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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

mailto:[email protected]

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



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



Important Notice. 4

Exhibit 2: FY 11-15e CAGR Capital vs. RWA Growth


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


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



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


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



Important Notice. 6

Exhibit 5: Over/Under provisioning as % RWA


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



Important Notice. 7

Exhibit 6: Weighting Treasury Bills


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


-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



Important Notice. 8

Exhibit 8: Cap on Dividend Distribution given 7% minimum CET1


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



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)


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



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




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


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




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


Exhibit 13: Liabilities Costs


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




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


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




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


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




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


Exhibit 17: Investment Income/Total Investments


-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




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




Exhibit 18: Total average LLP (bps)


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


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




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


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




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


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




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




Exhibit 24: EPS: Arqaam Estimates vs. Bloomberg Consensus


-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




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




Exhibit 25: P/E15e vs. P/TNAV12e


Exhibit 26: P/tNAV12e vs. RoRWA12e


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




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


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




Exhibit 28: RoRWA15e vs. EPS FY 12-15e CAGR


Exhibit 29: FY 11-15e Loan CAGR


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




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




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


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




Exhibit 31: Core Portfolio


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




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




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




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




Exhibit 32: Avoid Portfolio


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




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




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




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




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




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


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




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




Delays in budget may dent loan momentum in Qatar: QNB best long-term play

Exhibit 34: Qatar valuation summary


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.


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




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


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


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




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



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


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


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




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


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.


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




Kuwait: Burgan most appealing, Boubyan’s overvaluation due to M&A speculation

Exhibit 38: Kuwait valuation summary


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,


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




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


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


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




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


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


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.


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


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




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




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




Exhibit 42: P/tNAV12e vs. FY 12e RoE


Exhibit 43: P/tNAV12e vs. FY 15e RoE


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




Exhibit 44: P/tNAV12e vs.FY 12e Pre-provisioning RoE


Exhibit 45: P/E12e vs. FY 11-15e EPS CAGR


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




Exhibit 46: FY 12e LLP as % of Operating Profit


Exhibit 47: P/tNAV12e vs. PPP/RWA12e


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




Exhibit 48: P/tNAV12e vs. RORWA12e


Exhibit 49: Upside/downside potential


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




Exhibit 50: FY 11-15e Change in RORWA


Exhibit 51: FY 11-15e Change in ROE


-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




Exhibit 52: RORWA12e vs. RWA Growth


Exhibit 53: Dividend yield vs. potential yield


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




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




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) © Copyright 2011, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 56

Exhibit 58: MENA banks valuation screen


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


May 23 2012



Exhibit 59: MENA banks valuation screen (continued)


Exhibit 60: MENA diversified financials valuation screen




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




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


May 21 2012


May 23 2012



Exhibit 61: MENA financials: Earnings estimates (LCY)


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


May 23 2012



Exhibit 62: MENA financials: Earnings estimates (LCY) (continued)


Exhibit 63: MENA diversified financials: Earnings estimates (LCY)


Company Currency


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


Company Currency


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


May 21 2012


May 23 2012



Exhibit 64: MENA banks: Assets and returns


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


May 23 2012



Exhibit 65: MENA banks: Assets and returns (continued)


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


May 23 2012



Exhibit 66: MENA banks: Key performance indicators


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


May 23 2012



Exhibit 67: MENA banks: Key performance indicators (Continued)



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


May 23 2012








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


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


May 23 2012



Exhibit 70: MENA financials: Share price performance


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


May 23 2012



Exhibit 71: MENA financials: Share price performance (Continued)


Exhibit 72: MENA diversified financials: Share price performance




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




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)


May 23 2012




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




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




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




Exhibit 74: Impact of Basel III on common equity Tier 1 (FY 13e)


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




Exhibit 75: Composition of Tier I (Basel III FY 13e)


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




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




(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




Exhibit 77: Market Risk Weighted Assets as % RWAs


Exhibit 78: Market Risk Weighted Assets y/y Growth


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




Capacity to grow RWA FY 13e onward vs. 12% CE Tier-1

Exhibit 79: Capacity to Grow


Dividend constraints and sustainability of dividend payments:

