Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

United arab emirates Financials / Thematic (Sector/Industry)

Middle Eastern banks entered the COVID crisis and ahead of the "Quant Quake" and negative crude blow-up technicality with relatively subpar trends versus other jurisdictions. Our PH Score identified a number of the more fashionable larger names with low rankings by value-quality.Over the last 5 years, we have seen -in specific markets- elevated growth of NPLs, especially in Qatar and Saudi Arabia. (In the latter, credit growth has actually been quite restrained). In the aforementioned spaces, there has been a trend of reduced Liquidity and higher credit costs. Profit expansion has been minimal and Profitability has reduced. It is noteworthy that Capital Adequacy has been fortified in Saudi Arabia over this period.Bahrain and Kuwait have seen deterioration in Asset Quality too. Similar to Saudi Arabia, Balance Sheet expansion has been quite mild. Liquidity, Profitability, NIM, and credit costs in Bahrain and Kuwait have generally moved in the right direction or been stable.In the UAE, Profitability has been on a downward path though Efficiency has improved and credit costs have been stable. Problem Loans and the overall Balance Sheet have expanded at a fair clip too- though not at the pace of Qatar. In Egypt, where the FX has been more volatile, of course distinct from the other regimes, some Balance Sheet metrics have improved though Profitability has decreased from a high base.In terms of valuation, Qatar, Saudi Arabia, and Kuwait trade at premium ratings. Adding UAE, these markets appear priced for reflation and a V-shaped recovery. Conversely, Bahrain and Egypt trade at a discount given perceived macro risk.

Middle Eastern banks entered the COVID crisis and ahead of the "Quant Quake" and negative crude blow-up technicality with relatively subpar trends versus other jurisdictions. Our PH Score identified a number of the more fashionable larger names with low rankings by value-quality.Over the last 5 years, we have seen -in specific markets- elevated growth of NPLs, especially in Qatar and Saudi Arabia. (In the latter, credit growth has actually been quite restrained). In the aforementioned spaces, there has been a trend of reduced Liquidity and higher credit costs. Profit expansion has been minimal and Profitability has reduced. It is noteworthy that Capital Adequacy has been fortified in Saudi Arabia over this period.Bahrain and Kuwait have seen deterioration in Asset Quality too. Similar to Saudi Arabia, Balance Sheet expansion has been quite mild. Liquidity, Profitability, NIM, and credit costs in Bahrain and Kuwait have generally moved in the right direction or been stable.In the UAE, Profitability has been on a downward path though Efficiency has improved and credit costs have been stable. Problem Loans and the overall Balance Sheet have expanded at a fair clip too- though not at the pace of Qatar. In Egypt, where the FX has been more volatile, of course distinct from the other regimes, some Balance Sheet metrics have improved though Profitability has decreased from a high base.In terms of valuation, Qatar, Saudi Arabia, and Kuwait trade at premium ratings. Adding UAE, these markets appear priced for reflation and a V-shaped recovery. Conversely, Bahrain and Egypt trade at a discount given perceived macro risk. 

Middle Eastern Banks: Rich Multiples Price in More Reflation than Deflation