,206 3,081,299 8% 0.3% 35% 11 3,235
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 -- --% 0.3% 35% 11 --
Qatar Is lamic Bank 11,017,834 29,958,495 -- --% 0.3% 35% 11 --
Doha Bank 8,611,267 31,475,243 -- --% 0.3% 35% 11 --
Commercia l Bank of Qatar 14,567,254 42,161,206 -- --% 0.3% 35% 11 --
Masraf Al Rayan 9,567,526 34,853,053 -- --% 0.3% 35% 11 --
QIIB 4,957,312 10,747,688 -- --% 0.3% 35% 11 --
Al Khal i ji 5,190,638 11,498,959 -- --% 0.3% 35% 11 --
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 1,433,545 3% 0.3% 35% 11 1,505
NSGB 8,265,057 36,216,476 -- --% 0.3% 35% 11 --
Credit Agricole Egypt 2,079,915 11,848,607 -- --% 0.3% 35% 11 --
Hous ing and Development Bank 2,460,987 6,855,590 -- --% 0.3% 35% 11 --
Egypt Gul f Bank 1,135,362 3,569,039 -- --% 0.3% 35% 11 --
Lebanon (LBPmn)
Bank Audi 3,069,841 13,324,464 1,611,211 12% 0.3% 35% 11 1,692
Blom Bank 2,825,492 8,676,307 -- --% 0.3% 35% 11 --
Byblos Bank 2,008,686 6,304,894 -- --% 0.3% 35% 11 --
Bank of Beirut 825,618 5,104,483 206,576 4% 0.3% 35% 11 217
KSA (SAR'000)
Samba 30,960,078 92,550,190 6,474,705 7% 0.3% 35% 11 6,798
Riyad Bank 31,252,703 114,971,308 7,281,019 6% 0.3% 35% 11 7,645
Al Rajhi 35,833,626 143,951,251 -- --% 0.3% 35% 11 --
BSFR 24,565,383 93,863,772 1,326,330 1% 0.3% 35% 11 1,393
SABB 21,933,304 86,892,010 -- --% 0.3% 35% 11 --
ANB 17,979,407 75,448,667 3,223,158 4% 0.3% 35% 11 3,384
SHB 8,820,107 38,814,947 1,593,928 4% 0.3% 35% 11 1,674
SIB 9,066,468 29,359,693 1,361,174 5% 0.3% 35% 11 1,429
Bank Albi lad 4,262,986 14,663,825 -- --% 0.3% 35% 11 --
Bank Al -Jazi ra 5,954,295 24,517,895 711,692 3% 0.3% 35% 11 747
Al inma 16,511,688 25,386,233 -- --% 0.3% 35% 11 --
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 216,539 4% 0.3% 35% 11 227
Sohar 148,404 1,033,113 54,201 5% 0.3% 35% 11 57
Oman International 330,959 720,723 39,716 6% 0.3% 35% 11 42
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 425,103 5% 0.3% 35% 11 446
Nurgan 333,360 2,347,756 -- --% 0.3% 35% 11 --
Gul f Bank 473,025 3,564,187 405,555 11% 0.3% 35% 11 426
Kuwait Finance Hoouse 1,238,888 7,236,475 1,987,245 27% 0.3% 35% 11 2,087
Boubyan 260,812 1,064,887 -- --% 0.3% 35% 11 --
Bahrain
Ahl i United 1,929,221 16,046,376 1,167,184 7% 0.3% 35% 11 1,226
Total 497,280,888 2,161,098,140 106,094,646 5% 0.3% 35.0% 10 111,399
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 176
Exhibit 249: Asset quality screen: Corporate property and construction loans
Source: Company Data, Arqaam Capital Research
Tangible
equityTotal loans
Of which:
Corporate
loans
Corp. Loans as
% of total
loans
Real Estate &
construction
loans
Real Estate &
construction as %
of corp. Loans
Probability of
default (%)
Loss given
default
(%)
Estimated total
expected loss
(in bps)
Expected Loss
UAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 86,711,796 66% 38,363,476 44% 30.0% 45% 1,350 5,179,069
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 16,786,978 32% 4,835,306 29% 30.0% 43% 1,275 616,502
Commerica l Bank of Dubai 4,670,242 28,596,159 24,774,039 87% 4,280,728 17% 35.0% 45% 1,575 674,215
Dubai Is lamic Bank 9,532,023 55,517,325 26,894,114 48% 17,159,113 64% 40.0% 50% 2,000 3,431,823
Emirates NBD 25,437,884 216,037,331 83,812,812 39% 41,035,348 49% 40.0% 50% 2,000 8,207,070
Firs t Gul f Bank 25,526,113 108,341,454 51,346,793 47% 24,262,176 47% 30.0% 43% 1,275 3,093,427
National Bank of Abu Dhabi 25,335,726 164,322,884 51,448,299 31% 32,465,691 63% 29.0% 40% 1,160 3,766,020
Union National Bank 11,708,695 59,213,827 27,879,115 47% 13,951,277 50% 37.0% 40% 1,480 2,064,789
Tamweel 2,291,625 9,643,757 964,376 10% 964,376 100% 30.0% 43% 1,275 122,958
RAK Bank 5,265,668 18,706,448 3,889,121 21% 516,560 13% 35.0% 43% 1,488 76,838
Mashreq 13,041,929 40,354,206 20,978,471 52% 3,795,186 18% 40.0% 50% 2,000 759,037
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 142,710,967 73% 45,396,687 32% 10.0% 40% 400 1,815,867
Qatar Is lamic Bank 11,017,834 29,958,495 18,818,851 63% 9,398,442 50% 17.7% 40% 708 665,410
Doha Bank 8,611,267 31,475,243 19,590,464 62% 11,698,722 60% 10.0% 40% 400 467,949
Commercia l Bank of Qatar 14,567,254 42,161,206 34,045,481 81% 15,841,830 47% 10.0% 40% 400 633,673
Masraf Al Rayan 9,567,526 34,853,053 30,537,376 88% 14,188,572 46% 10.0% 40% 400 567,543
QIIB 4,957,312 10,747,688 6,744,290 63% 6,607,907 98% 10.0% 40% 400 264,316
Al Khal i ji 5,190,638 11,498,959 10,813,849 94% 2,945,055 27% 10.0% 40% 400 117,802
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 36,440,815 86% 1,093,224 3% 9.0% 30% 270 29,517
NSGB 8,265,057 36,216,476 30,065,170 83% 901,955 3% 9.5% 30% 285 25,706
Credit Agricole Egypt 2,079,915 11,848,607 8,957,579 76% 179,152 2% 9.5% 30% 285 5,106
Hous ing and Development Bank 2,460,987 6,855,590 3,676,472 54% 1,838,236 50% 9.5% 30% 285 52,390
Egypt Gul f Bank 1,135,362 3,569,039 2,943,905 82% 88,317 3% 9.5% 30% 285 2,517
Lebanon (LBPmn)
Bank Audi 3,069,841 13,324,464 8,510,913 64% 2,748,662 32% 13.5% 35% 473 129,874
Blom Bank 2,825,492 8,676,307 6,292,154 73% 1,095,970 17% 13.5% 35% 473 51,785
Byblos Bank 2,008,686 6,304,894 4,771,333 76% 618,214 13% 13.5% 35% 473 29,211
Bank of Beirut 825,618 5,104,483 4,897,907 96% 432,865 9% 13.5% 35% 473 20,453
KSA (SAR'000)
Samba 30,960,078 92,550,190 68,141,855 74% 6,233,817 9% 9.5% 30% 285 177,664
Riyad Bank 31,252,703 114,971,308 81,388,333 71% 10,373,069 13% 9.0% 30% 270 280,073
Al Rajhi 35,833,626 143,951,251 58,345,088 41% 15,304,413 26% 9.0% 30% 270 413,219
BSFR 24,565,383 93,863,772 79,080,173 84% 9,147,957 12% 9.5% 30% 285 260,717
SABB 21,933,304 86,892,010 68,377,688 79% 6,296,702 9% 9.0% 30% 270 170,011
ANB 17,979,407 75,448,667 51,717,401 69% 4,995,450 10% 9.0% 30% 270 134,877
SHB 8,820,107 38,814,947 31,997,824 82% 5,161,522 16% 10.0% 30% 300 154,846
SIB 9,066,468 29,359,693 22,485,849 77% 1,722,083 8% 10.0% 30% 300 51,662
Bank Albi lad 4,262,986 14,663,825 9,021,913 62% 2,717,998 30% 10.0% 30% 300 81,540
Bank Al -Jazi ra 5,954,295 24,517,895 23,806,203 97% 4,003,711 17% 10.0% 30% 300 120,111
Al inma 16,511,688 25,386,233 14,764,273 58% 5,798,764 39% 10.0% 30% 300 173,963
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 2,798,570 56% 416,612 15% 11.0% 30% 330 13,748
Sohar 148,404 1,033,113 610,963 59% 187,244 31% 11.0% 30% 330 6,179
Oman International 330,959 720,723 386,693 54% 23,367 6% 11.0% 30% 330 771
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 5,754,141 68% 1,785,431 31% 10.0% 30% 300 53,563
Burgan 333,360 2,347,756 1,920,440 82% 444,785 23% 14.0% 35% 490 21,794
Gulf Bank 473,025 3,564,187 2,312,139 65% 1,267,312 55% 22.0% 35% 770 97,583
Kuwait Finance Hoouse 1,238,888 7,236,475 5,249,230 73% 1,789,029 34% 32.0% 35% 1,120 200,371
Boubyan 260,812 1,064,887 822,736 77% -- --% 15.0% 30% 450 --
Bahrain
Ahl i United 1,929,221 16,046,376 10,793,825 67% 3,238,376 30% 15.5% 30% 465 150,584
Total 497,280,888 2,161,098,140 1,301,545,007 60% 377,724,129 29% 21.8% 40.1% 875 35,437,377
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 177
Exhibit 250: Asset quality screen: Corporate non-property and construction loans
Source: Company Data, Arqaam Capital Research
Tangible
equityTotal loans
Of which:
Corporate
loans
Corp. Loans
as % of total
loans
Non- P&C
corporate
loans
Non- P&C as
% of corp.
Loans
Probability
of default
(%)
Loss
given
default
Estimated
total expected
loss (in bps)
Expected Loss
UAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 86,711,796 66% 25,971,389 30% 37.0% 24% 901 2,341,154
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 16,786,978 32% 11,951,672 71% 15.0% 47% 698 833,629
Commerica l Bank of Dubai 4,670,242 28,596,159 24,774,039 87% 14,495,023 59% 32.9% 26% 863 1,251,198
Dubai Is lamic Bank 9,532,023 55,517,325 26,894,114 48% 9,735,001 36% 17.5% 45% 788 766,631
Emirates NBD 25,437,884 216,037,331 83,812,812 39% 31,262,182 37% 60.3% 19% 1,132 3,537,877
Firs t Gul f Bank 25,526,113 108,341,454 51,346,793 47% 27,084,617 53% 18.9% 35% 663 1,795,330
National Bank of Abu Dhabi 25,335,726 164,322,884 51,448,299 31% 17,382,608 34% 15.1% 39% 590 1,025,467
Union National Bank 11,708,695 59,213,827 27,879,115 47% 6,458,538 23% 56.8% 20% 1,118 721,928
Tamweel 2,291,625 9,643,757 964,376 10% -- --% 20.0% 45% 900 --
RAK Bank 5,265,668 18,706,448 3,889,121 21% 3,372,561 87% 23.0% 45% 1,035 349,060
Mashreq 13,041,929 40,354,206 20,978,471 52% 17,183,285 82% 22.7% 40% 900 1,546,496
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 142,710,967 73% 96,714,280 68% 7.0% 43% 298 2,877,250
Qatar Is lamic Bank 11,017,834 29,958,495 18,818,851 63% 9,146,117 49% 7.5% 43% 319 291,532
Doha Bank 8,611,267 31,475,243 19,590,464 62% 7,891,742 40% 7.0% 43% 298 234,779
Commercia l Bank of Qatar 14,567,254 42,161,206 34,045,481 81% 18,043,651 53% 7.0% 43% 298 536,799
Masraf Al Rayan 9,567,526 34,853,053 30,537,376 88% 13,560,560 44% 7.0% 43% 298 403,427
QIIB 4,957,312 10,747,688 6,744,290 63% 136,383 2% 7.0% 43% 298 4,057
Al Khal i ji 5,190,638 11,498,959 10,813,849 94% 7,868,794 73% 7.0% 43% 298 234,097
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 36,440,815 86% 31,033,225 85% 7.5% 43% 319 989,184
NSGB 8,265,057 36,216,476 30,065,170 83% 26,265,897 87% 8.0% 43% 340 893,041
Credit Agricole Egypt 2,079,915 11,848,607 8,957,579 76% 7,593,567 85% 8.0% 43% 340 258,181
Hous ing and Development Bank 2,460,987 6,855,590 3,676,472 54% 467,118 13% 8.0% 43% 340 15,882
Egypt Gul f Bank 1,135,362 3,569,039 2,943,905 82% 2,855,588 97% 8.0% 43% 340 97,090
Lebanon (LBPmn)
Bank Audi 3,069,841 13,324,464 8,510,913 64% 3,619,762 43% 9.0% 43% 383 138,456
Blom Bank 2,825,492 8,676,307 6,292,154 73% 3,860,033 61% 9.0% 43% 383 147,646
Byblos Bank 2,008,686 6,304,894 4,771,333 76% 3,809,010 80% 9.0% 43% 383 145,695
Bank of Beirut 825,618 5,104,483 4,897,907 96% 4,465,042 91% 9.0% 43% 383 170,788
KSA (SAR'000)
Samba 30,960,078 92,550,190 68,141,855 74% 61,908,038 91% 6.5% 43% 276 1,710,210
Riyad Bank 31,252,703 114,971,308 81,388,333 71% 71,015,264 87% 6.0% 43% 255 1,810,889
Al Rajhi 35,833,626 143,951,251 58,345,088 41% 43,040,675 74% 6.0% 43% 255 1,097,537
BSFR 24,565,383 93,863,772 79,080,173 84% 69,932,216 88% 6.5% 43% 276 1,931,877
SABB 21,933,304 86,892,010 68,377,688 79% 62,080,986 91% 6.5% 43% 276 1,714,987
ANB 17,979,407 75,448,667 51,717,401 69% 46,721,951 90% 6.0% 43% 255 1,191,410
SHB 8,820,107 38,814,947 31,997,824 82% 26,836,302 84% 6.5% 43% 276 741,353
SIB 9,066,468 29,359,693 22,485,849 77% 20,763,766 92% 6.5% 43% 276 573,599
Bank Albi lad 4,262,986 14,663,825 9,021,913 62% 6,303,915 70% 6.5% 43% 276 174,146
Bank Al -Jazi ra 5,954,295 24,517,895 23,806,203 97% 19,802,492 83% 6.5% 43% 276 547,044
Al inma 16,511,688 25,386,233 14,764,273 58% 8,965,509 61% 6.5% 43% 276 247,672
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 2,798,570 56% 2,381,958 85% 7.5% 43% 319 75,925
Sohar 148,404 1,033,113 610,963 59% 423,719 69% 7.5% 43% 319 13,506
Oman International 330,959 720,723 386,693 54% 363,326 94% 7.5% 43% 319 11,581
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 5,754,141 68% 3,968,710 69% 9.0% 43% 383 151,803
Burgan 333,360 2,347,756 1,920,440 82% 1,475,655 77% 13.0% 43% 553 81,530
Gulf Bank 473,025 3,564,187 2,312,139 65% 1,044,827 45% 25.0% 43% 1,063 111,013
Kuwait Finance House 1,238,888 7,236,475 5,249,230 73% 3,460,201 66% 28.0% 43% 1,190 411,764
Boubyan 260,812 1,064,887 822,736 77% 822,736 100% 13.0% 43% 553 45,456
Bahrain
Ahl i United 1,929,221 16,046,376 10,793,825 67% 7,555,449 70% 6.0% 43% 255 192,664
Total 497,280,888 2,161,098,140 1,301,545,007 60% 857,063,468 66% 11.7% 40.4% 472 34,305,557
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 178
Exhibit 251: Asset quality screen: SME loans
Source: Company Data, Arqaam Capital Research
Tangible
equityTotal loans
Loans to
SMEs
SMEs as %
of total
loans
Probability
of default
(%)
Loss given
default
(%)
Estimated
total
expected loss
Expected
Loss from
SMEsUAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 22,376,931 17% 13.0% 50% 650 1,454,501
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 961,892 2% 12.5% 50% 625 60,118
Commerica l Bank of Dubai 4,670,242 28,596,159 5,998,288 21% 15.0% 50% 750 449,872
Dubai Is lamic Bank 9,532,023 55,517,325 -- --% 15.0% 50% 750 --
Emirates NBD 25,437,884 216,037,331 11,515,282 5% 16.0% 50% 800 921,223
Firs t Gul f Bank 25,526,113 108,341,454 1,423,468 1% 13.0% 50% 650 92,525
National Bank of Abu Dhabi 25,335,726 164,322,884 1,600,000 1% 11.0% 50% 550 88,000
Union National Bank 11,708,695 59,213,827 7,469,300 13% 12.0% 50% 600 448,158
Tamweel 2,291,625 9,643,757 -- --% 12.0% 50% 600 --
RAK Bank 5,265,668 18,706,448 -- --% 15.0% 50% 750 --
Mashreq 13,041,929 40,354,206 -- --% 12.0% 50% 600 --
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 600,000 0% 13.0% 50% 650 39,000
Qatar Is lamic Bank 11,017,834 29,958,495 274,292 1% 13.0% 50% 650 17,829
Doha Bank 8,611,267 31,475,243 -- --% 13.0% 50% 650 --
Commercia l Bank of Qatar 14,567,254 42,161,206 160,000 0% 13.0% 50% 650 10,400
Masraf Al Rayan 9,567,526 34,853,053 2,788,244 8% 13.0% 50% 650 181,236
QIIB 4,957,312 10,747,688 -- --% 13.0% 50% 650 --
Al Khal i ji 5,190,638 11,498,959 -- --% 13.0% 50% 650 --
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 4,314,365 10% 12.0% 50% 600 258,862
NSGB 8,265,057 36,216,476 2,897,318 8% 13.0% 50% 650 188,326
Credit Agricole Egypt 2,079,915 11,848,607 1,184,861 10% 14.0% 50% 700 82,940
Hous ing and Development Bank 2,460,987 6,855,590 1,371,118 20% 14.0% 50% 700 95,978
Egypt Gul f Bank 1,135,362 3,569,039 -- --% 14.0% 50% 700 --
Lebanon (LBPmn)
Bank Audi 3,069,841 13,324,464 2,142,489 16% 12.0% 50% 600 128,549
Blom Bank 2,825,492 8,676,307 1,336,151 15% 12.0% 40% 480 64,135
Byblos Bank 2,008,686 6,304,894 344,109 5% 12.0% 40% 480 16,517
Bank of Beirut 825,618 5,104,483 -- --% 12.0% 40% 480 --
KSA (SAR'000)
Samba 30,960,078 92,550,190 -- --% 10.0% 40% 400 --
Riyad Bank 31,252,703 114,971,308 157,577 0% 10.0% 40% 400 6,303
Al Rajhi 35,833,626 143,951,251 -- --% 10.0% 40% 400 --
BSFR 24,565,383 93,863,772 -- --% 10.0% 40% 400 --
SABB 21,933,304 86,892,010 -- --% 10.0% 40% 400 --
ANB 17,979,407 75,448,667 -- --% 10.0% 40% 400 --
SHB 8,820,107 38,814,947 150,025 0% 10.0% 40% 400 6,001
SIB 9,066,468 29,359,693 24,904 0% 10.0% 40% 400 996
Bank Albi lad 4,262,986 14,663,825 17,774 0% 10.0% 40% 400 711
Bank Al -Jazi ra 5,954,295 24,517,895 -- --% 10.0% 40% 400 --
Al inma 16,511,688 25,386,233 -- --% 10.0% 40% 400 --
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 45,000 1% 10.0% 50% 500 2,250
Sohar 148,404 1,033,113 -- --% 10.0% 50% 500 --
Oman International 330,959 720,723 -- --% 10.0% 50% 500 --
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 -- --% 13.0% 50% 650 --