Exhibit 80: Dividend Payout


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




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


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




Exhibit 82: Change in CET1 FY 11-14e


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




Exhibit 83: Potential dividend constraints under Basel III


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




Exhibit 84: FY 11-15e CAGR Capital vs. RWA growth


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


May 23 2012


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


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


May 23 2012



Exhibit 86: Evolution of core equity Tier 1: FY 12-13e


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




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




Exhibit 88: Claims on governments as % of Total Assets


Exhibit 89: Impact on CET1 vs. New CET1


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




Exhibit 90: Capacity to Grow after Weighting T-Bills


Exhibit 91: FY 12e Leverage Ratio (assets/tangible equity)


-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




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




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


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




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


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




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


-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




Exhibit 96: Accounting adjustments


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




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


Exhibit 98: Islamic share of total operations of the conventional banks in Qatar


0%

2%

4%

6%

8%

10%

Doha CBQ ABQ KCB QNB% of loan % of deposit % of asset

May 23 2012




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




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




Exhibit 102: Lebanon Macro


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




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




Exhibit 105: Economic plans being implemented by MENA governments versus GDP

Source: Central Bank, IMF, Arqaam Capital Research

Exhibit 106: Government gross debt/GDP


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




Exhibit 108: Corporate leverage in the region


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




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


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




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














CAGR 14.2%

Egypt














CAGR 12.4%

Saudi

Development plan 2,802.8


Project spending FY 12e-FY14e 1,868.5





Loans as of FY 11A 1,068.0

Project lending + FY 11A loans 1,348.3




Projected loans FY 14e 1,633.7

CAGR 11.2%

May 23 2012





UAE

Development plan 2,061.8

Average execution 32%







Loans as of FY 11A 1,074.1

Project lending + FY 11A loans 1,338.0




Projected loans FY 14e 1,472.9

CAGR 8.2%

Bahrain


Average execution 35%













CAGR 7.1%

Kuwait


Average execution % 40%













CAGR 7.1%

May 23 2012




Exhibit 113: Expected Net Loan Growth


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




Exhibit 115: Total Credit Penetration


Exhibit 116: Retail Credit Penetration


Exhibit 117: Corporate Credit Penetration


Exhibit 118: Public Credit Penetration


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%


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%


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%


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




Exhibit 119: Gross loan growth by country (Y/Y)


Exhibit 120: M/M gross loan growth by country


Exhibit 121: M/M gross deposits growth by country


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


Saudi Kuwait Oman

May 23 2012




Exhibit 122: Credit Commitments as % of total loans


Exhibit 123: Banks market shares by loans and deposits


-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




Exhibit 124: Change in lending market share FY10-11A


Exhibit 125: Change in deposits market share FY11A-FY10A


-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


-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


May 23 2012




Exhibit 126: Private and public growth by country in FY 12e


Exhibit 127: Gross loans growth


-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




Exhibit 128: Deposits growth


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




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


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




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


Exhibit 133: Deposits/GDP FY 01-16e


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


Saudi Arabia Kuwait Oman Bahrain

May 23 2012




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


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




Asset yields under pressure due to increased rivalry and increased liquidity

requirements

Exhibit 135: Asset Yields


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




And deposit rates unlikely to fall further

Exhibit 136: Deposit Rates


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




Exhibit 137: Deposits breakdown in FY 11A


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




Exhibit 138: NIM


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


May 23 2012



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




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


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




Exhibit 141: Change in Fees as % of FY 12e Net Profit


Exhibit 142: During FY 11A traded value was at its lowest point in 8years


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




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




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


-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




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


-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




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


Exhibit 148: Impact of re-renegotiation on fair value and provisioning


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




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




Exhibit 150: Past due but not impaired as % of total loans


Exhibit 151: Restructured loans as % of total loans


Exhibit 152: FY 11A Total NPLs


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




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


Exhibit 154: MENA Asset quality


Exhibit 155: NPL Ratio per market


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




Exhibit 156: Provision as % of loans


Exhibit 157: Coverage ratio per country


Our assumptions for PD and LGD

Exhibit 158: Comparison of our asset quality screen with Basel QIS5 and EU stress test


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


0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Bahrain Saudi Egypt Qatar Lebanon Oman Kuwait UAE


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




(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


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




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


Exhibit 163: Impact of re-renegotiation on fair value and provisioning


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




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


0%

5%

10%

15%

20%

25%

30%

CB

D

DIB

AD

CB

ENB

D

KFH

Rak

ban

k

UN

B

Tam

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el

Gu

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AD

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Bu

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Bo

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B

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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

