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Middle East United Arab EmiratesBanking
10 April 2011
MENA Banks
Q1 11 preview - core GCC
markets remain resilientRahul ShahResearch Analyst
(+971) 4 4283-261
Ryan AyacheResearch Analyst
(+971) 4 428-3781
Egypt, Lebanon banks most affected by recent events; Qatar, UAE resilientWe present our Q1 11 forecasts and our assessment of the key issues facing thesector. We believe Qatar and UAE bank results should be largely immune to theevents that have engulfed the region. Saudi banks should also be minimallyaffected, save for the one-off salary boost given to workers. The Egyptianeconomy was disrupted in Q1, although better times are likely ahead; theLebanese banks (and NBAD) may provide the earliest indicators of how events inthe country have affected local banks. Top picks: ENBD, FGB, MAR, QNB, Rajhi.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from loca
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firmmay have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 007/05/2010
Industry Update
Top picksQatar National Bank (QNBK.QA),QAR142.80 Buy
First Gulf Bank (FGB.AD),AED16.45 Buy
Al Rajhi Bank (1120.SE),SAR77.25 Buy
Masraf Al Rayan (MARK.QA),QAR24.10 Buy
Emirates NBD (ENBD.DU),AED3.47 Buy
Banks Cur (m) Net income (Q1 11)
Riyad Bank SAR 67
Bank Aljazira SAR 1
Saudi Investment Bank SAR 18
Saudi Hollandi Bank SAR 20
Banque Saudi Fransi SAR 68
Saudi British Bank SAR 51
Arab National Bank SAR 49
Samba Financial Group SAR 104
Al Rajhi Bank SAR 160
Bank Albilad SAR 1
National Bank of Abu Dhabi AED 101
Abu Dhabi Commercial Bank AED 51
First Gulf Bank AED 101
Emirates NBD AED 225
Dubai Islamic Bank AED 26
Commercial Bank of Qatar QAR 49
Doha Bank QAR 97
Qatar Islamic Bank QAR 50
Masraf Al Rayan QAR 52
BLOM Bank* LBP 13
Bank Audi* LBP 10
* Figures in bn
Source: Deutsche Bank
Companies featuredRiyad Bank (1010.SE),SAR26.30 Buy
Bank Aljazira (1020.SE),SAR20.05 Sell
Saudi Investment Bank (1030.SE),SAR20.25 Hold
Saudi Hollandi Bank (1040.SE),SAR30.80 Buy
Banque Saudi Fransi (1050.SE),SAR50.00 Hold
Saudi British Bank (1060.SE) ,SAR45.50 Hold
Arab National Bank (1080.SE),SAR34.80 HoldSamba Financial Group (1090.SE),SAR56.50 Hold
Al Rajhi Bank (1120.SE),SAR77.25 Buy
Bank Albilad (1140.SE),SAR19.45 Sell
Alinma Bank (1150.SE),SAR10.00 No
Abu Dhabi Comm Bank (ADCB.AD),AED2.57 Hold
Bank Audi (AUDI.BY),USD7.12 Buy
Blom Bank (BLOM.BY),USD9.00 Buy
Dubai Islamic Bank (DISB.DU),AED2.16 Sell
First Gulf Bank (FGB.AD),AED16.45 Buy
Emirates NBD (ENBD.DU),AED3.47 Buy
Nat Bank of Abu Dhabi (NBAD.AD),AED10.45 Buy
Qatar National Bank (QNBK.QA),QAR142.80 Buy
Commercial bank (COMB.QA),QAR76.00 Buy
Doha Bank (DOBK.QA),QAR58.00 Hold
Qatar Islamic Bank (QISB.QA),QAR84.00 Buy
Masraf Al Rayan (MARK.QA),QAR24.10 Buy
CIB (COMI.CA),EGP31.58 Hold
NSGB (NSGB.CA),EGP39.78 Hold
EFG Hermes (HRHO.CA),EGP21.51 Hold
GlobalMarketsResea
rch
Qatar earnings boosted by QCB bond and government spendingWe expect record earnings in Q1 for Qatari banks and excellent FY numbers aswell. System liquidity is at an all-time high due to peak LNG production and solidglobal energy prices. As such, funding costs continue to be favorable, whilesystem assets received a huge boost by the QCBs QAR50bn bond and sukukissuance to domestic banks in January. High levels of government spendingshould continue to provide the bulk of credit growth. Top picks: QNB and MAR.
