SICO cuts outlook for Saudi banks to “neutral” on lower hike expectations

SICO Investment Bank has cut its recommendation on Saudi Arabia’s banks to “neutral” from “buy” amid lower rate hike expectations.

“After the recent rally on FTSE/ MSCI related flows, fundamentally we see limited upside, although the momentum may continue,” the investment bank said in a recent report.

A ‘buy’ recommendation was affirmed on Arab National Bank (ANB), Banque Saudi Fransi (BSF), Riyad Bank and Saudi British Bank (SABB).

SICO assigned a “neutral” rating to Al Rajhi Bank and National Commercial Bank (NCB), while upgrading Alinma Bank to “neutral” and downgrading Samba Financial Group to “sell”.

ANB was selected as a top pick, as active investors may eventually look to take position in the stock. Riyad Bank was also favored, driven by the stock’s high weight in the MSCI index and the potential merger with NCB.

“Saudi banking sector is likely to report 5-6 percent lending growth in 2019, originating primarily in H2 2019, while supported by stable provisions and NIM expansion. We expect banks with a solid consumer banking franchise, to report stronger performance,” SICO added.

The Kingdom’s banks are unlikely to attract many active managers, the report said.