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MU

SCA

T

Alb

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SIB

C

SAB

B

AA

AL

BSF

R

AN

B

QN

B

Sam

ba

Riy

ad

Alin

ma

May 23 2012




Exhibit 165: Loan loss charges % loans



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




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


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




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


Exhibit 168: ENBD’s government exposure


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




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.

http://www.centralbank.ae/en/pdf/notices/Notice_209_2012_Amendment_of_a_number_of_pages_Circular_no_16-93.pdf

http://www.centralbank.ae/en/pdf/notices/Notice_209_2012_Amendment_of_a_number_of_pages_Circular_no_16-93.pdf

May 23 2012




Exhibit 169: Government and PSE exposure as % of BIS


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




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


Exhibit 171: 3% decrease in FY 12e assets and loan growth


Exhibit 172: 25bps increase in CoE


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




Exhibit 173: 25bps increase in cost of funding


Exhibit 174: 10bps increase in LLP


Exhibit 175: Impact of a further 10% provisioning on Dubai World and Dubai Holding on target price in UAE


Exhibit 176: Impact of a further 10% provisioning on Dubai World and Dubai Holding on CET1 ratio in the UAE


-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




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




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




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


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




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


-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




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




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 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




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


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




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


-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




Exhibit 184: Net interbank position as percentage of total assets excluding cash


Exhibit 185: Net interbank position as percentage of total assets including investments


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


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


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




Exhibit 187: Maturity Gap as percentage of total assets


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




Exhibit 188: Deposits breakdown in FY 11A


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




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




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



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




Exhibit 189: Potential takeover targets


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




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%


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%


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%


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


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%


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%


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


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%


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%


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%


Nil premium 25% premium




May 23 2012




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%


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%


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%


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


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%


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%


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%


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


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%


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%


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%


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


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%)




May 23 2012




Exhibit 192: M&A Scenarios (continued)


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%


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%


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%


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%


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%


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


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%


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%


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


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



25% premium

20% premium 30% premium


Nil premium

May 23 2012




Exhibit 193: M&A Scenarios (continued)


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%


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%


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


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


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%


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%


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


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

May 23 2012




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




Exhibit 194: FY 12e RWA/Assets


Exhibit 195: FY 12e Revenues/RWA


Exhibit 196: FY 12e Costs/RWA


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




Exhibit 197: FY 12e Cost/Income


Exhibit 198: FY 12e PPP/RWA


Exhibit 199: FY 12e Cost of Risk/RWA


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




Exhibit 200: FY 12e Cost of Risk/Operating Profit


Exhibit 201: FY 12e Zakat/Tax as % of Operating Profit


Exhibit 202: FY 12e RoRWA*


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




Exhibit 203: RoRWA adjusted (in time)


Exhibit 204: FY 12e: ROaE vs. Adjusted ROE


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




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




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


Insurance Premiums (LHS) Growth (RHS)

May 23 2012




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%


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)


Exhibit 211: Insurance premiums (AEDmn) are expected to grow at a 6 year CAGR of 9.4%


0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

300

400

500

600

700

800

900



-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2,000

3,000

4,000

5,000

6,000

7,000

8,000



1.0%

1.5%

2.0%

2.5%

3.0%

700

900

1,100

1,300

1,500

1,700



0%

4%

8%

12%

16%

20%

24%

28%

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000



May 23 2012




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


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


Exhibit 215: Top 3 insurers dominate the Kuwait and Qatar


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%


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




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


Exhibit 217: Insurance companies carry little debt while investment portfolios still small


Exhibit 218: Considerable equity investments maintain sector yields at moderate rates


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%


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


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%


Yields on Investment

May 23 2012




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


Exhibit 221: Low gearing keeps equity levels high


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%


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


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


Equity/Assets Debt/Equity

May 23 2012




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




Exhibit 222: QIC net loss ratios jumped 12% in FY 11A due to reinsurance claims from the Fukushima disaster


Exhibit 223: Salama’s combined ratios are the highest at 100%, leaving little room for underwriting profit


Exhibit 224: Catastrophes in the far east pumped QIC’s net loss ratios in FY 11A and FY 12e


Exhibit 225: Salama’s combined ratio is expected to stabilize at 99%, diminishing underwriting profit


Exhibit 226: Tawuniya’s exposure to the medical segment will increase net loss ratios to 74% in the long run


Exhibit 227: MedGulf’s heavy reliance on the medical segment is pushing combined ratios up


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%



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%



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

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




Exhibit 228: Tawuniya and QIC have low operating RoEs due to high net loss ratios for FY 12e which are not expected to persist