Burgan 333,360 2,347,756 -- --% 13.0% 50% 650 --
Gul f Bank 473,025 3,564,187 -- --% 13.0% 50% 650 --
Kuwait Finance Hoouse 1,238,888 7,236,475 -- --% 13.0% 50% 650 --
Boubyan 260,812 1,064,887 -- --% 13.0% 50% 650 --
Bahrain
Ahl i United 1,929,221 16,046,376 -- --% 10.0% 50% 500 --
Total 497,280,888 2,161,098,140 69,545,438 3% 13.5% 50% 671 4,672,647
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 179
Exhibit 252: Asset quality screen: Mortgages
Source: Company Data, Arqaam Capital Research
Tangible
equityTotal loans
Of which:
Retail loans
Retail loans as
% of total
loans
Non-
mortgages
Probability
of default
(%)
Loss given
default
(%)
Estimated total
expected loss
(in bps)
Expected Loss
from non-
mortgagesUAE (AED'000)
Abu Dhabi Commercia l Bank 17,907,659 130,466,613 31,684,666 24% 26,684,666 15.0% 65% 975 2,601,755
Abu Dhabi Is lamic Bank 6,780,778 51,841,547 30,986,641 60% 29,076,749 14.0% 65% 910 2,645,984
Commerica l Bank of Dubai 4,670,242 28,596,159 2,210,682 8% 1,266,217 16.0% 65% 1,040 131,687
Dubai Is lamic Bank 9,532,023 55,517,325 22,766,050 41% 10,038,025 17.0% 65% 1,105 1,109,202
Emirates NBD 25,437,884 216,037,331 40,843,581 19% 34,643,581 25.0% 65% 1,625 5,629,582
Firs t Gul f Bank 25,526,113 108,341,454 47,448,930 44% 32,467,980 15.0% 65% 975 3,165,628
National Bank of Abu Dhabi 25,335,726 164,322,884 26,844,074 16% 24,844,074 15.0% 65% 975 2,422,297
Union National Bank 11,708,695 59,213,827 11,640,990 20% 11,365,045 15.0% 65% 975 1,108,092
Tamweel 2,291,625 9,643,757 8,679,381 90% -- 17.0% 65% 1,105 --
RAK Bank 5,265,668 18,706,448 14,802,114 79% 11,101,586 19.0% 65% 1,235 1,371,046
Mashreq 13,041,929 40,354,206 9,699,558 24% 4,849,779 20.0% 65% 1,300 630,471
Qatar (QAR'000)
Qatar National Bank 47,667,614 196,623,399 20,457,473 10% 19,957,473 7.0% 65% 455 908,065
Qatar Is lamic Bank 11,017,834 29,958,495 11,139,644 37% 8,006,830 7.0% 65% 455 364,311
Doha Bank 8,611,267 31,475,243 10,440,703 33% 4,440,703 7.0% 65% 455 202,052
Commercia l Bank of Qatar 14,567,254 42,161,206 7,464,372 18% 3,464,372 7.0% 65% 455 157,629
Masraf Al Rayan 9,567,526 34,853,053 983,624 3% -- 7.0% 65% 455 --
QIIB 4,957,312 10,747,688 3,419,268 32% 3,419,268 7.0% 65% 455 155,577
Al Khal i ji 5,190,638 11,498,959 685,110 6% 685,110 7.0% 65% 455 31,173
Egypt (EGP'000)
Commerica l International Bank 10,349,981 42,522,740 4,648,380 11% 4,228,390 11.0% 65% 715 302,330
NSGB 8,265,057 36,216,476 6,151,306 17% 6,020,827 11.0% 65% 715 430,489
Credit Agricole Egypt 2,079,915 11,848,607 2,891,028 24% 2,613,168 11.0% 65% 715 186,842
Hous ing and Development Bank 2,460,987 6,855,590 3,179,118 46% 2,978,118 11.0% 65% 715 212,935
Egypt Gul f Bank 1,135,362 3,569,039 625,134 18% 573,097 11.0% 65% 715 40,976
Lebanon (LBPmn)
Bank Audi 3,069,841 13,324,464 2,820,122 21% 2,059,758 11.0% 65% 715 147,273
Blom Bank 2,825,492 8,676,307 2,384,153 27% 1,378,040 11.0% 65% 715 98,530
Byblos Bank 2,008,686 6,304,894 1,533,561 24% 987,378 11.0% 65% 715 70,598
Bank of Beirut 825,618 5,104,483 -- --% -- 11.0% 65% 715 --
KSA (SAR'000)
Samba 30,960,078 92,550,190 17,368,111 19% 11,987,110 8.5% 65% 553 662,288
Riyad Bank 31,252,703 114,971,308 26,295,259 23% 22,366,158 8.5% 65% 553 1,235,730
Al Rajhi 35,833,626 143,951,251 85,606,163 59% 79,075,509 8.5% 65% 553 4,368,922
BSFR 24,565,383 93,863,772 10,776,513 11% 9,702,570 8.5% 65% 553 536,067
SABB 21,933,304 86,892,010 16,275,065 19% 12,595,166 8.5% 65% 553 695,883
ANB 17,979,407 75,448,667 20,498,751 27% 19,617,179 8.5% 65% 553 1,083,849
SHB 8,820,107 38,814,947 4,155,986 11% 4,005,961 8.5% 70% 595 238,355
SIB 9,066,468 29,359,693 5,425,748 18% 5,400,844 8.5% 70% 595 321,350
Bank Albi lad 4,262,986 14,663,825 5,641,912 38% 3,088,064 8.5% 70% 595 183,740
Bank Al -Jazi ra 5,954,295 24,517,895 -- --% -- 8.5% 70% 595 --
Al inma 16,511,688 25,386,233 4,275,938 17% 4,275,938 8.5% 70% 595 254,418
Oman (OMR'000)
Bank Muscat 1,017,639 4,995,926 1,954,498 39% 932,249 9.0% 65% 585 54,537
Sohar 148,404 1,033,113 367,949 36% 183,975 9.0% 65% 585 10,763
Oman International 330,959 720,723 291,214 40% 145,607 9.0% 65% 585 8,518
Kuwait (KWD'000)
National Bank of Kuwait 2,309,807 8,502,050 2,322,807 27% 2,322,807 9.0% 65% 585 135,884
Burgan 333,360 2,347,756 427,316 18% 416,040 15.0% 65% 975 40,564
Gulf Bank 473,025 3,564,187 846,493 24% 846,493 15.0% 65% 975 82,533
Kuwait Finance Hoouse 1,238,888 7,236,475 -- --% -- 15.0% 65% 975 --
Boubyan 260,812 1,064,887 242,151 23% 242,151 11.0% 65% 715 17,314
Bahrain
Ahl i United 1,929,221 16,046,376 3,609,266 22% 2,262,810 9.0% 65% 585 132,374
Total 497,280,888 2,161,098,140 536,729,234 25% 427,635,302 12.3% 65.2% 802 34,260,429
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 180
Arqaam Valuation Approach:
We value leverage adjusted returns, growth and adjusted earnings, with amendments for social contribution levies, goodwill amortization, Zakat, coupons on Tier-1/Tier-2 debt.
We value capital surpluses/deficits. Our core capital ratios deviate from those published by the banks as we include hidden reserves, such as general banking reserves, available-for-sale reserves, and special reserves, and include the current year’s earnings.
We adjust for other hidden balance sheet strengths and weaknesses, such as real estate assets, level 3 assets;
Our valuations are made up of 4 core elements:
(1) Valuing the banking operations: We start by valuing the core operations of the bank. We adjust net earnings for distributions that are not subtracted from reported earnings (such as social contribution levies, Tier-1/2 coupons), and then add noncash amortizations (such as goodwill amortization). We do not include realized bond gains in our forecasts. We calculate earnings based on a normalized capital structure (12% of risk weighted assets plus investments in financial associates). The returns on excess capital or the capital deficit are added to/subtracted from the earnings to arrive at an underlying earnings pattern given an adequate capital base of 12% of risk-weighted assets and investments in associates.
(2) Valuing the capital surplus/deficit: We calculate available capital as follows: (1)
we calculate the common equity of the bank; (2) we add minorities as they are part of the capital structure; (3) we deduct all intangibles and goodwill; (4) we deduct all non-common equity elements such as preferred shares, convertibles, subordinate debt, and other bridge capital; (5) we include mandatory convertibles; (6) we do not deduct deferred tax assets as they represent cash flows for shareholders; and (7) we do not deduct positive available-for-sale reserves as these are easy to free up by selling the positions. We calculate capital requirements as follows: (1) we estimate the risk weighted assets under Basel III; (2) we set a minimum core Tier 1 of 12%; and (3) we include all financial associates (we do not use the 10% threshold the Basel Committee has agreed upon).
(3) Adding or subtracting other elements: such as provisioning needs that are above
and beyond those in our 4-year forecast period and stem from our asset quality screen, and potential losses on associates and other investments (real estate, equities, structured credit, and level 3 assets).
(4) Adding dividends payable for 2012.
All in all, our target prices provide a consistent view of the most important value drivers
of a bank, such as its returns and capital strength and fully incorporate our asset quality
screen.
May 23 2012
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See Important Notice. 181
Associates
Exhibit 253: UAE banks’ associates
Source: Company Data, Zawya, Arqaam Capital Research
AED 000 Associate & JVs Country Stake Carried at
Al Nokhitha Fund UAE 22% 56,298
ADCB MSCI U.A.E Index Fund UAE 28% 25,519
ADCB UH Total 81,817
National Bank for Development Egypt 49%
Abu Dhabi National Takaful Company UAE 40%
Bosnia Bank Leasing and Real Estate Company Bosnia 32%
Bosnia Bank International Bosnia 27%
ADIB UH Total 851,503
CBD UH None
Deyaar Development UAE 43%
MESC Investment Company Jordan 40%
Bank of Khartoum Sudan 28%
Liquidity management Center Bahra in 25%
Jordan Dubai Islamic Bank Jordan 21%
Ejar Crances & Equipment UAE 17%
DIB UH Total 2,336,439
Network International UAE 51%
Union Properties UAE 48%
National General Insurance UAE 37%
EMIRATES UH Total 2,041,459
First Gulf Financial services UAE 45%
Green Emirates Properties UAE 40%
Aseel Finance UAE 40%
Midmak Properties UAE 16%
FGB UH Total 443,810
NBAD UH None
Arab Orient Takaful Insurance Company Egypt 20%
UNB UH Total 6,091
TAMWEEL UH None
MASQ UH None
RAKBANK UH None
GEPAR Tunis ia 20%
Saudi IAIC Cooperative Insurance Co KSA 30%
Best Invest Tunis ia 36%
Islamic Insurance Jordan Jordan 20%
Salama UH None 57,563
City Engineering UAE 40%
Septech Holding UAE 49%
Amwal Qatar 47%
Shuaa UH None 135,526
May 23 2012
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See Important Notice. 182
Exhibit 254: Qatar banks’ associates
Source: Company Data, Zawya, Arqaam Capital Research
QAR 000 Associate & JVs Country Stake Carried at
National bank of Oman Oman 35% 1,538,990
United Arab Bank UAE 40% 2,374,737
Asteco LLC Qatar 30% 2,256
Massoun Insurance Qatar 50% 10,497
CBQK QD Total 3,926,480
Doha Brokerage and Financial Services Limited India 44% 10,846
DHBK QD Total 10,846
Arab Finance House Lebanon 37% 60,882
Asian Finance Bank Malays ia 42% 223,578
Al Jazeera Islamic Co Qatar 30% 231,966
Durat Al Doha Cayman 40% 198,216
Al Daman Islamic Insurance Qatar 25% 51,334
Retaj Marketing and Project Management Qatar 10% 25,262
Panmure Gordon & Co. UK 21% 93,679
QIBK QD Total 884,917
Mansoor bank Iraq 51%
Housing bank for Trade and Finance Jordan 35%
Aljazeera Islamic company Qatar 20%
Commercial Bank International UAE 24%
Tunisian Qatari Bank Tunis ia 50%
Bank of Commerce and Development Libya 49%
QNBK QD Total 4,703,260
National Mass Housing Oman 20% 30,220
CI San Trading Qatar 50% 5,000
Kirnaf Investment and Installment Company Saudi Arabia 48% 305,228
Daman Insurance Qatar 20% 40,400
Linc Facility Services Qatar 33% 2,000
Lusail Waterfront Real estate Company Qatar 50% 1,048,438
MARK QD Total 1,431,286
Syria International Islamic Bank Syria 20% 107,504
Al Tashelat Islamic Company W.L.L. Qatar 49% 46,584
Al Moqawil Company W.L.L. Qatar 49% 1,470
Syria Islamic Insurance Company Syria 20% 14,443
Mackeen Investment and Real Estate Development Q.C.S.C.Qatar 49% 195,230
QIIK QD Total 365,231
Al Adaman Islamic Insurance Company Qatar 13%
Asteco Qatar Qatar 20%
Massoun Insurance Services Qatar 50%
QATI QD Total 63,797
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 183
Exhibit 255: Egyptian banks’ associates
Source: Company Data, Zawya, Arqaam Capital Research
EGP 000 Associate & JVs Country Stake Carried at
CIEB EY None
Commercial International Life Insurance Egypt 45% 28,273
Corplease Egypt 40% 64,951
Haykala for investment Egypt 40% 1,802
Egypt Factors Egypt 39% 5,753
International Co. for Security and Services (Falcon) Egypt 40% 5,898
COMI EY Total 106,676
Al Taameer Housing and Ports Company Egypt 35% 12,534
El Taameer for Real Estate Financing Egypt 25% 104,078
New East Cairo Company Egypt 48% 1,846
Finserv Group Egypt 18% 13,509
Alexandria Company for Investments and Urban Development Egypt 20% 105,000
Guardian for Leasing Egypt 40% 256
HDBK EY Total 237,222
Sogelease Egypt Company Egypt 40% 75,928
NSGB Life Insurance Company Egypt 25% 28,336
ALD Automotive Egypt 13% 2,094
Senouhi Company for Construction Materials Egypt 23% 2,688
NSGB EY Total 109,046
Macrofish Company for Processing and packaging fish Egypt 20%
Dwarf Company for the Manufacture of Agricultural Crops Egypt 20%
Tanmeyah Micro Finance Company Egypt 25%
Arabian Investment Company for Construction Egypt 26%
Prime Holding Egypt 22%
EGBE EY Total 142,240
May 23 2012
Financials (banks, insurance and diversified financials)
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See Important Notice. 184
Exhibit 256: Saudi banks’ associates
Source: Company Data, Zawya, Arqaam Capital Research
SAR 000 Associate & JVs Country Stake Carried at
Saudi Home Loans Company KSA 40% 320,000
ARNB AB Total 349,417
RJHI AB None
Suadi Insurance Company Bahrain 50%
Sofinco Saudi Fransi KSA 50%
Saudi Fransi Cooperative Insurance Company KSA 33% 51,470
Banque BEMO Saudi Fransi Syria 27% 107,989
BSFR AB Total 170,789
Ajil Finance Services KSA 35%
Royal and Sun Alliance Insurance ME Bahrain 21%
Al-Alamiya for Cooperative Insurance Company KSA 20%
RIBL AB Total 339,954
SAMBA AB Total 209
HSBC Saudi Arabia Ltd KSA 51% 453,689
SABB Takaful KSA 33% 111,502
SABB AB Total 565,191
Wataniya Insurance Company KSA 20% 17,750
AAAL AB Total 17,750
ALBI AB None
BJAZ AB None
Amex Saudi Arabia Limited KSA 50%
Saudi Orix Leasing Company KSA 38%
Amlak International for Finance & RE Development KSA 29%
Naeem Investment Company KSA 20%
Med & Gulf Insurance & Reinsurance Co. KSA 19%
SIBC AB Total 894,672
ALINMA AB None
MedGulf None
The Cooperative Real Estate & Investment Co. KSA 33%
Najm Insurance KSA 8%
United Insurance Company KSA 50%
Waseel Application Services KSA 45%
Tawuniya Total 103,317
May 23 2012
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Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 185
Recent results & Previews Q2 12
UAE:
ADCB: Net profit increased 38% y/y on lower deposit rates: Net profit AED802mn, 38% y/y & 56% q/q; beating BB by 33.5%. Gross loans up 2.9% y/y & down 0.5% YTD surpassed by 4.9% y/y & 4.2 % YTD growth deposits; LTD 113%, vs. 119% in Q4 & 116% in Q1 11A.
ADIB: Higher operating performance absorbed by higher impairments on investments: Net profit AED307mn 1% y/y & 31% vs. Q4 11A (in line with BB). Gross loans 3% y/y & -1.4% YTD, deposits 10.9% y/y & 4.3% YTD.
CBD: Impacted by an increase in loan loss provisions: Net Profit of AED242mn; -8% y/y, 4% below consensus, but up 441% q/q. Net loans increased 2.8%, while deposits dropped by 0.4% YTD.
DIB: Net profit attributable to shareholders of AED245mn, 11% y/y & 54% q/q. Loan loss charges stood at AED299mn 19% y/y & -15% q/q. Deposits grew 5% YTD, but plunged 6.6% y/y. Loans increased 1.2% YTD, but decreased 5.6% y/y. For FY 11A, the central Bank curbed DIB’s pay-out from AED 0.15 to 0.125.
ENBD: Strong improvement in liquidity, but low quality of net profit: Net profit reached AED641mn, 4% above BB, reflecting a 55% decrease y/y (but Q1 11A was inflated by capital gains on Network Int. partly of offset by LLPs). ENBD is addressing its weak liquidity and upped deposits by 7.9% YTD at the expense of NIM, which fell from 2.85% in Q4 to 2.63% in Q1, in line with expectations. Loans increased 5% y/y & 0.5% q/q. LTD stood at 98% (vs. 92% Q1 11A; 105% Q4 11A).