Saudi banks one-off salary boost to hit bottom line in Q1We believe the Saudi banks will likely seek to emulate the recently announced twomonth extra salary being awarded to public sector employees. While this shouldhave a limited impact on FY results, the effect in Q1 could be more material. Yet,we believe investor sentiment should be more closely driven by loan volumegrowth; we see momentum slowly improving. Announced stimulatory measuresshould lift corporate credit demand; the anticipated Mortgage Law could boost
demand for housing loans. Al Rajhi, Saudi Hollandi, Riyad are Buy rated.UAE banks lower risk costs to fuel earnings growthWe believe the pace of the new NPL formation is likely to slow significantly,reflecting a sharp moderation in real estate price deflation and improvingeconomic activity. Volume trends are likely to be muted, although Abu Dhabibased banks should continue to pick up market share. Top picks: FGB, ENBD
Lebanese banks growth still likely despite hitting Egyptian speed bumpPolitical uncertainty is likely to have had a dampening effect on deposit growth inthe domestic business, but the main consequences of recent regional turmoil islikely to have been felt in the Egyptian operations, where we saw minimal volumegrowth and a pick-up in provisions. However, we continue to expect decent(double-digit) earnings growth this year. We have Buy ratings on Audi and BLOM.
Valuation and risksWe value the MENA banks using a two-stage Gordon Growth Model that basestarget prices on discounted terminal value and adds back the discounted value ofinterim dividends. Median inputs across MENA banks include a 5% risk-free rate,7% equity risk premium, 1.0 beta, 4% terminal growth and 19% mid-cycle ROE.Key risks include: the possibility of further significant asset quality deterioration,potentially arising from political/economic uncertainty; the prospect of restrictedaccess to wholesale funding markets; regulatory pressure to increase provisioning,solvency or liquidity; and the scope for margin erosion due to enhancedcompetition.
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Qatar
Main investment themes
The QAR50bn QCB bond will likely boost earnings and asset growthThe QCBs January issue of QAR50bn of conventional and Islamic paper (5% coupon, three
year tenor, zero RW) should be a major theme underlying earnings and assets growth in
FY11. The biggest relative gainers are MAR (QAR10bn allocation) and QIB (QAR9bn
allocation), which will see assets rise significantly in Q1: 31% QoQ growth for the former,
19% QoQ growth for the latter. The allocations should also boost earnings and again the
same two banks will likely be key beneficiaries, though DHB should also see a nice boost to
its bottom line. The smallest allocation was given to CBQ (QAR1.5bn), and consequently, we
expect it to derive comparatively smaller benefits in terms of its assets and earnings growth.
Government spending remains the defining feature of the market
High levels of government spending, channeled through various means such as semi-
government agencies, will likely remain the defining source of credit demand in the domesticmarkets for the foreseeable future. While we believe that private sector and retail credit
demand is likely to improve from FY10 levels on a YoY basis, this should still account for a far
smaller share of growth than the public sector at large. The key beneficiaries are banks with
proportionally higher share of government ownership, QNB and MAR, and banks whose loan
book has a high historical bias toward the public sector, again QNB and MAR.
Record liquidity supports low funding costs, but should eventually pressure margins
Peak LNG production capacity was reached in Q4 last year. Combined with rising energy
prices in Q1, this means that state liquidity levels are exceptionally high. Deposit growth is
therefore likely to remain exceedingly solid, given the high share of public sector funding in
the banking system at close to 30%. Deposit costs have already fallen substantially YoY in
FY10 between 50bps and 150bps at our banks and are likely to remain subdued this year.
It is therefore only a matter of time before asset yields also come under pressure. Thus, we
expect NIMs to remain broadly flat YoY as the asset pricing lag effect begins to weigh on
margins by H1.