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


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




Exhibit 230: Despite falling investment yields ROEs are expected to remain high for QIC


Exhibit 231: Improving investment yields and a growing investment book will drive Salama’s ROEs upwards


Exhibit 232: We expect Tawuniya’s ROEs to recover back to 20% after a drop in FY 12e and FY 13e


Exhibit 233: MedGulf’s RoEs are expected to recover to 18% from a drop in FY 12e and FY 13e


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%


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%


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%



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%



May 23 2012




Exhibit 234: Investment income elevates QIC’s earnings margins to 26%, despite underwriting margins of 4%


Exhibit 235: Contrary to the sector, Medgulf’s earnings margin are lower than underwriting margins


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




Exhibit 237: Medgulf’s substantially low yields disable investments from contributing to earnings


Exhibit 238: Investment returns are a major component of Salama’s income due to low underwriting margins


Exhibit 239: Combined ratios and RoEs generally move in parallel in the long run


Exhibit 240: High combined ratios reduce Salama’s RoEs far lower than industry levels


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




Exhibit 241: Companies in KSA cede smaller portions of their GWP, pushing NEP/GWP upwards


Exhibit 242: Cession ratios of c.45% push down QIC’s NEP/GWP to near 55% levels


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




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


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 (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


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



Exhibit 245: Asset quality screen (continued)


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



Exhibit 246: Average PD and LGD


% 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 (bank, insurance and diversified financials) © Copyright 2012, Arqaam Capital Limited. All Rights Reserved.

See Important Notice. 174

Exhibit 247: Asset quality screen: Government loans


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




Exhibit 248: Asset quality: Banks & FI loans


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 --



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




Exhibit 249: Asset quality screen: Corporate property and construction loans


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




Exhibit 250: Asset quality screen: Corporate non-property and construction loans


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




Exhibit 251: Asset quality screen: SME loans


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



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




Exhibit 252: Asset quality screen: Mortgages


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




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




Associates

Exhibit 253: UAE banks’ associates


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




Exhibit 254: Qatar banks’ associates


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




Exhibit 255: Egyptian banks’ associates


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




Exhibit 256: Saudi banks’ associates


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




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




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




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


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 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


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%



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 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


Net interest income 652 653 (0.2%) 629 654 (3.8%) 3.7% (0.1%)


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 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




ENBD Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 1,752 1,777 (1.4%) 1,731 1,648 5.0% 1.2% 7.8%


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 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


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 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 109,923 104,580 5.1% 98,598 97,064 1.6% 11.5% 7.7%


MASHREQ Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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 37,930 37,159 2.1% 38,095 40,022 (4.8%) (0.4%) (7.2%)


NBAD Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 2,102 2,030 3.6% 2,007 1,881 6.7% 4.7% 7.9%


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 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





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


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 19,067 18,877 1.0% 17,516 17,184 1.9% 8.9% 9.9%


UNB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y



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%



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 59,851 58,091 3.0% 56,244 56,292 (0.1%) 6.4% 3.2%


TAMWEEL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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 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




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




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


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 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 43,427 42,011 3.4% 39,788 34,808 14.3% 9.1% 20.7%


QNB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 2,898 2,769 4.7% 2,291 2,210 3.7% 26.5% 25.3%


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 206,500 201,210 2.6% 150,526 140,701 7.0% 37.2% 43.0%


Doha Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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%)


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 30,601 29,543 3.6% 27,714 26,114 6.1% 10.4% 13.1%


Masraf Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




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 37,763 35,965 5.0% 28,331 26,520 6.8% 33.3% 35.6%


May 23 2012





QIIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 238 249 (4.2%) 224 201 11.4% 6.3% 23.7%


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 10,990 10,531 4.4% 10,122 11,050 (8.4%) 8.6% (4.7%)


QIB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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%



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 32,574 31,898 2.1% 24,727 24,744 (0.1%) 31.7% 28.9%


Khaliji Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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 12,112 11,557 4.8% 8,456 8,049 5.1% 43.2% 43.6%


May 23 2012




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




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


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%)


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 42,068 40,053 5.0% 37,248 36,386 2.4% 12.9% 10.1%


CAE Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 275 247 11.3% 197 210 (6.0%) 39.3% 17.7%


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%


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 12,738 12,636 0.8% 11,274 11,488 (1.9%) 13.0% 10.0%


NSGB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 906 838 8.2% 737 735 0.3% 22.9% 14.0%