FGB: Higher NII, but with drop in fees & commissions: Revenues increased by 4% y/y on the back of 13% increase in NII partially offset by a 22% drop in Fees & Commissions. Net profit reached AED935mn, reflecting a 7% y/y increase, but an 8% drop q/q. NPL dropped to 4.1% (including DH) vs. 4.5% (including DW & DH) in Q1 11A and 4% in Q4 11A (including DH). Loans went up 7.7% y/y but dropped 10bps YTD while deposits are rose 5.4% y/y and 30bps YTD. LTD arrived flat y/y at 101% (up from 98.6% in Q1 11A). Share buyback put on hold for 2-3 months. Loan growth of 10-12% could be revised after Q2 12e to 6-8%, after a stagnant loan growth in Q1 11A but for now is maintained. Circular on large exposures unlikely to have any effect, though depends on some technicalities regarding shareholders. It does not expect to pick up loans from NBAD or ENBD.
MASQ: Lower loan loss provisions could not fully offset revenue pressure: Net profit amounted to AED300mn, down 1.6% y/y, but up 5x q/q. Loans dropped by 8.2% y/y & 1% q/q, surpassed by a drop in deposits of 11.5% y/y & 2.2% q/q. LTD stood at 90% (vs. 87% Q1 11A, 89% Q4 11A).
NBAD: Sharp increase in government deposits. Net profit of AED 1,041mn, 12.2% y/y and 43.8% q/q, beating consensus by 4.9%: Revenues increased by 7.9% y/y on the back of 5.9% and 13.3% higher NII and non-interest income respectively. Net loans increased 14% y/y and 2.3% YTD surpassed by 33.1% y/y & 23.6% YTD growth in deposits, deployed in cash, though AED5-6bn may not be recurring of the deposit inflow. LTD down to 87% vs. 102% in Q4 11A, down from 105% in Q1 11A. NBAD still sticks to 10% loan growth for FY 12e despite the circular capping exposures. However, if UAE circular
May 23 2012
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See Important Notice. 186
is not changed, NBAD would need to sell high quality loans. NBAD expects loans to grow by c. 10%, and top line growth of 5-10% (NII & F&C) with cost growth of 10-15%. Loan loss provisioning seen at AED350mn per quarter, which would be 5% higher than FY 11A, but a tad lower as % of loans. This implies a broad net profit guidance of AED3,927mm- AED4,449mn, i.e. 6-20% net profit growth.
RAKBANK: Fees & commissions were affected by CB caps, but offset by other revenues: Rakbank reported net profit of AED325.3mn, reflecting an 11% increase y/y & 9.5% q/q. NII rose by 21% y/y & 1.6% q/q, but non-NII fell by 28% y/y, due to new CB restrictions on fees & charges. Gross loans increased 2.7% YTD & 9.8% y/y.
UNB: Higher loan loss charges, fully offset by higher net interest margins: Revenues increased by 11% y/y and 26% q/q. Net profit came in at AED 475mn, reflecting a 3% increase y/y & 2.8x q/q, beating consensus. Loans increased by 4% y/y & 1% YTD. Deposits rose by 6% y/y & 5% YTD. LTD stood at 94% down from 98% in Q4 11A & 97% in Q1 11A.
TAMWEEL: Impacted by one off litigation provisions relating to the rent of its own office: Revenues rose by 11% y/y & 2% q/q. NII increased 3% y/y, but went down 6% q/q. Loans increased 2% y/y and were flat YTD, but outstanding debt increased 7% YTD and y/y, helped by recent bond issuance.
DFM: DFM increased net profit by 14x, but profitability is still very low: Revenues +40% y/y, benefitting from improved trading volumes (88% y/y) & alternative income at 2.2% of total, despite a fall of 18% in investment income. Costs dropped 18% y/y.
Shuaa: Still loss making: Shuaa's revenues increased 107% y/y, helped by corporate centre & lending, however, revenues in the divisions investment banking, asset management & brokerage were down. Costs dropped 7.4% y/y and net loss narrowed to AED8.5mn vs. AED26.3mn loss.
May 23 2012
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See Important Notice. 187
Exhibit 257: UAE banks Q2 12e earnings preview
ADCB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,207 1,195 1.0% 1,036 926 11.9% 16.5% 29.1%
Non interest income 345 389 (11.1%) 386 400 (3.5%) (10.6%) (2.9%)
Total income 1,552 1,584 (2.0%) 1,422 1,326 7.2% 9.2% 19.4%
Operating expenses 537 506 6.3% 560 427 31.1% (4.0%) 18.4%
Operating profit 1,015 1,078 (5.9%) 862 899 (4.1%) 17.7% 19.9%
Provisions 523 287 82.4% 935 399 134.2% (44.1%) (28.2%)
Net income 524 802 (34.6%) 1,335 583 129.2% (60.7%) 37.7%
Cost/income 34.6% 31.9% 39.4% 32.2%
Net loans to deposits 109.8% 108.2% 110.4% 110.9%
Net loans 126,284 123,866 2.0% 117,430 121,073 (3.0%) 7.5% 2.3%
Customer deposits 115,034 114,462 0.5% 106,351 109,132 (2.5%) 8.2% 4.9%
ADIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 712 723 (1.5%) 723 665 8.7% (1.5%) 8.7%
Non interest income 145 147 (1.2%) 181 142 27.2% (19.8%) 3.3%
Total income 857 869 (1.4%) 904 807 12.0% (5.1%) 7.8%
Operating expenses 366 377 (3.0%) 357 345 3.6% 2.4% 9.5%
Operating profit 491 492 (0.2%) 546 462 18.2% (10.1%) 6.5%
Provisions 231 186 24.2% 255 160 59.7% (9.3%) 16.6%
Net income 265 307 (13.6%) 298 305 (2.3%) (10.8%) 0.9%
Cost/income 42.7% 43.4% 39.5% 42.7%
Net loans to deposits 84.4% 86.2% 90.5% 92.7%
Net loans 49,542 49,615 (0.1%) 48,128 48,134 (0.0%) 2.9% 3.1%
Customer deposits 58,701 57,550 2.0% 53,192 51,912 2.5% 10.4% 10.9%
CBD Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 324 331 (1.9%) 339 333 1.7% (4.4%) (0.9%)
Non interest income 140 136 2.9% 132 129 2.4% 6.2% 5.7%
Total income 464 466 (0.5%) 471 462 1.9% (1.4%) 0.9%
Operating expenses 139 135 3.2% 143 135 5.9% (2.4%) 0.1%
Operating profit 325 331 (2.0%) 328 327 0.3% (1.0%) 1.3%
Provisions 103 89 15.9% 68 64 6.4% 51.4% 39.0%
Net income 222 242 (8.5%) 260 263 (1.2%) (14.7%) (7.9%)
Cost/income 30.0% 28.9% 30.3% 29.2%
Net loans to deposits 95.3% 97.3% 92.8% 89.0%
Net loans 27,831 27,565 1.0% 26,128 27,405 (4.7%) 6.5% 0.6%
Customer deposits 29,193 28,343 3.0% 28,153 30,787 (8.6%) 3.7% (7.9%)
DIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 652 653 (0.2%) 629 654 (3.8%) 3.7% (0.1%)
Non interest income 342 250 36.7% 275 244 12.7% 24.3% 2.5%
Total income 994 903 10.0% 904 898 0.7% 10.0% 0.6%
Operating expenses 383 364 5.3% 365 362 0.7% 5.0% 0.5%
Operating profit 611 539 13.2% 539 535 0.7% 13.3% 0.7%
Provisions 367 299 23.0% 210 290 (27.3%) 74.6% 3.1%
Net income 253 253 0.0% 343 234 47.0% (26.2%) 8.4%
Cost/income 38.6% 40.3% 40.4% 40.4%
Net loans to deposits 75.4% 77.1% 71.3% 76.2%
Net loans 52,435 52,532 (0.2%) 55,359 55,571 (0.4%) (5.3%) (5.5%)
Customer deposits 69,516 68,153 2.0% 77,645 72,935 6.5% (10.5%) (6.6%)
May 23 2012
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ENBD Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,752 1,777 (1.4%) 1,731 1,648 5.0% 1.2% 7.8%
Non interest income 574 910 (36.9%) 843 612 37.8% (31.9%) 48.7%
Total income 2,326 2,686 (13.4%) 2,574 2,260 13.9% (9.6%) 18.9%
Operating expenses 816 963 (15.2%) 849 831 2.1% (3.9%) 15.8%
Operating profit 1,510 1,723 (12.4%) 1,725 1,429 20.7% (12.5%) 20.6%
Provisions 1,108 1,101 0.7% 981 1,369 (28.3%) 13.0% (19.6%)
Net income 401 641 (37.4%) 744 1,413 (47.3%) (46.1%) (54.6%)
Cost/income 35.1% 35.8% 33.0% 36.8%
Net loans to deposits 97.3% 97.9% 88.2% 83.4%
Net loans 198,794 204,130 (2.6%) 176,882 176,824 0.0% 12.4% 15.4%
Customer deposits 204,371 208,541 (2.0%) 200,513 212,020 (5.4%) 1.9% (1.6%)
FGB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,325 1,297 2.2% 1,220 1,146 6.5% 8.6% 13.1%
Non interest income 377 373 1.0% 368 451 (18.3%) 2.5% (17.1%)
Total income 1,702 1,670 1.9% 1,588 1,596 (0.5%) 7.2% 4.6%
Operating expenses 357 326 9.7% 292 266 9.6% 22.4% 22.3%
Operating profit 1,345 1,344 0.0% 1,296 1,330 (2.6%) 3.7% 1.1%
Provisions 383 413 (7.3%) 411 459 (10.5%) (6.9%) (10.1%)
Net income 967 935 3.5% 890 878 1.4% 8.7% 6.5%
Cost/income 21.0% 19.5% 18.4% 16.7%
Net loans to deposits 101.8% 100.8% 98.2% 98.6%
Net loans 109,923 104,580 5.1% 98,598 97,064 1.6% 11.5% 7.7%
Customer deposits 107,930 103,779 4.0% 100,394 98,455 2.0% 7.5% 5.4%
MASHREQ Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 444 440 1.1% 477 558 (14.4%) (6.9%) (21.2%)
Non interest income 473 498 (5.0%) 591 535 10.5% (20.1%) (7.0%)
Total income 917 937 (2.2%) 1,069 1,093 (2.2%) (14.2%) (14.3%)
Operating expenses 450 456 (1.3%) 458 456 0.5% (1.7%) 0.1%
Operating profit 467 481 (3.0%) 611 637 (4.2%) (23.6%) (24.5%)
Provisions 268 176 52.4% 312 325 (4.1%) (14.2%) (46.0%)
Net income 194 300 (35.4%) 295 305 (3.4%) (34.2%) (1.6%)
Cost/income 49.1% 48.7% 42.9% 41.7%
Net loans to deposits 83.7% 83.7% 73.3% 79.7%
Net loans 37,930 37,159 2.1% 38,095 40,022 (4.8%) (0.4%) (7.2%)
Customer deposits 45,309 44,421 2.0% 51,942 50,210 3.4% (12.8%) (11.5%)
NBAD Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,529 1,460 4.8% 1,475 1,378 7.0% 3.6% 5.9%
Non interest income 573 570 0.5% 532 503 5.7% 7.8% 13.3%
Total income 2,102 2,030 3.6% 2,007 1,881 6.7% 4.7% 7.9%
Operating expenses 692 645 7.3% 622 566 9.9% 11.4% 14.0%
Operating profit 1,410 1,384 1.8% 1,385 1,315 5.3% 1.8% 5.2%
Provisions 362 313 15.7% 331 365 (9.3%) 9.2% (14.3%)
Net income 1,017 1,041 (2.2%) 1,026 927 10.6% (0.8%) 12.2%
Cost/income 32.9% 31.8% 31.0% 30.1%
Net loans to deposits 93.1% 87.0% 103.9% 101.5%
Net loans 171,336 163,225 5.0% 152,957 143,237 6.8% 12.0% 14.0%
Customer deposits 183,945 187,699 (2.0%) 147,196 141,051 4.4% 25.0% 33.1%
May 23 2012
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See Important Notice. 189
Source: Company Data, Arqaam Capital Research
Qatar
QNB: Net profit increased 21.6% y/y, with revenues 25% y/y, but fell 9% vs. Q4, due to lower
NIMs, fees & commissions and capital gains. NIM dropped from 3.80% in Q4 11 to 3.27% in Q1
12 on lower loan margins, despite reduced deposit rates. Decent momentum continues with
loan growth of 43% y/y and 3.7% vs. Q4 11A. Deposit growth stood at 9.1% vs. Q4 11A and
21.4% y/y, which reduces L/D to 92% from 97% in FY 11A, but still up vs. 78% in Q1 11A.
Annualized charge of rate was at 53bps of loans vs. 50bps in Q1 11 and 61 bps in FY 11A,
roughly through the cycle level, in our view. QNB expects 10-12.5% FY 12A net profit growth
(below consensus of 16.2%). NIMs seen down c. 5bps for FY 12A, as it plans to reinvest in
bonds and expects non-NII income to grow in Q2-Q4 vs. Q1 12A. NIM should continue its
RAKBANK Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 507 538 (5.9%) 488 445 9.6% 3.8% 20.9%
Non interest income 154 154 (0.4%) 154 214 (28.3%) 0.0% (28.0%)
Total income 660 693 (4.6%) 642 660 (2.7%) 2.9% 5.0%
Operating expenses 299 307 (2.5%) 276 288 (4.0%) 8.3% 6.6%
Operating profit 361 386 (6.3%) 366 372 (1.6%) (1.2%) 3.8%
Provisions 93 60 54.1% 70 79 (11.4%) 33.8% (23.1%)
Net income 268 325 (17.6%) 296 293 1.0% (9.4%) 11.0%
Cost/income 45.3% 44.3% 43.0% 43.6%
Net loans to deposits 99.6% 101.5% 102.8% 98.8%
Net loans 19,067 18,877 1.0% 17,516 17,184 1.9% 8.9% 9.9%
Customer deposits 19,147 18,589 3.0% 17,045 17,390 (2.0%) 12.3% 6.9%
UNB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 616 618 (0.4%) 595 532 11.9% 3.4% 16.2%
Non interest income 137 163 (16.3%) 158 172 (8.5%) (13.3%) (5.2%)
Total income 752 782 (3.7%) 753 705 6.9% (0.1%) 10.9%
Operating expenses 192 185 4.0% 180 173 4.2% 6.9% 7.1%
Operating profit 560 597 (6.1%) 573 532 7.8% (2.3%) 12.2%
Provisions 211 117 80.9% 151 70 116.2% 39.6% 66.8%
Net income 345 475 (27.3%) 419 460 (8.9%) (17.6%) 3.3%
Cost/income 25.5% 23.6% 23.9% 24.5%
Net loans to deposits 90.8% 91.6% 96.2% 94.5%
Net loans 59,851 58,091 3.0% 56,244 56,292 (0.1%) 6.4% 3.2%
Customer deposits 65,929 63,393 4.0% 58,463 59,587 (1.9%) 12.8% 6.4%
TAMWEEL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 63 57 10.0% 60 55 8.7% 4.7% 3.5%
Non interest income 12 17 (33.8%) 7 12 (40.0%) 60.5% 45.5%
Total income 74 74 (0.3%) 67 67 0.0% 10.7% 11.0%
Operating expenses 26 26 1.6% 26 24 8.5% 1.5% 8.4%
Operating profit 48 49 (1.3%) 41 43 (4.7%) 16.4% 12.4%
Provisions 23 31 (25.3%) 14 29 (53.7%) 69.0% 4.7%
Net income 25 18 39.3% 28 14 97.1% (9.2%) 28.5%
Cost/income 35.3% 34.6% 38.5% 35.4%
Net loans 9,488 9,299 2.0% 9,169 9,105 0.7% 3.5% 2.1%
May 23 2012
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downward trend. Foreign expansion is still focused on Turkey (outcome on Denizbank is still
uncertain) and Egypt, with no interest in RBS's 40% stake in SHB.
CBQ: Lower impairments and associates offset revenue pressure. CBQ reported net profit of
QAR471mn, 6% y/y & 25% y/y, c. 22% FY consensus. Revenues fell 1.2% y/y & 3.4% q/q. NII
were up 7% y/y, but down 6% q/q, while non-NII was down as much as 17.6% y/y, though up
3% q/q, mainly due to lower investment income and lower fees & commissions. Loans
increased 21% y/y and 1% YTD (on low credit demand). Deposits were up 25% y/y and down
only 0.3% vs. FY 10A. CBQ anticipates a fall in net interest margins for FY 12e. The sharp drop in
NPLs is due to renegotiations.
QIB: QIB expects loan growth to pick up driven by enhanced focus on business segments and
public sector from merely 1% in FY11 to over 10%. NIM was stable and there were no flashing
lights with respect to loan quality. The bank expects the FY 11A investment losses of
QAR182mn to be non-recurring.
Al Khaliji: reports continued low quality of earnings with net profit of QAR122mn, up 2% y/y, as
a sharp drop in impairments and costs could more than offset a lower top line. Capital gains on
AFS securities still comprised 33% of net profits vs. 41% in Q1 11. Quality of earnings remains
low. Loan loss charge off was positive in Q1 12 vs. 40bps in Q1 11. Loans increased 2.1% YTD
and 43.5% y/y and deposits grew 30% y/y but down 0.5% YTD. Net cash is very negative (-
20.9% of assets vs. 17.9% FY 11A).
Doha Bank: Net profit increased 7.4% y/y and 69% q/q to QAR 390mn. The Y/Y increase was
44% driven by higher investment income, 50% due to lower impairments (of which 16% is due
to lower impairments on investments) and to a marginal extent due to tight cost control.
Annualized loan loss charge was 46bps of loans vs. 66bps in Q1 11 and 86bps for FY 11A. Loans
were up 13.1% y/y but down 3.8% YTD and deposits increased 11.8% y/y and down 1.1% YTD.
QIIB: Net profit increased 10% y/y on strong investment income. Revenues increased 23.7% y/y
and 14.6% q/q, supported by strong investment income (88% y/y and 150% q/q). However, we
do not think this high investment income is sustainable as the annualized yield on the financial
assets equals to 10.2%. NII increased 2.8% y/y but fell by as much as 19.5% q/q on lower loan
spreads. Fees & Commissions fell 15% y/y, but was 24% q/q. Loans down were up 4.7% y/y and
0.5% q/q. Deposits also increased 18.6% y/y and 1.1% q/q. LTD are now very low at 57.6% vs.
58.5% a year ago. QIIB is also very liquid with cash balances at 30% of assets.
MARK: net profit was reported at QAR353mn (8% y/y and -11% q/q). NII increased by 113% y/y
and 2% q/q due to improvement in both asset yields and funding costs while Non-NII fell 21%
y/y and 8% q/q mainly due to a decline in F&C (-81% y/y and +7% q/q) which failed to be offset
by investment income (20% y/y and 8% q/q). Loans increased by 36% y/y and 3% q/q (the
second best after QNB of all Qatari banks), while deposits were up by 44% y/y and 5% q/q. C/I
improved to 17.8% vs. 21.3% in Q1 11 and in line with previous quarter (17.5%).
