SNB Leads Saudi Banks in Growth Amid Market Discount: CI Capital

SNB: Banks Trade at a 22% Discount

Saudi-listed banks trade at a 22% discount to their 2022 price-to-book peak levels. Emerging market banking stocks hold an average 16% premium, creating a valuation gap. Tadawul-listed banks also trade at a 27% discount to their 2022 price-to-earnings peak. Investors overlook strong fundamentals despite significant valuation discounts-SNB.

SNB: CI Capital Raises Growth Forecast

Egypt-based CI Capital increased its profit and loan growth forecast for Saudi banks. The compound annual growth rate (CAGR) for loans rose to 12.8% from 10% for 2025-2027. Higher demand for credit fuels this upward revision in loan growth projections.

Profitability Concerns Are Overstated

The market exaggerates profitability concerns despite a slower interest rate reversal, CI Capital stated. The report favors SNB, Saudi Awwal Bank, Riyad Bank, and Alinma Bank for strong performance. Analysts expect continued growth as economic conditions support banking sector expansion.

Strong Earnings Growth Overlooked

Saudi banks project an 8% CAGR for earnings from 2025 to 2027. The market fails to recognize this positive trend, CI Capital noted. Robust lending activity and non-interest income streams drive sustained profit growth.

SNB and Peers Maintain Strong ROE

Despite margin compression, Saudi banks project a healthy return on equity (ROE) for 2025. Higher loan volumes, fee income, and controlled expenses support positive ROE trends. Strategic cost management helps banks maintain profitability despite external pressures.

NIMs Expected to Decline

Net interest margins (NIMs) will drop by 21 basis points for most banks by 2027. Al Rajhi Bank and Bank Al Jazira will face a 23 basis points decline. Interest rate adjustments and competitive lending conditions contribute to NIM pressures.

Cost of Risk to Normalize

The cost of risk will stabilize at 50 basis points on average for 2025-2027. Lower recoveries in 2024 influenced this forecast. Prudent credit policies help banks manage risk exposure efficiently.

SNB and Saudi Banks Offer Growth Potential

Despite discounts, Saudi banks show strong growth potential with improved earnings and loan expansions. Investors should recognize these fundamentals and reassess their market valuation. Banking sector resilience ensures continued stability and expansion opportunities.