Asset quality remains solid; DHB and CBQ will likely charge lower risk costs
NPLs have never been a defining issue for Qatari banks, with QNB, QIB and MAR at or below
1% NPL. CBQ and DHB, on the other hand, did see a rise in non-performing loans in FY09/10,
and have paid the price in terms of risk costs. CBQs risk costs already dropped significantly
in FY10, but we see scope for the bank to further lower these by around 10bps to 40bps of
net loans. Investment provisions should also fall, contributing to better earnings. For DHB this
trend is likely to be more pronounced we expect it to lower its risk costs by around 20bps
to 90bps of net loans. Lower investment provisions should also help to boost earnings
further. We believe lower risk-cost dynamic will not impact QNB, MAR or QIB, as we thinkthese names are elsewhere on the asset quality cycle.
What has changed?
The main change for Qatari banks is the skewed earnings and asset growth resulting from
the QCB bond. Funding and credit sources and overall earnings directions are otherwise
broadly similar to FY10. The impact of the regional unrest on Qatari banks should be minimal.
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Top picks
Our top picks in the sector are QNB and MAR. In essence, we view Qatari banks as a play on
state liquidity and spending. Proximity to the government in terms of ownership and loan
book bias has historically been a good guide as to the direction of governmental flows. This
premise underlies our preference for these names on a thematic basis, as these banks enjoy
the highest government ownership and the highest bias to the public sector in theirrespective loan books. The implication of the mix of ownership and proximity to government
is seen in deposit volumes, asset growth and asset quality on all counts, both QNB and
MAR score exceptionally well.
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Saudi Arabia
Main investment themes
How rapidly will credit growth recover?Loan growth has been extremely weak since mid 2008, but growth rates have steadily
improved since September 2010; credit growth now stands at 5% versus the long-term trend
growth rate of 12%. While retail credit growth has been running at high single-digit levels,
corporate credit (which accounts for two-thirds of system loans) has been broadly stagnant.
We believe improving corporate profitability, strong sales growth and a supportive macro
environment (high oil prices and strong fiscal support), should (over time) lead to a robust
recovery in corporate credit demand.
Have NPLs peaked?
At December 2010, system NPLs/loans stood at 2.9%, marking an improvement from the
June 10 (3.2%) and December 2009 (3.3%) levels. While heightened political tensions in the
MENA region have highlighted that the potential for asset quality deterioration exists, webelieve the Saudi banks should be relatively sheltered from any fallout, reflecting their focus
on the domestic market.
When will margins improve?
Saudi banking margins declined from 3.7% in 2007 to 2.9% currently. The biggest driver of
this downtrend has been accommodative monetary policy, although lower risk appetite by
the banks has also likely contributed. Stronger loan growth should boost margins, as this is
likely to allow the banks to shift out of currently high holdings of liquid assets. Saudi banks
margins are the most positively exposed within the GCC to any normalization in interest
rates.
What has changed?
Q4 10 results were 12% above our forecasts, reflecting lower-than-expected loan impairment
charges. This signals to us that: 1) regulatory pressure to lift coverage ratios has eased we
note that the sector coverage ratio now stands at 115% and 2) asset quality trends appear to
have stabilised NPLs could start to decline if economic growth (aided by expansionary fiscal
policies) persists. While we regard recent stimulatory measures as positive, Q1 results are
likely to be affected by measures to match the recently announced one-off salary boost for
public sector workers.
Top picks
Al Rajhi Bank is the largest retail bank (hence being exposed to current positive consumer
credit trends) with the size and capital strength to participate in public infrastructure projects.
We believe above average profitability and superior loan quality support high valuation
multiples.
Riyad Bank is one of the largest banks in the Kingdom, well capitalized and with strong links
to the public sector. It should be well placed to benefit from growing infrastructure
investment and should also be able to boost market share in the growing retail banking
segment, where the bank is now significantly under-represented.
Least preferred
Bank Albilad is a 2005 start up, which is winning market share as the franchise builds critical
mass. However, the banks cost efficiency significantly lags that of its peers (65% cost-
income ratio), while loan quality (5.8% NPLs/loans) and provisions coverage (89%) also
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compare unfavourably. We note that the consumer loan book grew by 54% in 2010 (to 36%
of all lending); expansion at this pace could result in additional NPLs crystallizing in the future.
Bank Aljazira the bank has been winning banking market share in recent years as
management has sought to grow the balance sheet to offset sharply declining brokerage
revenues (to which Aljazira is heavily exposed). However, rapid credit growth may have
contributed to high NPLs (7% of the loan book); high credit risk costs and low operatingefficiency (69% cost-income ratio) have resulted in depressed profitability.