May 23 2012
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Exhibit 258: Qatar banks Q2 12e earnings preview
CBQ Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 489 478 2.4% 477 445 7.4% 2.4% 7.4%
Non interest income 238 202 17.8% 249 244 1.9% (4.1%) (17.1%)
Total income 727 680 7.0% 726 688 5.5% 0.2% (1.2%)
Operating expenses 233 211 10.3% 217 206 5.8% 7.2% 2.8%
Operating profit 494 469 5.5% 509 483 5.3% (2.8%) (3.0%)
Provisions 58 51 15.1% 49 76 (35.9%) 19.6% (33.4%)
Net income 489 471 3.7% 509 446 14.0% (4.0%) 5.6%
Cost/income 32.0% 31.1% 29.9% 29.9%
Net loans to deposits 109.6% 111.0% 114.5% 114.9%
Net loans 43,427 42,011 3.4% 39,788 34,808 14.3% 9.1% 20.7%
Customer deposits 39,637 37,856 4.7% 34,737 30,289 14.7% 14.1% 25.0%
QNB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 2,270 2,247 1.0% 1,751 1,707 2.6% 29.6% 31.6%
Non interest income 628 522 20.2% 540 502 7.5% 16.2% 3.9%
Total income 2,898 2,769 4.7% 2,291 2,210 3.7% 26.5% 25.3%
Operating expenses 502 450 11.5% 365 364 0.2% 37.6% 23.6%
Operating profit 2,396 2,319 3.3% 1,926 1,846 4.4% 24.4% 25.6%
Provisions 307 266 15.5% 172 178 (3.3%) 78.6% 49.5%
Net income 2,137 2,077 2.9% 1,807 1,707 5.8% 18.3% 21.6%
Cost/income 17.3% 16.3% 15.9% 16.5%
Net loans to deposits 92.4% 92.1% 76.7% 78.2%
Net loans 206,500 201,210 2.6% 150,526 140,701 7.0% 37.2% 43.0%
Customer deposits 223,477 218,393 2.3% 196,279 179,873 9.1% 13.9% 21.4%
Doha Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 449 439 2.3% 435 441 (1.2%) 3.1% (0.4%)
Non interest income 144 174 (17.3%) 144 160 (9.8%) (0.2%) 8.8%
Total income 593 613 (3.2%) 580 601 (3.5%) 2.3% 2.0%
Operating expenses 189 184 2.7% 192 186 3.4% (1.9%) (1.2%)
Operating profit 404 429 (5.8%) 387 415 (6.6%) 4.4% 3.5%
Provisions 55 37 49.0% 47 51 (7.2%) 16.7% (27.3%)
Net income 349 390 (10.5%) 339 363 (6.5%) 2.9% 7.4%
Cost/income 31.8% 30.0% 33.2% 31.0%
Net loans to deposits 93.6% 94.2% 94.9% 93.1%
Net loans 30,601 29,543 3.6% 27,714 26,114 6.1% 10.4% 13.1%
Customer deposits 32,684 31,365 4.2% 29,197 28,055 4.1% 11.9% 11.8%
Masraf Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 257 239 7.5% 168 112 49.4% 53.1% 112.8%
Non interest income 254 220 15.3% 368 280 31.4% (31.0%) (21.4%)
Total income 511 460 11.2% 536 393 36.5% (4.7%) 17.0%
Operating expenses 91 82 10.8% 84 84 1.1% 7.3% (2.0%)
Operating profit 421 378 11.3% 452 309 46.1% (6.9%) 22.2%
Provisions 77 24 214.3% 83 2 5122.2% (7.3%) 1440.7%
Net income 344 353 (2.8%) 363 328 10.8% (5.5%) 7.8%
Cost/income 17.7% 17.8% 15.8% 21.3%
Net loans to deposits 73.4% 73.8% 69.7% 78.6%
Net loans 37,763 35,965 5.0% 28,331 26,520 6.8% 33.3% 35.6%
Customer deposits 51,466 48,744 5.6% 40,626 33,735 20.4% 26.7% 44.5%
May 23 2012
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Source: Company Data, Arqaam Capital Research
QIIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 159 129 23.1% 153 126 21.7% 4.0% 2.8%
Non interest income 79 119 (33.8%) 71 75 (5.8%) 11.4% 58.5%
Total income 238 249 (4.2%) 224 201 11.4% 6.3% 23.7%
Operating expenses 64 43 47.4% 51 37 36.5% 25.6% 16.3%
Operating profit 175 206 (15.1%) 173 164 5.7% 0.7% 25.3%
Provisions 13 30 (55.5%) 10 5 100.0% 33.7% 501.0%
Net income 161 176 (8.1%) 163 159 2.7% (1.3%) 10.4%
Cost/income 26.8% 17.4% 22.7% 18.5%
Net loans to deposits 58.9% 57.6% 59.3% 71.7%
Net loans 10,990 10,531 4.4% 10,122 11,050 (8.4%) 8.6% (4.7%)
Customer deposits 18,659 18,286 2.0% 17,067 15,415 10.7% 9.3% 18.6%
QIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 359 383 (6.3%) 305 317 (3.9%) 17.9% 20.8%
Non interest income 267 289 (7.6%) 251 191 31.7% 6.1% 51.1%
Total income 626 672 (6.8%) 556 508 9.4% 12.6% 32.2%
Operating expenses 200 195 2.6% 180 137 31.6% 11.0% 42.5%
Operating profit 426 477 (10.7%) 376 371 1.3% 13.3% 28.4%
Provisions 350 85 312.8% -7 49 (115.3%) (4779.1%) 73.0%
Net income 76 392 (80.6%) 379 322 17.6% (79.9%) 21.7%
Cost/income 32.0% 29.0% 32.4% 26.9%
Net loans to deposits 103.5% 106.4% 95.0% 96.4%
Net loans 32,574 31,898 2.1% 24,727 24,744 (0.1%) 31.7% 28.9%
Customer deposits 31,457 29,982 4.9% 26,031 25,675 1.4% 20.8% 16.8%
Khaliji Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 142 137 3.6% 156 150 4.5% (9.2%) (8.4%)
Non interest income 61 79 (23.1%) 109 82 33.7% (44.6%) (3.8%)
Total income 202 216 (6.1%) 266 231 14.8% (23.8%) (6.8%)
Operating expenses 109 87 25.2% 118 97 21.6% (8.0%) (10.6%)
Operating profit 94 129 (27.3%) 148 134 9.9% (36.5%) (4.0%)
Provisions 20 4 446.6% 15 11 27.1% 40.1% (67.4%)
Net income 71 122 (41.7%) 130 120 8.2% (45.3%) 1.5%
Cost/income 53.7% 40.3% 44.5% 42.0%
Net loans to deposits 95.6% 95.8% 84.8% 83.4%
Net loans 12,112 11,557 4.8% 8,456 8,049 5.1% 43.2% 43.6%
Customer deposits 12,673 12,067 5.0% 9,969 9,649 3.3% 27.1% 25.1%
May 23 2012
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Egypt:
CIB: A strong start to the year with 64% y/y hike in earnings beating consensus by 13%,
on the back of higher margins, much lower loan loss charges and improved cost
efficiency. Net profit EGP505mn, up 64% y/y but down -8% q/q, 13% ahead of consensus
and 26.6% of FY consensus, supported by strong boost in net interest margins, up by
79bps and 55bps y/y and q/q respectively on the back of higher asset yields (T bills).
Lower than expected loan loss provisioning of 16bps vs. 129bps a year ago and 8bps in
Q4 11 (75bps for the full year). NPL slightly up to 2.9% but coverage comfortable at
155%. Investment income fell by almost 93% on lower trading income. C/I also
improved, down to 36% from 46% a year ago, with costs coming down 1% y/y and 13%
sequentially. A pickup in deposit growth at 14% y/y & 4% YTD outpaced lending at 10%
& -2% YTD, bringing down LTD to 56.5%.
CAE: Strong start to the year as well, with net profit of EGP127m, 116% y/y & 88% vs.
Q4 11, 60% ahead of consensus.NII increased 18% y/y & + 3% q/q driven by loan growth
& NIM (3.86% vs. 3.57% in Q1, though slightly lower than Q4 (3.91%)). Costs up by 6%
y/y & down by 7% q/q. C/I 47.4% vs. 54.1% in Q1 & 53.7% in Q4. Loan loss charges -46%
y/y to 53bps in Q1 12 vs. 109bps in Q1 11 & 117bps in Q4 11. Impaired loans dropped
from 1.9% FY 11A to 1.6% with coverage at 198%. Loans 10% y/y & 10% YTD & Deposits -
2% y/y & 2% YTD.
NSGB: Another transitional year due to higher loan loss provisions. Loan growth might
be c 12% helped by retail. NIM could surpass FY 11A. NPLs probably edging up. The loan
loss charge of just 40bps in FY 11A was well below CIB (75bps) and CAE (117bps), and
should be at least a recurring level if not more. Net profit in Q1 12 fell 4% y/y as strong
NIMs could not offset higher loan loss charges. Charge offs increased to 86bps vs. 19bps
in Q1 and 38bps in Q4 (catching up with peers as NSGB's LLPs were very low in FY 11A).
NPLs increased from 3.04% FY to 3.15%. Net profit before tax 5% y/y, but after -4% due
to increased effective corporate tax rate in Egypt (up from 17.3% to 24.4%). Loans -1%
YTD, with retail 5% YTD & corporate loans -2% YTD. Deposits +1% YTD o/w retail +7%
YTD & corporate -2%.
Egyptian Gulf Bank: Net profit in Q1 12 amounted to EGP33.4mn, up 57% y/y & 8x Q4
11. Earnings growth was helped by investment losses in Q1 11 & Q4 11. Loan loss
charges were negative at -45bps of gross loans annualized vs. -197bps in Q1 11 & 122bps
in Q4 11 and 52bps for FY 11A. But impaired loans increased from 10.7% FY 11A to
14.1% & coverage is down from 126% FY 11A to 97%.
May 23 2012
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Exhibit 259: Egyptian banks Q2 12e earnings preview
CIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
EGP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 903 870 3.8% 690 633 9.0% 30.8% 37.4%
Non interest income 356 317 12.2% 251 295 (14.8%) 41.7% 7.6%
Total income 1,259 1,187 6.1% 941 928 1.5% 33.7% 27.9%
Operating expenses 442 426 3.8% 367 428 (14.4%) 20.5% (0.7%)
Operating profit 817 761 7.3% 574 499 15.1% 42.2% 52.5%
Provisions 82 17 397.9% 111 123 (9.6%) (25.8%) (86.5%)
Net income 580 505 14.8% 314 308 2.1% 84.6% 64.2%
Cost/income 35.1% 35.9% 39.0% 46.2%
Net loans to deposits 55.8% 54.0% 55.4% 55.8%
Net loans 42,068 40,053 5.0% 37,248 36,386 2.4% 12.9% 10.1%
Customer deposits 75,333 74,220 1.5% 67,288 65,264 3.1% 12.0% 13.7%
CAE Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
EGP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 275 247 11.3% 197 210 (6.0%) 39.3% 17.7%
Non interest income 81 111 (26.6%) 88 87 1.7% (7.9%) 27.6%
Total income 356 358 (0.4%) 285 297 (3.8%) 24.7% 20.6%
Operating expenses 177 170 4.2% 148 161 (7.7%) 19.2% 5.6%
Operating profit 179 188 (4.7%) 137 136 0.9% 30.7% 38.3%
Provisions 29 17 66.2% 19 32 (40.8%) 51.5% (46.0%)
Net income 122 127 (4.2%) 82 59 39.8% 48.3% 116.3%
Cost/income 49.6% 47.4% 51.9% 54.1%
Net loans to deposits 60.0% 61.0% 54.2% 54.5%
Net loans 12,738 12,636 0.8% 11,274 11,488 (1.9%) 13.0% 10.0%
Customer deposits 21,216 20,699 2.5% 20,812 21,082 (1.3%) 1.9% (1.8%)
NSGB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
EGP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 635 616 3.1% 512 487 5.2% 24.0% 26.5%
Non interest income 271 221 22.3% 225 248 (9.3%) 20.4% (10.7%)
Total income 906 838 8.2% 737 735 0.3% 22.9% 14.0%
Operating expenses 324 318 2.0% 275 290 (4.9%) 17.9% 9.9%
Operating profit 582 519 12.0% 462 445 3.7% 25.9% 16.6%
Provisions 116 77 50.2% 28 16 76.6% 313.4% 386.1%
Net income 356 350 1.6% 369 364 1.4% (3.7%) (3.9%)
Cost/income 35.8% 38.0% 37.3% 39.4%
Net loans to deposits 66.7% 66.2% 66.8% 61.5%
Net loans 36,006 34,683 3.8% 33,752 32,813 2.9% 6.7% 5.7%
Customer deposits 53,955 52,384 3.0% 50,516 53,330 (5.3%) 6.8% (1.8%)
HDB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
EGP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 112 109 2.1% 91 86 5.1% 23.4% 27.0%
Non interest income 65 65 -- 67 33 101.6% (2.3%) 97.0%
Total income 177 175 1.3% 157 119 31.8% 12.5% 46.4%
Operating expenses 115 115 -- 107 89 19.8% 7.7% 29.0%
Operating profit 62 60 3.8% 50 30 67.4% 22.7% 97.9%
Provisions 22 21 2.2% 4 -4 (201.9%) 419.1% (617.7%)
Net income 35 34 5.3% 33 28 19.3% 6.1% 20.2%
Cost/income 65.0% 65.8% 67.9% 74.7%
Net loans to deposits 85.5% 85.5% 83.6% 86.8%
Net loans 6,708 6,575 2.0% 6,307 6,277 0.5% 6.4% 4.7%
Customer deposits 7,844 7,690 2.0% 7,545 7,231 4.3% 4.0% 6.3%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 195
Source: Company Data, Zawya, Arqaam Capital Research
Lebanon:
BLOM: Net profit increased 5% y/y as capital gains were used for increased loan loss
provisions. Net profit amounted to LBP125.3bn, 5% y/y and -12% q/q, slightly below
consensus. Revenues 26% y/y supported capital gains, with NII +1% only. NIM contracted
both y/y & Q/Q by 11bps and 24bps respectively. Additions to LLR significantly increase
(as expected) at an annualized 2.94% vs. 0.67% in Q4 FY 11A and 0.27% in Q1 FY 11A.
C/I fell 1.7pp to 33.3% (best in class). Loans up by 7% y/y and a modest 1% q/q with
deposits up 4% y/y and 3% q/q.
Audi: Bottom line fell short of consensus by c5%, with a growth of 6% y-o-y and a drop of
3% vs. Q4. Loans +3.4% y/y and 4.3% sequentially and a slight contraction in deposits
(2% y/y and 1.7% q/q).
Byblos recorded a very weak underlying performance in Q1 12A and capital gains
contributed to 90% of net profit. Byblos reports 11% y/y growth in net earnings (but a
26% fall q/q) due to capital gains. We see very weak U/L results due to sharp NIM
compression, a spike in costs and LLPs. NII -22% y/y & -12% vs. Q4, mainly due to lower
asset yields. Revenues 8% y/y, but excluding capital gains.
Bank of Beirut: Net profit of LBP33bn was down -19% q/q but +9% y/y on the back of
higher NIM, despite lower capital gains. Margin improvement of 58bps y/y and 19bps
q/q offset by -7% y/y and -26% q/q drop in investment gains. Modest 4% growth in loans
y/y vs. -5% contraction q/q, with deposits recording 10% growth y/y but slightly edging
down q/q. Additions to loan loss reserve remains much lower than peers at an
annualized 3bps vs. 6bps in Q4 FY 11A. C/I increased substantially q/q to c58% from 50%
FY 11A.
EGB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
EGP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 59 58 1.9% 48 49 (2.4%) 22.0% 16.8%
Non interest income 18 18 (3.6%) 10 -11 (190.1%) 81.9% (270.0%)
Total income 76 76 0.6% 58 38 50.2% 32.1% 97.3%
Operating expenses 39 43 (8.6%) 36 33 9.8% 8.3% 30.1%
Operating profit 37 33 12.6% 22 6 291.7% 71.8% 498.1%
Provisions 13 -4 (419.2%) 15 -19 (178.7%) (13.1%) (78.6%)
Net income 17 33 (48.9%) 4 21 (83.0%) 371.5% 57.3%
Cost/income 51.3% 56.5% 62.6% 85.6%
Net loans to deposits 57.5% 56.0% 71.4% 71.5%
Net loans 3,208 3,113 3.1% 3,289 3,299 (0.3%) (2.5%) (5.6%)
Customer deposits 5,582 5,554 0.5% 4,606 4,614 (0.2%) 21.2% 20.4%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 196
Exhibit 260: Lebanese banks Q2 12e earnings preview
Source: Company Data, Zawya, Arqaam Capital Research
Audi Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
LBP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 222 221 0.3% 201 199 1.1% 10.1% 10.9%
Non interest income 170 189 (9.6%) 157 163 (3.6%) 8.7% 16.0%
Total income 392 410 (4.3%) 358 362 (1.0%) 9.5% 13.2%
Operating expenses 181 176 2.8% 164 168 (2.2%) 10.3% 4.9%
Operating profit 211 233 (9.6%) 194 194 (0.0%) 8.8% 20.4%
Provisions 38 47 (20.1%) 32 23 39.4% 16.3% 102.8%
Net income 136 142 (4.3%) 134 136 (1.8%) 1.7% 4.3%
Cost/income 46.2% 43.0% 45.9% 46.4%
Net loans to deposits 36.3% 36.4% 33.9% 34.8%
Net loans 13,465 13,365 0.7% 12,914 13,058 (1.1%) 4.3% 2.4%
Customer deposits 37,133 36,766 1.0% 38,091 37,523 1.5% (2.5%) (2.0%)
Blom Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
LBP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 196 192 2.0% 186 190 (2.0%) 5.6% 1.4%
Non interest income 81 141 (42.3%) 68 74 (8.4%) 20.0% 90.4%
Total income 278 333 (16.7%) 254 264 (3.8%) 9.4% 26.4%
Operating expenses 113 111 1.9% 106 107 (1.2%) 6.9% 3.6%
Operating profit 164 222 (26.0%) 148 157 (5.6%) 11.2% 42.0%
Provisions 15 65 (77.5%) 4 6 (35.9%) 302.7% 1050.4%
Net income 127 127 0.3% 121 124 (2.0%) 4.7% 2.2%
Cost/income 40.8% 33.3% 41.7% 40.6%
Net loans to deposits 27.6% 27.5% 27.2% 27.1%
Net loans 8,810 8,558 2.9% 8,329 8,119 2.6% 5.8% 5.4%
Customer deposits 31,882 31,104 2.5% 30,624 29,924 2.3% 4.1% 3.9%
Byblos Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
LBP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 109 90 21.4% 105 114 (8.3%) 3.9% (21.5%)
Non interest income 67 89 (24.5%) 68 52 31.0% (1.5%) 71.0%
Total income 176 179 (1.6%) 173 166 4.0% 1.7% 7.5%
Operating expenses 90 93 (2.9%) 85 82 3.6% 5.3% 12.4%
Operating profit 86 86 (0.1%) 88 84 4.4% (1.7%) 2.8%
Provisions 11 15 (28.1%) 2 16 (88.6%) 519.3% (2.2%)
Net income 59 58 1.6% 74 52 42.4% (20.4%) 11.5%
Cost/income 51.1% 51.8% 49.4% 49.6%
Net loans to deposits 30.4% 30.8% 31.2% 30.8%
Net loans 6,252 6,073 3.0% 5,916 5,681 4.1% 5.7% 6.9%
Customer deposits 20,539 19,749 4.0% 18,987 18,421 3.1% 8.2% 7.2%
Bank of Beirut Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
LBP mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 67 53 26.2% 72 32 128.1% (7.4%) 67.4%
Non interest income 38 42 (7.7%) 26 45 (42.6%) 49.4% (7.1%)
Total income 105 94 11.3% 98 76 28.1% 7.6% 23.8%
Operating expenses 51 55 (6.5%) 47 43 9.3% 8.6% 26.8%
Operating profit 54 40 35.5% 51 33 52.3% 6.6% 19.8%
Provisions 5 0 1540.2% 0 -3 (99.9%) (272379.8%) (112.8%)
Net income 42 33 27.1% 43 30 40.9% (1.8%) 8.8%
Cost/income 48.5% 57.7% 48.1% 56.3%
Net loans to deposits 43.6% 42.8% 45.6% 45.1%
Net loans 5,129 4,795 7.0% 4,807 4,595 4.6% 6.7% 4.4%
Customer deposits 11,753 11,193 5.0% 10,531 10,189 3.4% 11.6% 9.9%
May 23 2012
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KSA
ANB: Decent Q1 12, but with lower growth than its peers. Net profit of SAR 656mn, +12% y/y & 79% q/q (easy comparison base), helped by non-NII, a few pp above consensus. Revs +7% y/y & +7% q/q, while NII -3% y/y & -3% q/q. Assets increased +4% y/y & 7% q/q, loans +12% y/y & 4% q/q, while deposits up +2% y/y & 3% q/q. L/D at 83% vs. 76% Q1 11.
