DUBAI: International investors are being attracted to Saudi banks on the back of the Kingdom’s $2.75 trillion 10-year investment program, according to a senior Bank of America analyst.
It comes amid a rally in Saudi stocks, which have ended higher in 11 of the last 12 sessions, driven by the financials sector.
Hootan Yazhari who heads global frontier market equity research at Bank of America (BofA), told Bloomberg TV on Thursday that Saudi banks represented an attractive investment despite uncertainty around US interest rates which are a key driver for lenders in the Kingdom because of Saudi Arabia’s currency peg to the dollar. This means that interest rates in Saudi Arabia and in other Gulf states with dollar pegs tend to follow the lead taken by the Fed.
“We don’t expect the Fed to increase rates until 2024,” said Yazhari. “Now the reality is that until we see those rate hikes coming through, we are not necessarily going to see a tangible impact on SAIBOR (Saudi Arabia’s inter-bank borrowing rates) which is ultimately what drives the rates that the banks are able to benefit from.”
Instead, Saudi banks are more broadly seen as beneficiaries from the government’s massive investment program announced earlier this year which has caught the attention of international investors.
Among the lenders best able to tap this growth is Saudi British Bank according to Yazhari, who also sees the bank as the best positioned to prosper from any interest-rate hike.
“We think Saudi British is a bank that really puts its breaks on risk and as a result they lost a significant amount of market share,” he said. “There is a new management team on board now, a new CEO with a markets background . . . a new CFO in place. They have just articulated their new five-year strategy. They are looking to take their rightful market share — to gain back the market share that is commensurate with the size of their asset base,” he said