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UAE
Main investment themes
Where do we stand in the asset write-down cycle?UAE banks experienced a significant deterioration in asset quality over the past two years
the effect of a sharp decline in local real estate values, a dramatic slowdown in economic
growth and much tighter liquidity conditions. In our view, we are likely to see a further
increase in non-performing loans in 2011, although the pace of deterioration is likely to slow
considerably, which in turn could allow for risk costs to decline YoY.
Do the banks have sufficient capital and liquidity?
One of the key concerns for investors, and a key factor in the lowly rating of the UAE banking
shares, relates to the level of capital available to absorb asset write-downs. However, the
sectors capital adequacy ratio actually increased from 19.2% to 20.8% in 2010, reflecting
the high structural profitability of the sector and limited risk-weighted asset growth. Liquidity
has improved slightly; the gross loans-deposits ratio declined from 108% to 105% in theyear, while three-month EIBOR has declined below 2.15% from a peak of 2.35% last
summer. However, we believe UAE banks should continue to make concerted efforts to
secure more stable funding.
Will the banks be able to deliver much credit growth?
System loan growth is currently running at 3% YoY. While strong oil prices and rising public
spending, combined with a recovery in tourism and trade are all supportive factors, we
believe banks should continue to deleverage, which suggests to us that system credit growth
will likely remain at single-digit levels. We believe Abu Dhabi-based banks will likely grow
faster than their Dubai-based peers.
What has changed?FY10 results indicate that most banks were profitable in the year, despite experiencing higher
volumes of impaired loans (most notably due to their exposure to Dubai World) and taking
write-downs against real estate. Dubai is benefitting from rising trade flows, while tourism
levels are also improving. High oil prices should underpin fiscal spending, suggesting Abu
Dhabi will likely benefit from high levels of public infrastructure spending.
According to the UAE Central Bank data, total assets were up 10%, loans increased 3% and
the deposit base expanded 13% in the year up to February 2011.
Top picks
FGB is structurally one of the most profitable UAE banks, reflecting above average marginsand the lowest cost-income ratio in the system. Unlike many of its peers, the volume of NPLs
trended lower in the latter part of 2010 as the bank ramped up collection efforts. FGBs CEO
recently commented that the bank may see double digit loan growth in 2011.
ENBD is the largest bank in the UAE and is 56%-owned by ICD, an investment vehicle of the
Dubai government; ENBDs fortunes are closely linked to those of Dubai. In this context, the
sharp recovery in the trade and tourism industries is positive, although the overhang of an
oversupplied real estate market remains. Management has made positive progress in areas
under its control, namely operating costs (down 14% YoY) and liquidity (loans/deposits now
stand at 105%, versus a peak of 132% previously). Q1 results are likely to benefit from a
significant gain arising from the sale of a minority stake in Network International.
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Least preferred
Dubai Islamic Bank took control of mortgage lender, Tamweel, toward the end of 2010. As a
result, real estate-related lending now accounts for over half of the banks loan book. We
believe UAE real estate prices will likely remain depressed, which may put further pressure
on the banks asset quality.
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Lebanon
Main investment themes
Heightened local and regional tensionsPolitical uncertainty in Lebanon increased following the ousting of Saad Hariri as Prime
Minister and the subsequent appointment of Najib Mikati to this role. However, these events
have subsequently been overshadowed by widespread protests that have taken place across
the MENA region, some of which have resulted in regime change and others which may yet
do so.
Resilience of deposit inflows
Banking system data for early 2011 has yet to be released, but money supply data is
consistent with YoY deposit growth of about 10%, suggesting that while there may have
been some pullback in deposit flows, overall growth trends have been broadly maintained.
Ability of the banks to continue growing their loan booksBank Audis loan book grew by 27% and BLOM Banks grew by 29% in 2010. While the
relaxation of regulations governing local LBP lending is supportive, the ability (and
willingness) of the banks to grow their lending elsewhere in the MENA region may be
constrained by political and economic uncertainty.
What has changed?