Al Rajhi: Net profit of SAR 2bn, +18% y/y, 1% q/q, 9% ahead of BB, NII +4% y/y, revenues
+17% y/y & 9% q/q. Assets 15% y/y, 6% q/q, loans 23% y/y, 8% q/q, deposits +16% y/y &
7% q/q.
BSFR: Net profit SAR 789mn, +10% y/y & +19% q/q, 1% ahead of BB. Revenues +6 % y/y,
NII +6%, assets +18%, loans +16% & deposits +18% y/y.
Riyad: Net profit of SAR901m +22% Y/Y & 16% Q/Q, with NII +9% Y/Y, but -1% Q/Q.
Assets +2% Y/Y & 1% Q/Q, Loans +4% Y/Y & 0.6% Q/Q, Deposits +5% Y/Y & -0.2% Q/Q,
below the growth of its peer s, but NIMs are maintained.
Samba: Net income of SAR 1,145mn, +2% y/y & +21% q/q, c. 5% below BB consensus &
24% of FY 12e consensus. NII fell 0.5% y/y & 5% q/q as net interest margin contracted.
Loans moved up 15% y/y & 4% q/q, while deposits were 4% y/y & 2% q/q. Loan/deposit
is now only 66% vs. 70% in Q1 11A.
SABB: Net profit of SAR 854mn, + 14% y/y & 30% q/q and 13% ahead of BB. NII +7% y/y
& 6% q/q, revenues 1% y/y & 1% q/q. Assets +14% y/y, +8% q/q, loans +20% y/y & 5%
q/q; deposits +15% y/y & 2% q/q.
SHB: Net profit SAR 290mn, +22% y/y & 25% q/q. Revenues +11%, NII +4%, assets +18%,
loans +22%, deposits +22% y/y.
Albilad: Net profit of SAR 511.5mn (+378% y/y & 822% q/q) on a sale of a property. NII +18% y/y & 6% q/q, assets +30% y/y & 3% q/q, loans +19% y/y & 9% q/q, Deposits + 31% y/y & -1% q/q.
Aljazira : Net profit of SAR 143mn, up + 131% y/y & 31% vs. Q4 (12% ahead of BB),
revenues + 55%, NII+20%, assets +20%, loans +26% & deposits 20% y/y.
SIB: Net profit of SAR 212mn, +2% y/y & 44% q/q. NII bell by 8% y/y & 1% q/q, as loans
fell 9% y/y (due to large redemptions in Q4) but moved up 3% q/q as SIB plans to replace
the loans.
Alinma: Net profit of SAR 150mn up 114% y/y & 10% q/q. Revenues advanced 50% to
SAR 393mn, but were down (20%) vs. Q4. Net interest income increased 51% y/y and
18% q/q (NIM up). Total assets were up 35% y/y & 17% q/q, with loans +35% y/y & +14%
q/q & deposits 89% higher y/y and 35% q/q. ROAE at a low 4%.
May 23 2012
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Exhibit 261: Saudi Arabian banks Q2 12e earnings preview
ARNB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 776 773 0.5% 805 794 1.4% (3.6%) (2.7%)
Non interest income 409 423 (3.3%) 353 320 10.3% 15.9% 32.2%
Total income 1,185 1,196 (0.9%) 1,158 1,114 4.0% 2.3% 7.3%
Operating expenses 481 454 5.8% 411 462 (10.9%) 16.9% (1.6%)
Operating profit 705 741 (5.0%) 747 652 14.5% (5.7%) 13.6%
Provisions 78 90 (13.8%) 55 68 (19.1%) 40.9% 32.2%
Net income 634 656 (3.3%) 697 588 18.6% (9.0%) 11.6%
Cost/income 40.6% 38.0% 35.5% 41.4%
Net loans to deposits 82.8% 83.3% 81.7% 81.7%
Net loans 77,082 75,570 2.0% 69,087 69,087 -- 11.6% 9.4%
Customer deposits 93,051 90,693 2.6% 84,520 84,520 -- 10.1% 7.3%
RJHI Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 2,421 2,328 4.0% 2,278 2,234 2.0% 6.3% 4.2%
Non interest income 1,042 1,100 (5.3%) 772 703 9.9% 34.9% 56.5%
Total income 3,463 3,427 1.0% 3,051 2,937 3.9% 13.5% 16.7%
Operating expenses 987 949 4.0% 861 887 (3.0%) 14.7% 7.0%
Operating profit 2,475 2,478 (0.1%) 2,190 2,050 6.8% 13.0% 20.9%
Provisions 304 467 (34.9%) 347 349 (0.7%) (12.4%) 33.6%
Net income 2,172 2,011 8.0% 1,843 1,700 8.4% 17.8% 18.3%
Cost/income 28.5% 27.7% 28.2% 30.2%
Net loans to deposits 81.6% 81.6% 76.8% 76.8%
Net loans 155,741 151,842 2.6% 127,810 127,810 -- 21.9% 18.8%
Customer deposits 190,747 186,094 2.5% 166,397 166,397 -- 14.6% 11.8%
BSFR Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 849 802 5.9% 789 757 4.1% 7.7% 5.9%
Non interest income 411 418 (1.8%) 374 393 (4.8%) 9.9% 6.5%
Total income 1,260 1,220 3.3% 1,163 1,150 1.1% 8.4% 6.1%
Operating expenses 382 370 3.2% 363 404 (10.3%) 5.3% (8.4%)
Operating profit 878 850 3.3% 800 746 7.3% 9.8% 14.0%
Provisions 82 61 33.8% 23 22 5.6% 249.4% 175.7%
Net income 798 789 1.2% 773 717 7.9% 3.2% 10.1%
Cost/income 30.3% 30.3% 31.2% 35.1%
Net loans to deposits 87.4% 86.6% 85.5% 87.4%
Net loans 99,719 97,477 2.3% 85,200 83,944 1.5% 17.0% 16.1%
Customer deposits 114,065 112,601 1.3% 99,708 96,032 3.8% 14.4% 17.3%
RIBL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,114 1,068 4.3% 1,067 984 8.4% 4.4% 8.6%
Non interest income 582 603 (3.3%) 503 543 (7.3%) 15.8% 11.0%
Total income 1,696 1,671 1.5% 1,570 1,527 2.8% 8.1% 9.4%
Operating expenses 651 617 5.6% 646 625 3.3% 0.7% (1.4%)
Operating profit 1,045 1,054 (0.9%) 923 902 2.4% 13.2% 16.9%
Provisions 121 153 (20.7%) 87 160 (45.4%) 38.7% (4.6%)
Net income 924 901 2.5% 836 741 12.8% 10.5% 21.6%
Cost/income 38.4% 36.9% 41.2% 41.0%
Net loans to deposits 81.2% 81.5% 84.7% 83.5%
Net loans 116,310 113,695 2.3% 112,139 110,576 1.4% 3.7% 2.8%
Customer deposits 143,233 139,536 2.7% 132,335 132,404 (0.1%) 8.2% 5.4%
May 23 2012
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SAMBA Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 1,095 1,064 2.9% 1,133 1,069 6.0% (3.4%) (0.5%)
Non interest income 622 732 (15.1%) 501 632 (20.7%) 24.1% 15.9%
Total income 1,717 1,796 (4.4%) 1,635 1,701 (3.9%) 5.0% 5.6%
Operating expenses 517 514 0.7% 521 485 7.5% (0.8%) 6.0%
Operating profit 1,200 1,282 (6.4%) 1,113 1,216 (8.5%) 7.8% 5.4%
Provisions 98 138 (29.0%) 11 93 (88.1%) 784.2% 48.2%
Net income 1,102 1,145 (3.7%) 1,102 1,123 (1.9%) (0.0%) 1.9%
Cost/income 30.1% 28.6% 31.9% 28.5%
Net loans to deposits 66.4% 66.3% 59.3% 60.5%
Net loans 94,731 92,783 2.1% 82,366 81,320 1.3% 15.0% 14.1%
Customer deposits 142,561 139,903 1.9% 138,816 134,454 3.2% 2.7% 4.1%
SABB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 813 775 4.9% 779 726 7.3% 4.4% 6.8%
Non interest income 518 460 12.7% 569 494 15.2% (8.9%) (6.8%)
Total income 1,331 1,235 7.8% 1,348 1,220 10.5% (1.2%) 1.3%
Operating expenses 408 385 6.1% 406 411 (1.4%) 0.7% (6.4%)
Operating profit 923 850 8.5% 942 808 16.6% (2.1%) 5.2%
Provisions 74 36 104.1% 124 67 85.2% (40.2%) (45.8%)
Net income 869 854 1.7% 852 751 13.3% 2.0% 13.7%
Cost/income 30.7% 31.2% 30.1% 33.7%
Net loans to deposits 80.5% 81.7% 81.7% 80.5%
Net loans 94,656 91,190 3.8% 82,354 79,818 3.2% 14.9% 14.2%
Customer deposits 117,533 111,617 5.3% 100,752 99,154 1.6% 16.7% 12.6%
AAAL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 333 322 3.4% 307 311 (1.4%) 8.6% 3.6%
Non interest income 209 218 (4.3%) 189 174 8.3% 10.6% 25.1%
Total income 541 540 0.3% 495 485 2.1% 9.3% 11.3%
Operating expenses 201 214 (5.8%) 191 208 (8.0%) 5.4% 2.9%
Operating profit 340 326 4.2% 304 277 9.6% 11.8% 17.6%
Provisions 48 36 31.1% 41 57 (29.0%) 16.3% (37.0%)
Net income 293 290 0.9% 263 220 19.7% 11.1% 31.9%
Cost/income 37.2% 39.6% 38.6% 42.8%
Net loans to deposits 83.7% 84.1% 81.0% 85.7%
Net loans 41,392 40,187 3.0% 35,921 34,917 2.9% 15.2% 15.1%
Customer deposits 49,431 47,759 3.5% 44,339 40,733 8.9% 11.5% 17.2%
ALBI Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 206 194 6.0% 178 165 8.2% 15.2% 17.6%
Non interest income 188 226 (17.0%) 160 144 11.2% 17.6% 57.4%
Total income 393 420 (6.4%) 338 308 9.6% 16.3% 36.1%
Operating expenses 213 216 (1.3%) 206 202 2.0% 3.4% 6.8%
Operating profit 180 204 (11.8%) 132 106 23.9% 36.5% 91.7%
Provisions 42 66 (36.2%) 50 51 (1.5%) (16.6%) 28.9%
Net income 138 138 (0.2%) 82 55 47.3% 69.1% 149.5%
Cost/income 54.2% 51.4% 61.0% 65.5%
Net loans to deposits 68.4% 65.7% 72.5% 75.2%
Net loans 16,508 15,062 9.6% 13,017 13,013 0.0% 26.8% 15.7%
Customer deposits 24,146 22,909 5.4% 17,959 17,303 3.8% 34.5% 32.4%
May 23 2012
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Source: Company Data, Zawya, Arqaam Capital Research
Kuwait
NBK: A stagnant Q1 12A with net profit of KWD 81mn, +0.3% y/y, as slightly higher loan
loss charges could be offset by lower operating expenses. Annualized charge off rate
stood at 39bps vs. 33bps, but this was helped by some releases from general reserves.
Loans increased 4.5% y/y & 1.1% YTD, while deposits up 0.5% y/y & 5.8% YTD.
Boubyan: Net profit increased 9.6% y/y, but ROE still only 4%. Revenues fell 3% y/y, but
increased 10% q/q. NII increased 33% y/y & 14% q/q, but F&C & investment income fell
sharply. Annualized additions to loan loss reserves were 186bps vs. 313bps. Loans
increased 23% y/y & 6% YTD & deposits 21% y/y & + 4% YTD.
BJAZ Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 230 219 5.1% 192 183 4.6% 19.9% 19.3%
Non interest income 172 208 (17.7%) 117 93 25.4% 47.2% 124.1%
Total income 401 427 (6.0%) 308 276 11.6% 30.2% 54.6%
Operating expenses 225 236 (4.5%) 199 219 (8.8%) 12.8% 7.8%
Operating profit 176 191 (7.8%) 109 58 88.7% 62.1% 231.9%
Provisions 30 48 (36.4%) 44 -4 (1135.5%) (31.0%) (1223.5%)
Net income 146 144 1.7% 65 62 4.8% 125.2% 132.1%
Cost/income 56.0% 55.2% 64.7% 79.1%
Net loans to deposits 73.2% 72.5% 71.2% 75.8%
Net loans 25,822 25,070 3.0% 21,783 22,034 (1.1%) 18.5% 13.8%
Customer deposits 35,294 34,602 2.0% 30,598 29,082 5.2% 15.3% 19.0%
SIBC Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 290 291 (0.2%) 322 316 2.0% (10.0%) (8.1%)
Non interest income 116 168 (30.8%) 102 98 4.2% 13.5% 71.0%
Total income 406 459 (11.4%) 425 414 2.5% (4.3%) 10.7%
Operating expenses 150 149 0.7% 150 153 (2.4%) 0.5% (2.7%)
Operating profit 256 309 (17.2%) 275 261 5.4% (6.9%) 18.5%
Provisions 75 141 (47.1%) 83 75 10.7% (10.2%) 88.0%
Net income 196 212 (7.8%) 210 209 0.3% (6.8%) 1.3%
Cost/income 37.0% 32.5% 35.2% 37.0%
Net loans to deposits 75.4% 75.7% 83.1% 84.9%
Net loans 28,666 27,981 2.5% 30,468 30,634 (0.5%) (5.9%) (8.7%)
Customer deposits 38,016 36,945 2.9% 36,645 36,084 1.6% 3.7% 2.4%
ALINMA Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 341 330 3.2% 283 239 18.5% 20.3% 38.1%
Non interest income 88 23 290.3% 24 23 6.0% 268.2% --
Total income 429 353 21.5% 307 262 17.4% 39.6% 34.8%
Operating expenses 234 189 23.4% 200 189 5.4% 17.1% --
Operating profit 195 163 19.3% 108 72 48.9% 81.4% 126.2%
Provisions 19 2 834.4% 5 2 151.8% 271.1% --
Net income 176 161 9.2% 102 70 46.0% 72.0% 129.8%
Cost/income 54.5% 53.7% 65.0% 72.4%
Net loans to deposits 128.0% 129.4% 151.8% 170.1%
Net loans 30,023 27,607 8.7% 24,064 22,503 6.9% 24.8% 22.7%
Customer deposits 23,462 21,329 10.0% 15,851 13,232 19.8% 48.0% 61.2%
May 23 2012
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Burgan Bank: Revenues reached KWD 42.6mn reflecting a growth of 10% y/y and 11%
q/q, 5% ahead of consensus. Loans grew by 7% from year end 2011 with 12% growth
y/y. Deposits grew by 9% vs. 12% increase y/y. Burgan expects 4-5% loan growth in Q2
11e after 7% in Q1 11A (mainly on construction & services) outperforming its peers, with
stable NIMs. Bank sees ROI of 10% on Tekfen deal within 18 months. Tekfen could
double or triple its business volumes with its existing branch network and the liquidity of
the group. Expansion of network on hold until ROI hits 10%.
Gulf Bank: Net profit fell 25% y/y due to provisions for loans and investments. Bank
recorded a strong operating profit, with revenues + 18% y/y, helped by NII +18% (lower
cost of funds & higher yields), F&C +4%, despite lower capital gains. Costs increased 22%
y/y, pushing C/I up from 31.4% in Q1 11A to 32.7%. Loan loss charge offs stood at
221bps (o/w 54bps specific). Gulf bank also incurred investment losses of KWD 3.8mn
(50% of profits). Loans +2.6% y/y & (0.1%) YTD & deposits +3.9% y/y & (1.5%) YTD.
KFIN: Revenues -6% y/y & -46% q/q (due to decrease in noninterest income by 20% y/y and 62% q/q). LLC decreased by 26% y/y and 77% q/q, leaving net profit increase by 23% y/y. Slight increase in net loans of 1.3% and deposits by 3.4% from FY 11A.