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 36,006 34,683 3.8% 33,752 32,813 2.9% 6.7% 5.7%


HDB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y



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%


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 6,708 6,575 2.0% 6,307 6,277 0.5% 6.4% 4.7%


May 23 2012





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



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%



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 3,208 3,113 3.1% 3,289 3,299 (0.3%) (2.5%) (5.6%)


May 23 2012




Exhibit 260: Lebanese banks Q2 12e earnings preview


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



Total income 392 410 (4.3%) 358 362 (1.0%) 9.5% 13.2%



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 13,465 13,365 0.7% 12,914 13,058 (1.1%) 4.3% 2.4%


Blom Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 278 333 (16.7%) 254 264 (3.8%) 9.4% 26.4%



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 8,810 8,558 2.9% 8,329 8,119 2.6% 5.8% 5.4%


Byblos Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 109 90 21.4% 105 114 (8.3%) 3.9% (21.5%)


Total income 176 179 (1.6%) 173 166 4.0% 1.7% 7.5%



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 6,252 6,073 3.0% 5,916 5,681 4.1% 5.7% 6.9%


Bank of Beirut Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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%



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 5,129 4,795 7.0% 4,807 4,595 4.6% 6.7% 4.4%


May 23 2012




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




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%)


Total income 1,185 1,196 (0.9%) 1,158 1,114 4.0% 2.3% 7.3%



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 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



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 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 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




Total income 1,260 1,220 3.3% 1,163 1,150 1.1% 8.4% 6.1%



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 99,719 97,477 2.3% 85,200 83,944 1.5% 17.0% 16.1%


RIBL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 1,114 1,068 4.3% 1,067 984 8.4% 4.4% 8.6%


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 116,310 113,695 2.3% 112,139 110,576 1.4% 3.7% 2.8%


May 23 2012




SAMBA Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 1,095 1,064 2.9% 1,133 1,069 6.0% (3.4%) (0.5%)


Total income 1,717 1,796 (4.4%) 1,635 1,701 (3.9%) 5.0% 5.6%


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 94,731 92,783 2.1% 82,366 81,320 1.3% 15.0% 14.1%


SABB Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 1,331 1,235 7.8% 1,348 1,220 10.5% (1.2%) 1.3%


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 94,656 91,190 3.8% 82,354 79,818 3.2% 14.9% 14.2%


AAAL Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 541 540 0.3% 495 485 2.1% 9.3% 11.3%



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 41,392 40,187 3.0% 35,921 34,917 2.9% 15.2% 15.1%


ALBI Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 393 420 (6.4%) 338 308 9.6% 16.3% 36.1%



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 16,508 15,062 9.6% 13,017 13,013 0.0% 26.8% 15.7%


May 23 2012





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




Total income 401 427 (6.0%) 308 276 11.6% 30.2% 54.6%



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 25,822 25,070 3.0% 21,783 22,034 (1.1%) 18.5% 13.8%


SIBC Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


Net interest income 290 291 (0.2%) 322 316 2.0% (10.0%) (8.1%)


Total income 406 459 (11.4%) 425 414 2.5% (4.3%) 10.7%



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 28,666 27,981 2.5% 30,468 30,634 (0.5%) (5.9%) (8.7%)


ALINMA Arqaam Capital Reported q/q Reported Reported q/q y/y y/y



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% --


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 30,023 27,607 8.7% 24,064 22,503 6.9% 24.8% 22.7%


May 23 2012




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




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


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%



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 8,346 8,271 0.9% 7,866 7,912 (0.6%) 6.1% 4.5%


KFH Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 148 132 12.2% 137 141 (2.7%) 8.3% (6.0%)


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 6,972 6,769 3.0% 7,074 6,489 9.0% (1.4%) 4.3%


Gulf Bank Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 40 44 (8.7%) 44 38 15.7% (8.2%) 16.3%



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 3,429 3,365 1.9% 3,288 3,279 0.3% 4.3% 2.6%


Burgan Bank Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 46 43 7.3% 43 39 10.0% 7.2% 9.8%



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 2,447 2,406 1.7% 2,152 2,147 0.2% 13.7% 12.1%


May 23 2012





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



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 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 1,102 1,092 0.9% 920 889 3.5% 19.8% 22.8%


May 23 2012




Exhibit 263: Omani banks Q2 12e earnings preview


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



Total income 81 79 2.7% 71 76 (7.6%) 14.9% 3.4%


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 5,138 4,988 3.0% 4,267 3,999 6.7% 20.4% 24.7%