Q4 10 results were in line with our expectations and showed continued strong (28% YoY)
credit growth at both Bank Audi and BLOM Bank. However, the political turmoil that has
engulfed the MENA region since the New Year is likely to have an impact on both banks
international operations; Egypt, Jordan and Syria, in particular, are key to the banks regional
growth strategies. However, in terms of the Q1 11 results, we believe significant additional
provisioning should only be required against the banks Egyptian operations.Top picks
BLOM Bank is our preferred Lebanese bank. The bank is one of the more profitable in the
Lebanese banking system, on account of disciplined spread management and tight cost
control, while growing strongly in higher margin retail lending. The bank is also investing in
products and services, such as brokerage and asset management, which, over time, should
boost fee income levels.
Following YTD price declines, we believe Bank Audi is also an attractive investment. The bank
has a strong track record of earnings growth, even during times of political turmoil and
economic weakness. Successful revenue diversification efforts, combined with strong riskmanagement, in our view, should allow this growth trend to persist. While the current turmoil
will affect the banks MENA operations in the near term, we believe management is
committed to its regional expansion strategy.
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Valuation
Saudi banks are the most highly rated in our MENA coverage universe on a forward PE basis
(UAE and Lebanon the least). In PB terms, Qatar is the most highly rated (UAE the least).
Qatar and Lebanon banks offer the highest likely dividend yields (Saudi and Egypt the least).
Figure 1: Valuation metrics and stock performance for MENA and regional banking sector
P/E (x) P/B (x) Dividend yield (%) ROE (%) US$ Stock Performance(%)2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 1M 3M LTM
Al Rajhi Bank 17.4 13.8 11.4 3.8 3.4 3.0 3.9 4.5 5.3 22.4 25.9 28.4 8.7 (7.4) (9.1)
Arab National Bank 11.7 10.2 7.9 1.4 1.3 1.2 2.9 3.3 4.0 12.9 13.6 15.9 23.9 20.3 (0.2)
Bank Albilad 96.4 22.8 11.0 1.9 1.8 1.5 na 0.8 1.5 2.0 8.1 14.9 9.2 0.8 (7.8)
Bank Aljazira 50.7 22.1 12.0 1.2 1.2 1.2 0.8 3.2 4.0 1.4 5.6 9.9 24.4 12.4 (2.9)
Banque Saudi Fransi 13.0 11.3 9.5 2.0 1.8 1.6 2.3 2.6 3.0 16.1 16.5 17.4 25.5 7.6 2.6
Riyad Bank 15.3 11.5 8.6 1.4 1.3 1.2 3.8 5.7 6.8 9.0 11.5 14.6 20.0 (1.1) (13.4)
Samba Financial Group 11.3 10.2 9.0 2.0 1.8 1.6 2.9 3.5 4.2 18.9 18.4 18.4 21.8 (7.7) (3.8)
Saudi British Bank 17.7 14.2 9.5 2.3 2.1 1.8 1.1 1.7 2.4 13.8 15.3 20.1 24.3 11.7 (6.6)
Saudi Hollandi Bank 14.7 11.4 7.2 1.6 1.4 1.3 1.4 2.4 3.7 11.3 13.3 18.6 11.3 - (11.4)
Saudi Investment Bank 28.4 13.4 7.9 1.2 1.1 1.0 2.6 1.7 2.7 4.2 8.5 13.2 22.8 11.9 30.6