May 23 2012
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Exhibit 262: Kuwaiti banks Q2 12e earnings preview
NBK Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
KWD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 99 95 3.5% 93 94 (0.6%) 5.9% 1.8%
Non interest income 37 34 7.1% 36 35 4.3% 1.6% (1.0%)
Total income 135 130 4.4% 129 128 0.7% 4.7% 1.0%
Operating expenses 42 39 6.6% 41 41 (0.1%) 1.3% (5.2%)
Operating profit 94 91 3.5% 88 87 1.1% 6.3% 3.9%
Provisions 11 8 40.6% 22 7 230.7% (48.4%) 21.4%
Net income 82 81 0.4% 66 81 (18.3%) 23.3% 0.3%
Cost/income 30.7% 30.0% 31.7% 32.0%
Net loans to deposits 115.8% 114.9% 121.1% 110.5%
Net loans 8,346 8,271 0.9% 7,866 7,912 (0.6%) 6.1% 4.5%
Customer deposits 7,207 7,197 0.1% 6,495 7,161 (9.3%) 11.0% 0.5%
KFH Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
KWD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 84 78 8.6% 75 73 2.9% 12.7% 6.8%
Non interest income 64 55 17.3% 62 68 (8.6%) 3.1% (19.8%)
Total income 148 132 12.2% 137 141 (2.7%) 8.3% (6.0%)
Operating expenses 77 75 2.7% 70 73 (5.1%) 10.1% 1.7%
Operating profit 72 58 24.5% 67 67 0.0% 6.5% (14.5%)
Provisions 34 38 (10.0%) 55 52 7.0% (37.8%) (26.0%)
Net income 36 19 89.3% 11 15 (25.8%) 213.9% 23.1%
Cost/income 51.7% 56.4% 50.8% 52.2%
Net loans to deposits 75.2% 73.7% 84.6% 78.7%
Net loans 6,972 6,769 3.0% 7,074 6,489 9.0% (1.4%) 4.3%
Customer deposits 9,274 9,182 1.0% 8,360 8,244 1.4% 10.9% 11.4%
Gulf Bank Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
KWD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 28 29 (1.9%) 26 24 8.0% 6.9% 17.7%
Non interest income 12 16 (21.2%) 18 14 29.5% (30.7%) 14.0%
Total income 40 44 (8.7%) 44 38 15.7% (8.2%) 16.3%
Operating expenses 12 15 (15.4%) 11 12 (8.3%) 11.8% 21.2%
Operating profit 28 30 (5.4%) 33 26 26.7% (14.9%) 14.1%
Provisions 17 18 (7.6%) 24 13 83.7% (30.0%) 39.0%
Net income 11 11 (4.9%) 9 13 (31.6%) 24.0% (10.9%)
Cost/income 30.3% 32.7% 24.9% 31.4%
Net loans to deposits 102.5% 102.5% 102.0% 103.8%
Net loans 3,429 3,365 1.9% 3,288 3,279 0.3% 4.3% 2.6%
Customer deposits 3,347 3,281 2.0% 3,223 3,158 2.1% 3.8% 3.9%
Burgan Bank Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
KWD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 30 28 5.5% 29 26 12.3% 3.0% 9.6%
Non interest income 16 15 10.9% 14 13 5.3% 16.0% 10.2%
Total income 46 43 7.3% 43 39 10.0% 7.2% 9.8%
Operating expenses 18 16 11.8% 16 16 (1.4%) 15.3% 1.7%
Operating profit 28 27 4.6% 27 23 17.7% 2.6% 15.4%
Provisions 8 5 67.7% 7 4 66.9% 13.8% 13.3%
Net income 16 19 (13.0%) 17 15 9.2% (1.6%) 23.6%
Cost/income 39.2% 37.7% 36.5% 40.7%
Net loans to deposits 77.4% 79.1% 86.1% 83.9%
Net loans 2,447 2,406 1.7% 2,152 2,147 0.2% 13.7% 12.1%
Customer deposits 3,161 3,040 4.0% 2,500 2,559 (2.3%) 26.5% 18.8%
May 23 2012
Financials (banks, insurance and diversified financials)
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See Important Notice. 203
Source: Company Data, Zawya, Arqaam Capital Research
Oman:
Bank Muscat: Net profit grew 20% y/y & 10% q/q to OMR 33.4mn, 5% above consensus
& matching 24.4% of the FY 12e consensus. Net interest income increased 1.2% y/y (13%
excluding one offs that occurred in Q1 11A) & 2.9% sequentially, helped by strong loan
growth, partly offset by pressure on NIMs. Loans increased 24.7% y/y & 3.7% YTD &
deposits increased 33.5 % y/y & 6.4% YTD.
Oman International Bank: Net earnings fall -45% y/y on loan loss provisions (+86% y/y
on a single exposure) & lower dividend income. Revenues fell 4% y/y & 2% q/q with NII
+3% y/y & 6% q/q & other income -18% y/y & -21% q/q due an 85% y/y fall in dividend
income (in Q1 11A, it enjoyed strong dividends from a fund). Costs increased 10% y/y &
C/I increased to 57.1% vs. 49.9%. Annualized charge off stood at 126bps vs. 76bps in Q1
11A. Loans +13% y/y & 3% YTD & deposits +21% y/y & 2% YTD.
Sohar: Net profit increased 74% y/y & 49% q/q to OMR 5.3mn, equal to 30% of the BB FY
12e consensus. Cost/income reached 47.9% vs. 59.0% in Q1 11A and 47.8% in Q4 11A.
Total assets increased 30.8% y/y & 8.6% q/q, while outstanding loans & advances grew
by 13.2% y/y & 3.6% q/q. Deposits were up 26.7% y/y & 1.7% q/q with L/D at 91% vs.
99% in Q1 11A & 87% YE 11A.
Boubyan Bank Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
KWD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 12 12 2.3% 10 9 11.1% 22.3% 32.8%
Non interest income 2 2 27.3% -3 5 (165.9%) (162.6%) (67.6%)
Total income 14 13 5.3% 7 14 (52.4%) 114.1% (3.2%)
Operating expenses 7 7 7.6% 7 6 9.1% 6.9% 8.3%
Operating profit 7 7 3.0% 0 8 (103.3%) (2794.9%) (12.8%)
Provisions 3 5 (43.5%) -2 7 (125.7%) (259.4%) (27.3%)
Net income 4 2 65.9% 2 2 3.8% 75.2% 9.6%
Cost/income 51.9% 50.8% 103.8% 45.3%
Net loans to deposits 87.4% 87.4% 84.3% 85.8%
Net loans 1,102 1,092 0.9% 920 889 3.5% 19.8% 22.8%
Customer deposits 1,261 1,249 1.0% 1,091 1,036 5.3% 15.6% 20.5%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 204
Exhibit 263: Omani banks Q2 12e earnings preview
Source: Company Data, Zawya, Arqaam Capital Research
Bahrain:
Ahli United Bank: Net profit increased 7% y/y and 17% vs. Q4 on higher net interest
income (+10.3% y/y vs. -0.3% q/q), an 8.8% increase in fee income and to a lesser extent
lower provisioning charges (-5% y/y and -60% q/q). Annualized loan loss charge was
86bps of loans vs. 98bps in Q1 11A & 131bps for FY11A. Loans were up 8.6% y/y and
2.6% q/q while deposits were up 43.9% y/y and 4.4% q/q. C/I improved to 30.1% vs.
32.2% in Q1 11A.
Bank Muscat Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
OMR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 58 54 6.5% 52 54 (2.8%) 10.9% 1.2%
Non interest income 23 25 (5.9%) 18 23 (18.9%) 26.3% 8.8%
Total income 81 79 2.7% 71 76 (7.6%) 14.9% 3.4%
Operating expenses 33 34 (0.3%) 30 31 (5.6%) 12.5% 6.5%
Operating profit 48 45 4.9% 41 45 (9.0%) 16.7% 1.3%
Provisions 9 7 36.9% 5 10 (54.7%) 104.0% (32.6%)
Net income 32 33 (4.9%) 29 28 5.6% 8.2% 20.1%
Cost/income 41.2% 42.4% 42.1% 41.2%
Net loans to deposits 101.6% 100.6% 101.6% 109.7%
Net loans 5,138 4,988 3.0% 4,267 3,999 6.7% 20.4% 24.7%
Customer deposits 5,058 4,959 2.0% 4,200 3,646 15.2% 20.4% 36.0%
Bank Sohar Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
OMR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 10 10 4.7% 9 8 9.7% 14.3% 19.7%
Non interest income 2 3 (26.2%) 2 2 4.1% 9.0% 53.9%
Total income 12 13 (2.7%) 11 10 8.6% 13.3% 26.4%
Operating expenses 6 6 5.4% 6 6 (1.5%) 9.8% 2.6%
Operating profit 6 7 (10.2%) 5 4 23.0% 17.3% 60.7%
Provisions 1 1 138.4% 1 1 (10.8%) 113.4% (20.1%)
Net income 4 5 (26.4%) 4 3 26.6% 1.3% 74.3%
Cost/income 51.9% 47.9% 53.5% 59.0%
Net loans to deposits 89.5% 88.7% 98.7% 98.2%
Net loans 1,077 1,056 2.0% 982 930 5.6% 9.6% 13.5%
Customer deposits 1,203 1,191 1.0% 995 947 5.1% 20.9% 25.7%
OIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
OMR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 9 8 14.2% 8 8 0.9% 16.3% 2.8%
Non interest income 4 3 39.5% 3 3 (23.0%) 49.1% (17.7%)
Total income 13 11 20.9% 10 11 (6.5%) 24.7% (3.6%)
Operating expenses 7 6 14.7% 6 5 15.2% 10.1% 10.5%
Operating profit 6 5 29.0% 4 5 (28.1%) 48.0% (17.5%)
Provisions 1 3 (75.4%) -1 1 (192.8%) (223.4%) 365.9%
Net income 5 2 162.9% 4 4 (11.2%) 15.6% (60.9%)
Cost/income 54.2% 57.1% 61.4% 49.9%
Net loans to deposits 75.2% 69.4% 78.5% 74.4%
Net loans 920 708 30.0% 623 626 (0.5%) 47.7% 13.0%
Customer deposits 1,223 1,019 20.0% 794 842 (5.7%) 54.1% 21.0%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 205
Exhibit 264: Bahrain bank: Q2 12e earnings preview
Source: Company Data, Arqaam Capital Research
Insurance:
QIC: Net claims ratio rose significantly as a result of higher claims expense related to
New Zeeland earthquakes, than originally forecasted. This is not expected to be the case
for the other catastrophes in the Far East. However overall net claims are expected to
rise year on year. We do not expect investment returns to remain as high as Q1 12A as
the company ceases to realize capital gains on equity investments.
Tawuniya: Tough competition is rendering the medical segment less profitable. Hence
Tawuniya incurred one time net loss expenses during Q1 12A to account for possible rise
in net loss ratios. However we believe that although a significant portion of the surge in
net claims was a one off expense, the year on year increase is expected to remain
significant. We expect a drop in q/q net claims, but an overall increase y/y.
Salama: We expect Salama to continue improving investment income as seen in Q1 12A.
We expect an improvement in expense management, however this will be
overshadowed by high net claims during FY 12e related to reinsurance claims from the
recent Thailand floods.
Medgulf: Net claims have seen a moderate increase due to tightening competition in the
medical segment. Claims have been increasing while insurers have been unable to raise
premiums adequately. The rise in net claims is expected to persist, however its effect on
the bottom line will be diminished by rising investment income.
AUB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
USD mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
Net interest income 155 151 2.8% 143 137 4.4% 8.6% 10.3%
Non interest income 51 44 16.8% 55 39 43.2% (7.3%) 13.6%
Total income 206 195 6.0% 198 175 12.9% 4.2% 11.0%
Operating expenses 67 63 5.9% 64 62 4.1% 4.8% 3.0%
Operating profit 139 131 6.0% 134 114 17.7% 3.9% 15.3%
Provisions 52 46 13.6% 44 36 23.2% 18.4% 28.4%
Net income 89 82 8.5% 84 77 9.2% 5.9% 6.6%
Cost/income 32.5% 32.6% 32.4% 35.1%
Net loans to deposits 88.1% 88.0% 85.5% 84.0%
Net loans 16,233 15,946 1.8% 14,877 14,641 1.6% 9.1% 8.9%
Customer deposits 18,424 18,127 1.6% 17,405 17,424 (0.1%) 5.9% 4.0%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 206
Exhibit 265: Insurance companies: Q2 12e earnings preview
Source: Company Data, Arqaam Capital Research
QIC Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
QAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
GWP 635 678 (6%) 793 659 20% (20%) 3%
NEP 351 392 (10%) 351 386 (9%) 0% 1%
Net Claims 221 289 (23%) 205 257 (20%) 8% 12%
Investment Income 77 178 (57%) 72 149 (51%) 7% 20%
Earnings 122 208 (41%) 138 204 (33%) (11%) 2%
Tawuniya Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
GWP 1274 1079 18% 1249 826 51% 2% 31%
NEP 883 927 (5%) 741 706 5% 19% 31%
Net Claims 669 785 (15%) 559 468 20% 20% 68%
Investment Income 63 79 (20%) 23 25 (6%) 172% 219%
Earnings 100 53 90% 58 112 (48%) 71% (53%)
Salama Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
AED mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
GWP 627 706 (11%) 790 643 23% (21%) 10%
NEP 510 514 (1%) 628 477 32% (19%) 8%
Net Claims 330 334 (1%) 440 245 80% (25%) 36%
Investment Income 21 18 17% 14 4 247% 57% 367%
Earnings 18 13 36% 30 30 2% (41%) (56%)
MedGulf Arqaam Capital Reported q/q Reported Reported q/q y/y y/y
SAR mn Q2 12e Q1 12A ∆ Q2 11A Q1 11A ∆ Q2 Q1
GWP 761 871 (13%) 604 891 (32%) 26% (2%)
NEP 529 477 11% 544 354 54% (3%) 35%
Net Claims 414 377 10% 407 256 59% 2% 48%
Investment Income 5 0 1357% 2 0 855% 185% 87%
Earnings 43 50 (13%) 55 7 651% (22%) 576%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 207
Credit analysis
We witness the strongest relationship between maturity, credit ratings and spreads, and
very little correlation between the liquidity positions, capital ratios or RORWA.
We rank bank bond spreads vs.:
Liquidity ratios LCR and NSFR (no direct relationship) Capital ratios RORWA Their credit rating Maturity
Exhibit 266: Yield spread narrowing YTD
Source: Bloomberg, Arqaam Capital Research
Exhibit 267: Bank bonds’ yield vs. FY 11A NSFR
Source: Bloomberg
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
UN
BU
H 1
6
AD
IBU
H 1
6
BG
BK
KK
20
DH
BK
QD
17
FGB
UH
16
AD
IBU
H 1
5
QIB
C 1
5
AD
CB
16
NB
AD
UH
17
QN
BK
15
CO
MQ
AT
19
QN
BK
17
CO
MQ
AT
17
CO
MQ
AT
14
BSF
R 1
5
SIB
16
SAB
BA
B 1
5
FGB
UH
17
NB
AD
UH
15
NB
AD
UH
14
FGB
UH
12
AD
CB
14
TAM
WEE
17
BB
K 1
5
TAM
WEE
13
Current Yield Yield at beginning of the year Change
FGB
FGB
ADCB
ADCB
ADIB
TAMWEEL
SIB
QIBK
UNB
NBAD
NBAD
CBQK
CBQK
CBQK
QNBK
DHBK
BSFR
SABB
BURG
0%
1%
2%
3%
4%
5%
6%
7%
60% 70% 80% 90% 100% 110% 120% 130% 140%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 208
Exhibit 268: Bank bonds’ yield vs. FY 11A LCR
Source: Bloomberg, Arqaam Capital Research
Exhibit 269: Bank bonds’ yield vs. FY 12e CET1
Source: Bloomberg, Arqaam Capital Research
FGB
FGB
ADCB
ADCB
ADIB
TAMWEEL
SIB
QIBK
UNB
NBAD
NBAD
CBQK
CBQK
CBQK
QNBK
DHBK
BSFRSABB
BURG
0%
1%
2%
3%
4%
5%
6%
7%
0% 50% 100% 150% 200% 250% 300%
FGB
FGB
ADCB
ADCB
ADIB
TAMWEEL
SIB
QIBK
UNB
NBAD
NBAD
CBQK
CBQK
CBQK
QNBK
DHBK
BSFR
SABB
BURG
0%
1%
2%
3%
4%
5%
6%
7%
7% 9% 11% 13% 15% 17% 19% 21% 23%
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 209
Exhibit 270: Bank bonds’ yield vs. FY 12e RORWA
Source: Bloomberg, Arqaam Capital Research
Exhibit 271: Bank bonds’ yield vs. Rating Scorecard
Source: Bloomberg, Arqaam Capital Research
We also rank government bond yields vs.:
CDS spreads Their credit rating Maturity
FGB
FGB
ADCB
ADCB
ADIB
TAMWEEL
SIB
QIBK
UNB
NBAD
NBAD
CBQK
CBQK
CBQK
QNBK
DHBK
BSFR
SABB
BURG
0%
1%
2%
3%
4%
5%
6%
7%
1% 2% 3% 4% 5%
NBAD
NBAD
BSFR
ADCB
QNBKFGB
FGB
SABB
ADIB SIB
CBQK
CBQK
ADCB
UNBDHBK
TAMWEEL
QIBK
CBQK
BURG
BBK
0%
1%
2%
3%
4%
5%
6%
7%
8%
AA- A+ A A- BBB+ BBB BBB-
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 210
Exhibit 272: Sovereign bonds yield vs. CDS (bps)
Source: Bloomberg, Arqaam Capital Research
Exhibit 273: Sovereign bonds yield vs. Maturity
Source: Bloomberg, Arqaam Capital Research
DUBAIH 14
DUBAIH 17
DUGB 13
DUGB 15
DUGB 20
BHRAIN 14
BHRAIN 20
ADGB 12
ADGB 19
QATAR 14
QATAR 17
QATAR 22
QATAR 30
QATAR 40
EGYPT 20
EGYPT 40
0%
2%
4%
6%
8%
10%
12%
0 100 200 300 400 500 600 700
DUGB 14
DUBAIH 14
DUBAIH 17
DUGB 13DUGB 15
DUGB 20
DUGB 21
RAKS 14
RAKS 16BHRAIN 14
BHRAIN 18BHRAIN 20
ADGB 12ADGB 14
ADGB 19
MUBAUH 14
MUBAUH 16
MUBAUH 19MUBAUH 21
QATAR 14
QATAR 17
QATAR 19
QATAR 22
QATAR 30QATAR 40
QATAR 42
QATAR 15
QATAR 20
EGYPT 20
EGYPT 40
0%
2%
4%
6%
8%
10%
12%
2012 2016 2020 2024 2028 2033 2037 2041
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.