Bank Sohar Arqaam Capital Reported q/q Reported Reported q/q y/y y/y




Total income 12 13 (2.7%) 11 10 8.6% 13.3% 26.4%



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 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




Total income 13 11 20.9% 10 11 (6.5%) 24.7% (3.6%)


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 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




Exhibit 264: Bahrain bank: Q2 12e earnings preview


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


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%



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 16,233 15,946 1.8% 14,877 14,641 1.6% 9.1% 8.9%


May 23 2012




Exhibit 265: Insurance companies: Q2 12e earnings preview


QIC Arqaam Capital Reported q/q Reported Reported q/q y/y y/y


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


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


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


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




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


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




Exhibit 268: Bank bonds’ yield vs. FY 11A LCR


Exhibit 269: Bank bonds’ yield vs. FY 12e CET1


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




Exhibit 270: Bank bonds’ yield vs. FY 12e RORWA


Exhibit 271: Bank bonds’ yield vs. Rating Scorecard


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




Exhibit 272: Sovereign bonds yield vs. CDS (bps)


Exhibit 273: Sovereign bonds yield vs. Maturity


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




Exhibit 274: Sovereign bonds yield vs. Rating Scorecard


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



Currency exposures

Exhibit 276: Net Currency Exposure as % of Shareholder's Equity


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



Exhibit 277: Net Currency Exposure as % of Shareholder's Equity (Continued)


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




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




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




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




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




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




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




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




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




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


3/31/2011 QAR 158.0BUY


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


10/17/2011

3/31/2011 QAR 158.0BUY


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


10/17/2011

3/31/2011 QAR 158.0BUY


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




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


10/17/2011

3/31/2011 QAR 158.0BUY


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


3/31/2011 QAR 158.0BUY


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


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


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




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


10/17/2011


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


10/17/2011


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


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


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




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


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


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


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


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




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


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


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


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


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




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


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


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


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


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




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


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


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



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


3/31/2011


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




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


3/31/2011


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



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


3/31/2011


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



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




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


3/31/2011


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



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


7/13/2011


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



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




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


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


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


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


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




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


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


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


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


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




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


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


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


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


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




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


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


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


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


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




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


Exhibit 333: Arqaam Equity Research distribution total coverage (78), as of 23 May 2012


Date

5/23/2012


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


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




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.

2. Purpose This document is provided for informational purposes only. Nothing contained in this document constitutes investment, legal, tax or other advice or guidance and should be disregarded when considering or making

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

any material changes to the analyst’s outlook on a company. Share price volatility may cause a stock to move outside the rating range implied by Arqaam’s fair value target. Analysts may not necessarily change their

ratings ifn this happens, but are expected to disclose the rationale behind their view to Arqaam clients.

4. Accuracy of information The information contained in this document is based on current trade, statistical and other public information we consider reliable. We do not represent or warrant that such information is accurate or complete and it should not be relied upon as such. Any mention of market rumours has been derived from the markets and is not purported to be fact or reflect our opinions. Arqaam has no obligation to update, modify or amend this document or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. In accordance with Regulation AC of the 1934 Exchange Act, the views expressed in this research report accurately reflect the research analysts’ personal views about the subject securities or issuers and are subject to change without notice. No part of the research analysts’ compensation is related to the specific recommendations or views in the research report.

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6. Risk warnings 6.1 Any prices, valuations or forecasts are indicative and are not intended to predict actual results, which may differ substantially from those reflected.

6.2 The value of an investment may go up as well as down. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including, without

limitation, foreseeable or unforeseeable changes in interest rates, foreign exchange rates, default rates, prepayment rates, political or financial conditions, etc.).

6.3 Past performance is not indicative of future results. Any opinions, estimates, valuations or projections (target prices and ratings in particular) are inherently imprecise and a matter of judgment. They are statements

of opinion and not of fact, based on current expectations, estimates and projections, and rely on beliefs and assumptions. Actual outcomes and returns may differ materially from what is expressed or forecasted. There

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

this document. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this

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7.2 Arqaam may have or seek investment banking or other business relationships for which it will receive compensation from the companies that are the subject of this document.

7.3 Facts and views presented in this document have not been reviewed by, and may not reflect information known to, professionals in other Arqaam business areas, including investment banking personnel.

7.4 Emirates NBD PJSC owns 8.32% of Arqaam.

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