Saudi Median 16.3 12.5 9.2 1.8 1.6 1.4 2.6 2.9 3.9 12.1 13.4 16.62 22.3 4.2 -5.2
National Bank of Abu Dhabi 6.7 5.9 5.1 1.2 1.0 0.8 2.1 3.1 4.1 20.3 19.5 19.0 4.8 (0.5) 1.2
Abu Dhabi Commercial Bank 52.3 10.8 5.1 0.8 0.7 0.6 na 4.0 6.0 2.5 8.0 15.5 6.7 1.3 3.7
First Gulf Bank 8.1 6.1 4.6 1.1 0.9 0.8 3.8 4.7 5.6 14.9 17.7 20.3 5.9 (7.7) (6.4)
Emirates NBD 8.9 4.6 3.5 0.6 0.6 0.5 6.0 6.0 7.6 8.1 13.0 15.4 9.6 19.9 11.1
Dubai Islamic Bank 13.4 8.6 5.8 0.9 0.9 0.8 2.3 4.5 6.8 6.6 10.5 14.1 6.7 1.8 (17.6)
UAE Median 8.9 6.1 5.1 0.9 0.9 0.8 3.0 4.5 6.0 8.1 13.0 15.5 6.7 1.3 1.2
Qatar National Bank 9.6 7.9 6.6 2.3 1.9 1.5 2.1 2.5 3.0 26.6 26.4 25.4 1.9 0.6 1.7
Commercial Bank of Qatar 9.7 8.3 6.9 1.6 1.4 1.3 7.7 7.8 7.2 16.4 17.8 19.3 12.8 (16.3) 4.2
Doha Bank 9.8 8.7 7.3 2.1 1.9 1.6 8.2 4.6 5.5 22.0 22.8 24.0 6.4 (3.6) 31.1
Qatar Islamic Bank 14.6 11.0 8.7 2.0 1.8 1.6 5.4 5.7 6.0 14.8 17.5 19.8 20.2 (9.7) 15.5
Masraf Al Rayan 13.9 12.7 10.7 2.3 2.1 1.8 4.7 5.6 na 18.3 17.5 18.0 2.3 16.7 65.2
Qatar Median 9.8 8.7 7.3 2.1 1.9 1.6 5.4 5.6 5.8 18.3 17.8 19.8 6.4 (3.6) 15.5
COMI 8.6 10.3 9.5 2.2 1.9 1.6 3.1 2.4 3.2 28.8 19.7 18.2 (11.5) (32.9) (8.0)
NSGB 11.5 9.2 8.7 2.1 1.7 1.5 3.0 2.7 2.9 19.2 20.3 18.0 (11.8) (25.7) 16.7
EFG Hermes 12.7 25.6 11.0 0.9 0.9 0.8 13.7 4.6 4.6 7.3 3.6 7.9 (18.0) (37.1) (31.9)
Egypt Median 11.5 10.3 9.5 2.1 1.7 1.5 3.1 2.7 3.2 19.2 19.7 18.0 -11.8 -32.9 -8.0
Bank Audi 8.4 7.0 5.8 1.2 1.1 1.0 5.1 6.2 7.5 15.8 17.1 18.5 4.6 (9.5) (15.7)
BLOM Bank 6.3 5.4 4.7 1.2 1.0 0.9 5.1 6.1 7.2 19.7 20.1 20.0 (1.0) (3.7) (7.2)
Lebanon Median 7.4 6.2 5.2 1.2 1.1 0.9 5.1 6.1 7.4 17.8 18.6 19.2 1.8 -6.6 -11.5
Latin America Median 13.6 11.2 9.8 2.6 2.3 2.0 3.0 3.5 3.8 22.3 22.2 22.0 6.1 (2.2) 21.9
EMEA Median 13.2 10.5 8.6 1.8 1.6 1.3 3.3 3.9 4.9 13.5 15.3 17.5 10.0 7.8 3.7
Emerging Asia Median 15.1 13.3 10.9 1.9 1.8 1.5 1.9 2.4 2.9 15.7 15.7 15.8 9.0 3.6 24.3
GEMS Median 14.6 11.5 9.5 1.9 1.7 1.5 2.3 3.1 3.7 14.9 16.1 17.5 9.0 1.0 17.0
Developed Asia Median 13.0 11.9 10.5 1.0 1.0 1.4 3.4 3.7 4.8 8.7 10.1 13.5 -4.3 -5.4 1.6
Developed Europe Median 12.1 10.6 8.1 0.8 0.8 0.7 3.9 4.3 5.0 7.8 7.7 10.7 -2.2 8.9 -12.7
United States Median 14.8 13.7 11.0 1.1 1.0 1.0 0.6 1.0 1.8 8.4 8.1 9.2 -0.1 0.2 2.1
Developed Market Median 13.0 11.7 9.8 1.0 0.9 0.9 2.8 3.4 4.3 8.4 8.6 10.6 -1.5 3.1 -3.0
Source: Deutsche Bank, Bloomberg Finance LP, prices updated as of April 4th 2011
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All the MENA banking markets we cover are trading at a discount to their historical PB
averages; the discount is most pronounced in Egypt and the UAE. While consensus earnings
for the UAE and Qatar have proved resilient, expectations for the Saudi banking system have
been significantly curtailed over the past 12 months.