See Important Notice. 211
Exhibit 274: Sovereign bonds yield vs. Rating Scorecard
Source: Bloomberg, Arqaam Capital Research
Exhibit 275: Credit spread
Source: Bank of International Settlements
DUGB 14
DUBAIH 14
DUBAIH 17
DUGB 15
DUGB 20
RAKS 14
BHRAIN 14
BHRAIN 18
BHRAIN 20
ADGB 12ADGB 14
ADGB 19
MUBAUH 14
MUBAUH 16
MUBAUH 21
QATAR 19
QATAR 20
QATAR 30
QATAR 40
QATAR 15
EGYPT 20
EGYPT 40
0%
2%
4%
6%
8%
10%
12%
AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB-
Risk weighting CET1 Equity allocation Cost/Income Target RoE Target pre cost RoE Credit spread
AA 20% 12% 2.4% 35% 14% 21.5% 0.52%
A 50% 12% 6.0% 35% 14% 21.5% 1.29%
BBB 100% 12% 12.0% 35% 14% 21.5% 2.58%
BB 150% 12% 18.0% 35% 14% 21.5% 3.88%
May 21 2012
Region – Sector
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 212
Currency exposures
Exhibit 276: Net Currency Exposure as % of Shareholder's Equity
Source: Company Data, Arqaam Capital Research
USD INR GBP EUR BHD BHD SAR JPY AUD CHF MYR KWD LYD EGP PKR DKK NOK SEK CAD AED QAR
UAE
ADCB (12.8%) -- (0.0%) (0.7%) -- -- -- -- -- (3.2%) 0.1% -- -- -- -- -- -- -- -- -- --
ADIB (33.0%) -- 0.0% (0.4%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
CBD (0.4%) -- 0.0% (0.0%) -- -- -- (0.0%) -- -- -- -- -- -- -- -- -- -- -- -- --
DIB (10.5%) -- (0.1%) (0.6%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
ENBD 11.4% -- 0.0% 0.0% (5.8%) -- (22.1%) -- -- (0.0%) -- 0.0% -- -- -- -- -- -- -- -- 2.4%
Mashreq 60.7% 0.7% 0.2% 0.1% 0.0% 2.2% 0.1% 0.0% 0.0% 0.0% -- (0.1%) -- 0.0% 0.1% -- -- -- 0.0% -- 7.3%
NBAD 7.8% -- 0.2% (0.2%) (1.2%) -- (2.3%) 0.0% -- (0.3%) -- 0.2% -- -- -- -- -- -- -- -- --
Rakbank (1.0%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
UNB 69.2% -- 0.0% 0.0% -- -- 0.7% 0.0% -- 0.0% -- -- -- 5.6% -- -- -- -- -- -- --
Tamweel -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Qatar
QNB 62.6% -- (0.0%) (0.0%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
QIB 13.3% -- 0.0% (3.1%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Doha (3.2%) -- (3.5%) (5.0%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
CBQ (17.4%) -- (0.1%) (2.9%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
MARK -- -- (0.0%) (0.4%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
KCBK 21.3% -- -- (5.9%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2.7% --
Egypt
CIB 14.7% -- (0.1%) 1.5% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
NSGB 16.1% -- (0.1%) 1.5% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
CAE (103.3%) -- 0.3% 103.1% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
HDB 0.2% -- (0.0%) 0.0% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
EGB 10.8% -- 0.0% 1.0% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Lebanon
Audi (21.9%) -- (4.9%) 2.4% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
BLOM 4.9% -- -- (0.1%) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
BOB 103.7% -- 9.9% 0.2% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
May 21 2012
Region – Sector
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 213
Exhibit 277: Net Currency Exposure as % of Shareholder's Equity (Continued)
Source: Company Data, Arqaam Capital Research
USD INR GBP EUR BHD BHD SAR JPY AUD CHF MYR KWD LYD EGP PKR DKK NOK SEK CAD AED QAR
KSA
ANB 40.0% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Al Rajhi 19.1% -- 0.0% 0.0% -- -- -- 0.0% -- -- 6.3% -- -- -- -- -- -- -- -- 0.5% --
BSFR 10.3% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Riyad 72.2% -- 1.0% 6.0% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Samba 29.4% -- -- 6.1% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
SABB 54.1% -- -- 0.8% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
AAAL -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
BJAZ 0.3% -- 0.4% 0.2% -- -- -- 0.7% -- -- -- -- -- -- -- -- -- -- -- -- --
SIBC 26.8% -- -- 0.6% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
ALINMA -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Oman
BKMB 0.9% 0.2% -- -- -- 5.3% 5.0% -- -- -- -- 3.6% -- -- 1.7% -- -- -- -- 2.1% 0.2%
BKSB (27.9%) 0.0% -- (0.0%) -- -- (0.0%) 0.0% -- -- -- 0.0% -- -- -- -- -- -- -- 2.4% 0.0%
OIBB 23.9% 0.0% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Kuwait
NBK 0.7% -- -- -- -- -- -- -- -- -- -- -- -- 10.7% -- -- -- -- -- -- 4.7%
KFIN 14.9% -- 1.1% 0.8% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
GBK 11.0% -- -- 0.1% -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
BURG (2.5%) -- -- 0.0% -- -- 0.1% (0.0%) -- -- -- -- -- -- -- -- -- -- -- 0.2% --
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 214
Key upside and downside risks
Buys
NBAD: Downside risk includes: (1) Impact from UAE circular, capping single party exposures. NBAD is not compliant (PSE exposure stands at 128% and government exposure at 49% of BIS capital) and may be forced to sell high quality loans, while its future growth could be affected too; (2) Government spending significantly underperforming expectations and dragging loan growth; (3) a sharp drop in real estate prices in Abu Dhabi; (4) higher than expected loan loss charges; (5) political instability and adverse economic conditions in the international markets in which it operates; and (6) a potentially higher impact on net interest margin of a reduction in its liquidity gap.
FGB: Downside risk includes: (1) Higher than expected drop in fees and commissions on the back of the new regulation capping credit card fees; (2) a sharp drop in Abu Dhabi real estate prices that could trigger impairments as the bank is highly exposed to real estate and has a relatively high share of restructured loans; (3) significantly lower than expected loan growth, after a slow start to the year; (4) tightening in the funding market increasing its funding costs; (5) significantly higher than expected impact from the existing retail regulations; and (6) potential new regulation capping interest rates on personal loans.
UNB: Downside risk includes: (1) High share of past due but not impaired loans could lead to substantial increase in loan loss provisioning; (2) a sharp decline in the Abu Dhabi real estate market (property investments amounted to 11% of equity as of FY 11); (3) prolonged political instability affecting its Egyptian subsidiary’s operations; (4) UNB is long in EGP and, if the EGP/USD exchange rate were to weaken, UNB could incur a loss; and (5) additional write-downs on DH and DW exposures would have a negative impact on our valuation.
CBD: Downside risk includes: (1) additional provisioning, more than factored in (high share of past due, but not impaired loans (6.0%) and restructured loans (3.9%)) could have a draining effect on profitability; (2) An additional write-down on DH and DW would have a negative impact on our TP; (3) deterioration in economic conditions affecting the niche market it serves; (4) more margin compression than expected; and (5) CBD may not to be willing to return (part of) its surplus capital to shareholders.
Rakbank: Downside risk includes: (1) Higher than expected loan loss charges could further reduce profitability in the near term (high share of past due but not impaired loans); (2) an additional drop in fees and commissions on the back of the new regulation capping credit card fees; (3) a significantly higher than expected impact from existing retail regulations; (4) significantly lower than expected loan growth; (5) failure to address weak liquidity could have a negative impact on the bank; and (6) potential new regulation capping interest rates on personal loans.
Tamweel: Downside risk includes: (1) More pressure on property prices than factored in; (2) a delay in pickup of new mortgage origination; (3) prolonged legal disputes resulting in higher costs and a weakening of the recovery process after the new decree transferring cases to the Dubai courts; (4) aggressive mortgage pricing by peers who benefit from a lower cost of funding than Tamweel such as ADCB, ENBD and FGB; (5) deterioration in payment behavior, particularly for properties under development; and (6) vulnerable to higher wholesale funding costs due to already tight net interest margins.
May 23 2012
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Important Notice. 215
QNB: Downside risk includes: (1) Potential disruptions in Strait of Hormuz (2) An economic slowdown that could negatively impact lending growth and asset quality; (3) a sharp decline in oil prices which would impact the Qatari government’s fiscal budget and spending plans or a decision by the government to increase its share of financing projects on its own; (4) a rising political uncertainty or deterioration in economic state where QNB has international presence (especially with its Iraqi associates and its recent exposure to Libyan bank); (5) further restrictions of QCB regulatory requirements which might have adverse impact; and (6) the pick-up in loan growth in FY12 could come in later than we expect.
QIIB: Downside risk includes: (1) A macroeconomic slowdown that could negatively impact lending growth and asset quality; (2) any deterioration in the Qatari real estate or retail market; (3) lower than expected growth in the Islamic business; (4) higher capital requirements probably imposed by QCB as they see Islamic banks to be riskier; (5) an increased political turmoil and deterioration in economic conditions affecting operations of its associates in Syria; and (6) increased net interest margins as credit demand slowed down in Q1 12.
CIB: Downside risk includes: (1) The impact of a potential sovereign default would be high but manageable with the bank’s sizeable exposure to CBE T-bills; (2) corporate lending growth contingent on the country’s political outlook; (3) cutting T-bills beyond our expectations, that could reverse margin expansion; (4) a spike in default risk could increase NPLs and provisioning more than our estimates; and (5) a potential fall in EGP/USD, though 10-20% devaluation should not dent its NPLs.
CAE: Downside risk includes: (1) Most vulnerable to a potential sovereign default as we forecast increasing exposure to CBE T-bills; (2) the bank might face an NPL lag due to existing and new restructurings; (3) CAE might have to abide by Basel III caps on dividends given its unsustainable payout ratio; (4) Parent Credit Agricole diluting its stake; and (5) currency devaluation risk arising from the further deterioration in Egypt’s net foreign assets putting pressure on the EGP.
EFG Hermes: Downside risks include: (1) Potential delays in selling its 40% in the remaining take IB; (2) Difficulty to sell CL as purchase price should not be recoverable; (3) Most vulnerable to a potential sovereign default (both Egypt and Lebanon); (4) pressure on fees and commissions limiting the profitability of EFG’s private equity unit; (5) deterioration of asset quality due to CL’s high retail tilt (65% in mortgage loans); and (6) Unclear strategic direction: potential new acquisitions rather than selling CL or PE unit.
Bank Audi: Downside risk includes: (1) Aggressive expansion plans into Turkey could be a drain on profitability and asset quality if not properly executed (2) Audi may not be able to meet the Basel III 12% capital requirement it targets by 2016; (3) continued high provisioning in Syria and Egypt (4) impact of a potential sovereign default would be very high although we think it is improbable; and (5) lower than expected investment income following the record high returns in 2011.
BLOM Bank: Downside risk includes: (1) High impact from a potential sovereign default; (2) foreign operations risk as the bank is affected by performance of subsidiaries in Syria and Egypt and further collective provisioning could restrain profit growth; (3) pressure on asset yields may further compress margins; and (4) deterioration of asset quality due to the bank’s relatively higher retail tilt.
May 23 2012
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Important Notice. 216
Riyad Bank: Downside risks includes: (1) Lower than expected loan growth due to a loss of lending market share; (2) further pressure on margins; (3) credit costs turning out to be higher than anticipated; and (4) lower than expected fee and investment income.
Al Rajhi Bank: Downside risk includes: (1) Decreasing yields on retail lending; (2) increase in credit costs, and hence delinquencies as a result of large retail exposure; (3) significant outflow of deposits due to the highly liquid nature of current accounts and potentially increased rivalry for government deposits; (4) lower than expected fee and investment income; (5) loss of its premium valuation.
ANB: Downside risk includes: (1) Loan growth coming in lower than expected; (2) credit costs turning out to be higher than expected; (3) increasing cost of funds; (4) lower than expected income from investments; and (5) further increases in operating costs.
Samba: Downside risk includes: (1) A sharp decline in equity markets, affecting income from brokerage and asset management; (2) further negative pressure on margins; (3) an unanticipated deterioration in credit quality, and hence an increase in credit costs; and (4) lower than expected loan growth.
SHB: Downside risk includes: (1) Lower than expected lending growth; (2) further margin compression (3) escalation of the conflict with RBS and the possible change in management due to the sale of RBS’s stake in SHB; (4) lower than anticipated income from investments; and (5) lending growth outpacing the bank’s deposits given that SHB is already at the 85% L/D cap.
Burgan Bank: Downside risk includes: (1) Acquisition risk Tekfen if not properly executed; (2) Loan book might not grow as anticipated; (2) subsidiaries may prompt further deterioration in asset quality; (3) further compression in margins; and (4) unable to recover from capital deterioration, expected in FY 12e.
Bank Muscat: Downside risk includes: (1) Lower project-related loan growth if the government finances a higher proportion itself; (2) an inability to strengthen its capital base as much as we expect in the next few years, leaving it with a small capital deficit; (3) our asset quality assumptions might be too optimistic; and (4) Islamic financing activities not materializing as expected.
QIC: Downside risk includes: (1) Investment risk: High exposure of 50% of total investments to equities; (2) entry of foreign insurers could take away market share from locals; (3) rising loss ratios closer to mature markets levels; (4) higher commission cost ratio; and (5) reinsurance risk from mature markets (20% of GWP)
Salama: Downside risk includes: (1) Mortality rate can deviate from original assumptions; (2) rising loss ratios closer to mature markets levels; (3) higher commission cost ratio (4) catastrophe risks in countries with significant exposure (Malaysia, Algeria, Senegal and Egypt); and (5) inability to improve investment yields by as much as we forecast.
Tawuniya: Downside risk includes: (1) Investment risk: High exposure of 29% of total investments to equities, total investments 50% of total assets; (2) Loss ratios remain at the high FY 12e levels; (3) higher commission cost ratio resulting from tougher pricing from distribution channels; (4) falling market share could cause GWP to grow at even slower rates; and (5) catastrophe risks within the Kingdom such as Jeddah floods.
May 23 2012
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Important Notice. 217
Hold
ADCB: Downside risk includes: (1) earnings dilution because of sale of RHB Capital; (2) further drop in asset yield exerting more pressure on the already low pre-provision income (2.91% of RWA); (3) amongst the most susceptible to capping of interest on credit cards; (4) ADCB has a high exposure to past due, but not impaired loans of 7.8% of total loans and 5.2% restructured loans (5) Tight capital base due to the planned share buy-back Upside potential includes: (1) loan growth coming in higher than expected on the back of diversification away from retail and CC lending; (2) short term support coming from the share buyback; (3) less pressure on NIMs and (4) further improvement in asset quality.
ENBD: Downside risk includes: (1) more than expected write-down on DH and DW; (2) an unlikely sovereign default of the emirate of Dubai could have a negative direct effect on our TP; (3) ENBD would suffer from a disorder in funding markets; (4) Effect from new caps on government exposure could be a drain to ENBD’s valuation. PSE exposure currently stands at 35% of Basel capital and government exposure at 132% of BIS capital (5) more than anticipated asset quality deterioration could impact ENBD negatively. Upside potential includes: (1) less than expected effect from the new UAE regulation to reduce the bank’s exposure to the local governments; (2) lower pressure on funding cost could benefit the bank’s margins; (3) less than factored in loan loss charges could reduce pressure on bottom line profitability; (4) more than expected loan book growth and (5) faster than expected improvement in liquidity position could benefit the bank positively (such as witnessed by the strong deposit inflow in Q1.
CBQ: Downside risk includes: (1) A macroeconomic slowdown impacting lending growth and credit quality; (2) corporate customers claiming similar rate cuts as the ones recently applied on retail loans; (3) Severe competition from larger peers preventing CBQ from gaining traction in the public sector and recognizing its growth targets in this sector; and (4) Additional restrictions of QCB regulatory requirements which might have adverse impact. Upside potential includes: (1) A significant pick-up in private sector lending; (2) our asset quality screen might be too conservative; (3) a significant weakening in competition allowing CBQ to gain market share in public sector; and (4) NIM could be improved by a reduction in deposit remuneration.
MARK: Downside risk includes: (1) a sharp decline in oil prices which would impact the Qatari government’s fiscal budget and spending plans or a decision by the government to increase its share of direct spending in projects; (2) lower than expected growth in the Islamic segment (3) continued contraction in margins; (4) a material decline in asset quality resulting in higher than forecasted provisioning charges; and (5) higher capital requirements probably imposed by QCB as they see Islamic banks as riskier. Upside potential includes: (1) capturing all the Islamic business from conventional banks resulting in higher than forecasted financing and deposits growth; (2) higher than forecasted improvement in margins; and (3) higher than expected investment income underpinning substantial investments in government securities.
Doha Bank: Downside risk includes: (1) Additional restrictions of QCB regulatory requirements which might have adverse impact; (2) a delay in the private sector spillover effect impacting growth prospects in contracting, Doha Bank’s key focus segment; (3) Any deterioration in loan quality which may result in higher-than-forecasted impairment provisions; and (4) Continued weakness in private sector lending growth, particularly the retail segment. Upside potential includes: (1) the resumption of strong credit growth within the retail sector; (2) salary hikes in the public sector and consequently also private sector, which may have a larger than expected positive effect on loan growth given the bank retail tilt; (3) benign credit costs; (4) higher than
May 23 2012
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Important Notice. 218
expected investment income; (5) improvement in margins; and (6) our asset quality screen could be too conservative.
QIB: Downside risk includes:(1) A further worsening in the Qatari real estate market; (2) higher than forecasted margin compression; (3) a macroeconomic slowdown that could negatively impact lending growth and asset quality; (4) Lower than expected growth in the Islamic business; and (5) an enhanced deterioration in economic or political state in which QIB has international presence which could negatively impact profitability or credit quality. Upside potential includes: (1) Our asset quality could be too prudent, provisioning for Arcapita exposure might come in lower than expected; (2) higher than expected margins; and (3) higher than expected lending growth.
NSGB: Downside risk includes: (1) Gloomy political outlook and sovereign default risk putting further pressure on asset quality with forecasted loan growth coming mostly from retail; (2) SocGen spinning off its stake but interest in the bank (if present) remains low profile; (3) negative impact of Basel II worse than expected due to operational risk and deductions from capital; and (4) a decrease in the bank’s cost efficiency. Upside potential includes: (1) Strongest potential benefiter in terms of growth should the country’s political outlook stabilize due to support from parent company and strong corporate relationships; (2) successful expansion in retail could further boost margins and fee income; and (3) lower than expected provisioning could improve bottom line returns.
HDB: Downside risk includes: (1) Weaker than expected loan growth due to political instability; (2) uncertainty and deterioration in the property market taking into consideration the bank’s high reliance on project deliveries; and (3) retail bias makes it most vulnerable to deterioration in asset quality. Upside potential includes: (1) a sooner than expected upswing in the real estate market; (2) higher than expected loan growth; (3) amelioration in the bank’s capital buffer; and (4) higher than expected margins underpinning substantial investments in government securities.
Byblos Bank: Downside risk include: (1) Impact of potential sovereign default would be very high, like most Lebanese banks; (2) pressure on asset yields and competition on deposits may further shrink margins; and (3) further drop in CET1 ratio due to higher RWA. Upside potential includes: (1) Our loan loss forecasts could prove to be too conservative; (2) bottom line return could surprise positively if Byblos continues to book capital gains on its bond portfolio; (3) capital could also surprise if the bank were to apply lower risk weightings on CB cash; and (4) lower than expected loan loss charges.
