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Abu Dhabi, UAEFriday 14 December 2018

Qatari banks still too expensive despite biggest losses in a decade

Valuations are not “justified” and the shares “have further room to correct downward”, analyst says

The Doha Cornich, Qatar. The countries banks are more expensive than regional peers. Naseem Zeitoon/Reuters
The Doha Cornich, Qatar. The countries banks are more expensive than regional peers. Naseem Zeitoon/Reuters

Qatari bank stocks are more expensive than their Saudi or Emirati peers, even after suffering their biggest year-to-date loss in more than a decade.

The nation’s nine lenders trade at almost 11 times projected earnings, according to data compiled by Bloomberg. That compares with 10.5 and 9 for peers in Saudi Arabia and the UAE, both of which, among others, cut diplomatic and trade ties with the neighbouring Arabian Gulf nation in early June over alleged support of terrorism.

Some overseas banks withdrew funds from Qatar in the wake of the spat, fuelling a 12 per cent drop in a Bloomberg generated stock index of Qatar’s nine lenders this year and wiping out about US$7 billion from their total market capitalisation.

The valuations are not “justified” and the shares “have further room to correct downward”, said Jaap Meijer, the head of research at the Dubai-based investment bank Arqaam Capital. The risks may not have reflected in the banks’ results yet, but “funding costs are rising - that will put pressure on margins and loan growth will be a lot slower”.

The gauge is a market capitalisation weighted index of Qatari lenders generated by Bloomberg.

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The row has aggravated a liquidity squeeze for banks in the world’s biggest liquefied natural gas exporter, where foreign cash accounted for nearly a quarter of deposits. It sent the country’s three-month interbank offered rate in July to a record.

The Qatar banking gauge’s loss this year contrasts with an almost 10 per cent gain for a measure of Saudi lenders and a 22 per cent advance for a MSCI index of emerging-market lenders.

Higher valuations in Qatar might be explained by low active foreign institutional ownership in the shares, while local institutions have also supported the market since June, said Elena Sanchez-Cabezudo, a managing director at brokerage EFG-Hermes UAE in Dubai.

Average shareholding of foreigners in Qatari banks is about 10 per cent compared with about 15 per cent in the UAE, according to data compiled by Bloomberg.

If the standoff with a Saudi-led coalition persists, Qatari banks “should suffer valuation downgrades”, said Sanyalak Manibhandu, the head of research at Abu Dhabi’s NBAD Securities, adding he may cut his ratings on market leader Qatar National Bank and four other lenders later this month.