Figure 2: Current and historical PB ratios Figure 3: Consensus estimates for selected MENA
markets
3.1
2.7
1.6
2.1
1.4
1.8
2.1
0.91.1
1.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Saudi Arabia Qatar UAE Egypt Lebanon
x
Historical Average P/BV Current P/BV
70
85
100
115
M ar-10 Jun-10 Sep-10 Dec-10 M ar-11
Saudi Arabia Qatar UAE
Source: Deutsche Bank Source: Deutsche Bank, Bloomberg Finance LP
MENA bank share price performance has lagged CEEMEA YTD
Figure 4: YTD share price performance of selected banking markets
-35%
-25%
-15%
-5%
5%
15%
25%
Hungary
Poland
Austria
Russia
Czech
SaudiArabia
UAE
Israel
SouthAfrica
Qatar
Turkey
Lebanon
Egypt
Source: Deutsche Bank, Bloomberg Finance LP
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Figure 5: YTD share price performance; selected Saudi and UAE shares have
performed strongly
-40%
-30%
-20%
-10%
0%
10%
20%
AN
B
ADC
B
ENB
D
MAR
K
Aljazi
ra
SA
IB
SAB
B
BS
F
D
IB
SH
B
QN
B
Albilad
NBA
D
Riyad
DHB
K
BLO
M
AlRajhi
Samba
FG
B
AUDI
Q
IB
CB
Q
NSG
B
C
IB
EF
G
Source: Deutsche Bank, Bloomberg Finance LP
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Appendix 1
Important Disclosures
Additional information available upon requestFor disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Nabil Ahmed/Rahul Shah
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-
holder return (TSR = percentage change in share price
from current price to projected target price plus pro-
jected dividend yield ) , we recommend that investors
buy the stock.
Sell: Based on a current 12-month view of total share-
holder return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not recommendeither a Buy or Sell.
Notes:
1. Newly issued research recommendations and target
prices always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of
10% or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -
10% or worse over a 12-month period
58 %
36 %
6 %14 %
10 % 10 %0
100
200
300
400
500
600
Buy Hold Sell
Global Universe
Companies Covered Cos. w/ Banking Relationship
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10 April 2011 Banking MENA Banks
Deutsche Bank AG/London Page 15
Regulatory Disclosures
1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.
3. Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the AustralianCorporations Act.
Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) andits(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly
affected by revenues deriving from the business and financial transactions of Deutsche Bank.
EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures.Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registrationnumber - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.
Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock
transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction
amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price
fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange
fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered as rating agency in Japan
unless specifically indicated as Japan entities of such rating agencies.New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of theNew Zealand Securities Market Act 1988.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, anyappraisal or evaluation activity requiring a license in the Russian Federation.
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Deutsche Bank AG/London
Middle East locations
Deutsche Bank Dubai
Dubai International Financial Centre
The Gate, West Wing, Level 3
P.O. Box 504 902
Dubai City
Tel: (971) 4 3611 700
Deutsche Bank Saudi Arabia
Al Faisaliah Tower
17th & 28th Floor
Olaya, Riyadh
Saudi Arabia
Tel: (+966) 1 273 9700
Deutsche Bank Israel
46 Rothschild Boulevard
21st Floor
66883 Tel Aviv
Tel: (+972) 3 710-2000
Deutsche Bank Turkey
Eski Buyukdere Cad. Tekfen Tower
No:209 Kat:17-18
TR-34394 Istanbul
Tel: (+90) 212 317 01 00
International locations
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
United States of America
Tel: (1) 212 250 2500
Deutsche Bank AG London
1 Great Winchester Street
London EC2N 2EQ
United Kingdom
Tel: (44) 20 7545 8000
Deutsche Bank AG
Groe Gallusstrae 10-14
60272 Frankfurt am Main
Germany
Tel: (49) 69 910 00
Deutsche Bank AG
Deutsche Bank Place
Level 16
Corner of Hunter & Phillip Streets
Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG
Filiale Hongkong
International Commerce Centre,
1 Austin Road West,Kowloon,
Hong KongTel: (852) 2203 8888
Deutsche Securities Inc.
2-11-1 Nagatacho
Sanno Park Tower
Chiyoda-ku, Tokyo 100-6171
JapanTel: (81) 3 5156 6770
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believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.
Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists andsales staff, may take a view that is inconsistent with that taken in this research report.Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without
notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomesinaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial
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