BSFR: Downside risk include: (1) its share price could come under pressure if Calyon, which holds a 31% stake, offloads its holdings in the market; (2) asset quality deteriorates as a result of increased retail and credit card exposure; and (3) lower than expected growth in fee and commission income. Upside potential includes: (1) stronger than expected loan growth; (2) margin expansion on the back of an increase in retail lending; and (3) higher than expected increase in income from investments.
SABB: (1) A drop in net income growth momentum; (2) a deterioration in asset quality leading to higher credit charges; (3) an increase in operating costs; Upside risks include (1) an improvement of capital position; (2) an improvement in asset quality resulting in lower provisioning costs; (3) higher than expected lending growth.
May 23 2012
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Important Notice. 219
Albilad: Downside risk includes: (1) deterioration of asset quality since loan book has yet to go “through-the-cycle” resulting in higher than expected credit costs; (2) a drop in fees from remittances which contribute significantly to fee income; and (3) lending margin compression. Upside potential includes: (1) loan growth coming in higher than expected; (2) higher income from investments on the back of a pickup in capital markets; and (3) a greater than expected decline in operating costs.
Alinma: Downside risks include (1) bank’s asset quality may deteriorate as a result of high retail exposure; (2) greater than expected margin compression; (3) lower than expected fee intensity. Upside risks include (1) faster than forecasted balance sheet growth; (2) costs may normalize faster than predicted; (3) capital base provides ample room for growth.
SIB: Downside risk includes: (1) higher than expected credit costs; (2) low liquidity ratios potentially resulting in a shortage of funding; and (3) increased pressure on margins. Upside potential includes: (1) higher than expected lending growth possibly fuelled by the bank’s push into the retail sector; (2) ample capital base allowing for high future growth; and (3) higher than expected fees income driven by an increase in equity trading in the Kingdom.
NBK: Downside risk includes: (1) NBK’s cost of risk could increase beyond pour forecast; (2) loan growth could be lower than we anticipate; and (3) asset quality may deteriorate as a result of the bank’s subsidiaries. Upside potential includes: (1) Larger growth in loans as a result of future acquisitions; and (2) could use its strong capital to buy back shares if lending opportunities do not appear.
BKSB: Downside risk includes: (1) Bank Sohar’s cost of risk could increase; (2) loan growth could be lower than we anticipate; and (3) Margin compression could reduce earnings. Upside potential includes: (1) Bank Sohar taking advantage of Islamic financing achieving higher margins than expected; (2) economic conditions picking up, realizing higher loan book growth; (3) improvement in CET due to further capital injection; and (4) loan loss charges could be too conservative.
AUB: Downside risk includes: (1) Any deterioration in loan quality which may result in higher-than-forecasted impairment provisions; (2) A macroeconomic slowdown impacting lending growth and credit quality; (3) An enhanced political instability or deterioration in economic state of Bahrain or any country where the bank has international presence could negatively impact profitability or credit quality; and (5) lower than forecasted margins. Upside potential includes: (1) a higher than forecasted loan growth; (2) lower credit costs; (3) higher than expected investment income; (4) improvement in margins; and (5) our asset quality screen could be too conservative.
MedGulf: Downside risk includes: (1) Further increases in loss ratios beyond forecasts; (2) inability to raise investment yields as per forecast; and (3) catastrophe risks within the Kingdom such as Jeddah floods. Upside potential includes: (1) Significant increase in investment yields, higher than forecasts; (2) relatively stable loss ratios (contrary to our forecasts); and (3) improving underwriting profit.
Alinma: Upside potential includes: (1) faster than forecasted balance sheet growth; (2) improving yields on the bank’s retail loan portfolio; (3) costs may normalize faster than predicted; (4) bank’s asset quality may remain very high; and (5) capital base provides ample room for growth.
May 23 2012
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Important Notice. 220
Sell
ADIB: Upside potential includes: (1) Our asset quality screen could be too conservative; (2) lower funding costs could help ADIB’s net interest margins; (3) ADIB could be affected less than anticipated by the CC regulation, and (4) higher than anticipate loan book growth.
DIB: Upside potential includes: (1) Less than anticipated loan loss charges could impact profitability positively (despite high exposure to past due, but not impaired loans of 6.3% of loans); (2) DIB could benefit if net interest margins come in higher than expected; (3) significantly higher than expected loan growth; and (4) impairments of associates and real estate investments that we deem necessary may not materialize.
Mashreq: Upside potential includes: (1) Improvement in cost efficiency could have a positive impact on Mashreq’s low earnings capacity; (2) less than factored in impact from retail caps on fees and commissions could further enhance profitability; (3) significantly higher than expected loan growth; and (4) quicker than excepted liquidity addressing could improve Mashreq’s valuation.
Al Khaliji: Upside potential includes: (1) Al Khaliji might be more aggressive than forecasted with respect to recapturing loans and deposits; (2) Net interest margin could be higher than expected; (3) costs could come in lower than expected; (4) our asset quality screen could prove to be too conservative; and (5) Investment income turning out to be higher than expected.
EGB: Upside potential includes: (1) Lower than expected provisioning and NPLs should political stability restore; (2) improvement in the bank’s NSFR (the only bank in Egypt below the 100% threshold) following CBE’s cut on the reserve ratio; (3) quicker and stronger normalization of investment income would boost bottom line profits by double digit growth; (4) expansion in retail segment could further support margin increase; (5) a potential take-over
BOB: Upside potential includes: (1) Capital could turn in better than our forecast if the bank uses lower risk weightings of CB cash; (2) elevated investment returns might not normalize in the near future which will continue supporting bottom line growth; (3) higher than expected margins due to amelioration in asset yields; and (4) our provisioning forecasts may be too conservative underestimating the bank’s profits.
Aljazira: Upside potential includes: (1) Improving yields on bank’s retail loan portfolio; (2) an increase in equity trading in KSA that Aljazira would be well positioned to translate into higher fee income; (3) larger than expected decline in operating costs; (4) lower than anticipated credit costs; and (5) higher than expected balance sheet growth.
Gulf Bank: Upside potential includes: (1) Our loan growth forecast could be too conservative; (2) higher margins on the back of lower cost of funds; (3) higher than expected fees and commissions leading to a relatively larger growth in total income rather than a stable 7%; and (4) our loan loss charges could prove to be lower.
KFIN: Upside potential includes: (1) Stronger than expected loan growth; (2) Increase in the noninterest income despite, the bank’s weak noncore income ; (3) margins recovering or remaining relatively stable against our margin compression forecast; and (4) improvement in the bank’s asset quality leading to lower than expected charge offs.
Boubyan: Upside potential includes: (1) Higher pick up in revenue growth; (2) credit cost turning out to be lower than expected; (3) Loan growth coming in higher than expected as
May 23 2012
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Important Notice. 221
competition wears out; (4) Lower than expected loan loss charges; (5) Potential high bid from NBK (6) Potential that Kuwait Central bank grants NBK the right to purchase 100% of Boubyan.
OIB: Upside potential includes: (1) OIB acquiring a larger market share as a result of future merger, increasing its loan book significantly; (2) higher margins than expected as Islamic financing window opens up; (3) our loan loss charges could be too conservative; and (4) benefiting from a higher than expected fees and commissions.
DFM: Upside potential includes: (1) Continuous increase in traded volumes to pre FY 08A levels; (2) significant revenue contribution from new revenue lines; (3) significant synergies such as cost reductions arising from merger with ADX; and (4) entry into MSCI emerging markets.
Shuaa: Upside potential includes: (1) Continuous increase in volumes traded volumes to pre FY 08A levels; (2) successful cost reductions, reducing cost/income to less than 100% within a very short period of time; (3) closure of several deals on the Investment Banking side; (4) continuous strong performance in asset management lead to growing AUMs and commission fees; (5) possible acquisitions using available ample cash, and. (6) Break-up scenario could unlock value
May 23 2012
Financials (banks, insurance and diversified financials)
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Important Notice. 222
Appendices
Exhibit 278: ADCB as of 23/05/2012
Source: Bloomberg
Exhibit 279: ADIB as of 23/05/2012
Source: Bloomberg
Exhibit 280: FGB as of 23/05/2012
Source: Bloomberg
Exhibit 281: NBAD as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
3/31/2011 QAR 158.0BUY
Recommendation Target Price
HOLD AED 3.0
HOLD AED 2.5
1.00
1.50
2.00
2.50
3.00
3.50
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011 QAR 158.0BUY
Recommendation Target Price
SELL AED 2.7
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
3/31/2011 QAR 158.0BUY
Recommendation Target Price
BUY AED 13.4
BUY AED 20.0
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
3/31/2011 QAR 158.0BUY
Recommendation Target Price
BUY AED 13.0
BUY AED 13.5
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 223
Exhibit 282: UNB as of 23/05/2012
Source: Bloomberg
Exhibit 283: RAKBANK as of 23/05/2012
Source: Bloomberg
Exhibit 284: CBD as of 23/05/2012
Source: Bloomberg
Exhibit 285: DFM as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
3/31/2011 QAR 158.0BUY
Recommendation Target Price
BUY AED 4.6
BUY AED 4.0
2.00
2.50
3.00
3.50
4.00
4.50
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011 QAR 158.0BUY
Recommendation Target Price
BUY AED 6.1
2.50
3.00
3.50
4.00
4.50
5.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY AED 4.2
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL AED 0.7
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 224
Exhibit 286: DIB as of 23/05/2012
Source: Bloomberg
Exhibit 287: Emirates as of 23/05/2012
Source: Bloomberg
Exhibit 288: MASQ as of 23/05/2012
Source: Bloomberg
Exhibit 289: SALAMA as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
Recommendation Target Price
SELL AED 1.8
HOLD AED 2.1
1.80
1.90
2.00
2.10
2.20
2.30
2.40
2.50
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
10/17/2011
Recommendation Target Price
HOLD AED 3.2
HOLD AED 3.8
2.00
2.50
3.00
3.50
4.00
4.50
5.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL AED 57.0
6.00
16.00
26.00
36.00
46.00
56.00
66.00
76.00
86.00
96.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY AED 0.9
0.40
0.50
0.60
0.70
0.80
0.90
1.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 225
Exhibit 290: SHUAA as of 23/05/2012
Source: Bloomberg
Exhibit 291: TAMWEEL as of 23/05/2012
Source: Bloomberg
Exhibit 292: AAAL as of 23/05/2012
Source: Bloomberg
Exhibit 293: ALBI as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
SELL AED 0.6
0.30
0.50
0.70
0.90
1.10
1.30
1.50
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY AED 1.7
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY SAR 38.3
20.00
21.00
22.00
23.00
24.00
25.00
26.00
27.00
28.00
29.00
30.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD SAR 30.9
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
30.00
32.00
34.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 226
Exhibit 294: ALINMA as of 23/05/2012
Source: Bloomberg
Exhibit 295: ARNB as of 23/05/2012
Source: Bloomberg
Exhibit 296: BJAZ as of 23/05/2012
Source: Bloomberg
Exhibit 297: BSFR as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
HOLD SAR 15.4
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY SAR 39.1
24.00
26.00
28.00
30.00
32.00
34.00
36.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL SAR 22.0
10.00
15.00
20.00
25.00
30.00
35.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD SAR 40.9
25.00
27.00
29.00
31.00
33.00
35.00
37.00
39.00
41.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 227
Exhibit 298: MEDGULF as of 23/05/2012
Source: Bloomberg
Exhibit 299: RJBL as of 23/05/2012
Source: Bloomberg
Exhibit 300: RJHI as of 23/05/2012
Source: Bloomberg
Exhibit 301: SAAB as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
SELL SAR 24.6
20.00
22.00
24.00
26.00
28.00
30.00
32.00
34.00
36.00
38.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY SAR 33.1
20.00
21.00
22.00
23.00
24.00
25.00
26.00
27.00
28.00
29.00
30.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY SAR 100.5
60.00
65.00
70.00
75.00
80.00
85.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD SAR 37.1
24.00
26.00
28.00
30.00
32.00
34.00
36.00
38.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 228
Exhibit 302: SAMBA as of 23/05/2012
Source: Bloomberg
Exhibit 303: SIBC as of 23/05/2012
Source: Bloomberg
Exhibit 304: TAWUNIYA as of 23/05/2012
Source: Bloomberg
Exhibit 305: CBQK as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
BUY SAR 65.6
40.00
45.00
50.00
55.00
60.00
65.00
70.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD SAR 19.8
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
Recommendation Target Price
BUY SAR 61.1
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011
Recommendation Target Price
HOLD QAR 82.1
BUY QAR 93.0
60.00
65.00
70.00
75.00
80.00
85.00
90.00
95.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 229
Exhibit 306: DHBK as of 23/05/2012
Source: Bloomberg
Exhibit 307: KCBK as of 23/05/2012
Source: Bloomberg
Exhibit 308: MARK as of 23/05/2012
Source: Bloomberg
Exhibit 309: QATI as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011
Recommendation Target Price
HOLD QAR 68.0
HOLD QAR 62.0
40.00
45.00
50.00
55.00
60.00
65.00
70.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
Recommendation Target Price
SELL QAR 14.1
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011
Recommendation Target Price
HOLD QAR 30.9
BUY QAR 28.0
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
30.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
Recommendation Target Price
BUY QAR 93.6
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 230
Exhibit 310: QIBK as of 23/05/2012
Source: Bloomberg
Exhibit 311: QIIK as of 23/05/2012
Source: Bloomberg
Exhibit 312: QNBK as of 23/05/2012
Source: Bloomberg
Exhibit 313: BKMB as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Coverage suspended on 16-Feb-2012
3/31/2011
Recommendation Target Price
HOLD QAR 79.8
BUY QAR 96.0
65.00
70.00
75.00
80.00
85.00
90.00
95.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
Recommendation Target Price
BUY QAR 60.5
40.00
42.00
44.00
46.00
48.00
50.00
52.00
54.00
56.00
58.00
60.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
7/13/2011
Recommendation Target Price
BUY QAR 189.2
BUY QAR 166.0
75.00
85.00
95.00
105.00
115.00
125.00
135.00
145.00
155.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Coverage suspended on 16-Feb-2012
Recommendation Target Price
BUY OMR 0.9
0.50
0.55
0.60
0.65
0.70
0.75
0.80
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 231
Exhibit 314: BKSB as of 23/05/2012
Source: Bloomberg
Exhibit 315: OIBB as of 23/05/2012
Source: Bloomberg
Exhibit 316: AUDI as of 23/05/2012
Source: Bloomberg
Exhibit 317: BLOM as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
HOLD OMR 0.2
0.12
0.14
0.16
0.18
0.20
0.22
0.24
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL OMR 0.2
0.22
0.23
0.24
0.25
0.26
0.27
0.28
0.29
0.30
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY USD 7.3
5.20
5.70
6.20
6.70
7.20
7.70
8.20
8.70
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY USD 11.0
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50
11.00
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 232
Exhibit 318: BOB as of 23/05/2012
Source: Bloomberg
Exhibit 319: BYB as of 23/05/2012
Source: Bloomberg
Exhibit 320: BOUBYAN as of 23/05/2012
Source: Bloomberg
Exhibit 321: BURG as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
SELL USD 10.5
18.00
18.50
19.00
19.50
20.00
20.50
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD USD 1.5
1.50
1.60
1.70
1.80
1.90
2.00
2.10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL KWD 0.3
400
450
500
550
600
650
700
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY KWD 0.6
250
300
350
400
450
500
550
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 233
Exhibit 322: GBK as of 23/05/2012
Source: Bloomberg
Exhibit 323: KFIN as of 23/05/2012
Source: Bloomberg
Exhibit 324: NBK as of 23/05/2012
Source: Bloomberg
Exhibit 325: CIEB as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
SELL KWD 0.3
300
350
400
450
500
550
600
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL KWD 0.6
650
700
750
800
850
900
950
1000
1050
1100
1150
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD KWD 1.1
750
800
850
900
950
1000
1050
1100
1150
1200
1250
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY EGP 12.0
6
8
10
12
14
16
18
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 234
Exhibit 326: COMI as of 23/05/2012
Source: Bloomberg
Exhibit 327: HRHO as of 23/05/2012
Source: Bloomberg
Exhibit 328: EGBE as of 23/05/2012
Source: Bloomberg
Exhibit 329: HDBK as of 23/05/2012
Source: Bloomberg
Date
5/23/2012
Recommendation Target Price
BUY EGP 35.6
16
21
26
31
36
41
46
51
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
BUY EGP 16.6
6
11
16
21
26
31
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
SELL USD 1.1
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD EGP 13.0
6
11
16
21
26
31
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 235
Exhibit 330: NSGB as of 23/05/2012
Source: Bloomberg
Exhibit 331: AUB as of 23/05/2012
Source: Bloomberg
Exhibit 332: Arqaam Equity Research Ratings distribution sector (54), as of 23 May 2012
Source: Arqaam Capital Research
Exhibit 333: Arqaam Equity Research distribution total coverage (78), as of 23 May 2012
Source: Arqaam Capital Research
Date
5/23/2012
Recommendation Target Price
HOLD EGP 32.8
16.0
21.0
26.0
31.0
36.0
41.0
46.0
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
Date
5/23/2012
Recommendation Target Price
HOLD BHD 0.6
0.6
0.6
0.7
0.7
0.8
0.8
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Mar
-12
May
-12
41%
33%
26%
Buy
Hold
Sell
38%
40%
22%
Buy
Hold
Sell
May 23 2012
Financials (banks, insurance and diversified financials)
Financials (bank, insurance and diversified financials)© Copyright 2012, Arqaam Capital Limited. All Rights Reserved. See
Important Notice. 236
Important Notice
1. Author, regulator and responsibility Arqaam Capital Limited (“Arqaam”) is incorporated in the Dubai International Financial Centre (“DIFC”) and is authorised and regulated by the Dubai Financial Services Authority ("DFSA") to carry on financial services in
and from the DIFC. Arqaam publishes and distributes (i.e. issues) all research.
Arqaam Capital Research Offshore s.a.l. is a specialist research centre in Beirut, Lebanon, which assists in the production of research issued by Arqaam.
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investment decisions. In preparing this document, Arqaam did not take into account the investment objectives, financial situation and particular needs of any particular person. Accordingly, before acting on this
document, investors should independently evaluate the investments and strategies referred to herein and make their own determination of whether it is appropriate in light of their own financial circumstances and
objectives.
3. Rating system
Arqaam investment research is based on the analysis of regional and country economics, industries and company fundamentals. Arqaam company research reflects a long-term (12-month) fair value target for a
company or stock. The ratings bands are:
Ratings
Buy Total return > 20%
Hold -10% < Total return < 20%
Sell Total return < -10%
In certain circumstances, ratings may differ from those implied by a fair value target using the criteria above. Arqaam policy is to maintain up-to-date fair value targets on the companies under its coverage, reflecting
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are no guarantees of future performance.
6.4 Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
6.5 This document does not propose to identify or to suggest all of the risks (direct or indirect) which may be associated with the investments and strategies referred to herein.
7. Conflict 7.1 Arqaam and its affiliates provide full investment banking services, and they and their directors, officers and employees, may take positions which conflict with the views expressed in this document. Our salespeople,
traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in
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