Samba Financial Group, Saudi Arabia's second-largest lender by market value, is well positioned to benefit from the expected pick-up in the country's lending activity.
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Total credit growth in Saudi Arabia increased 11 per cent in August compared with the same month last year, according to the latest central bank data. However, it was still well below boom-year figures of 27.2 per cent in 2008 and 21.2 per cent in 2007.
Although run in a conservative manner, with exposure to Saudi government and blue-chip corporate borrowers, analysts are bullish on Samba's fundamentals.
Samba's loan-to-deposit ratio is just 62 per cent, making it the most liquid lender in the Gulf region. It also benefits from strong contributions from its other businesses, mainly brokerage, asset management and trade finance.
Samba is also cost-effective, with cost-to-bank assets of 1.33 per cent compared with the sector average of 1.5 per cent. It has 80 branches, while Al Rajhi Bank, its largest peer, has 270.
Samba offers an attractive dividend yield of 5 per cent, compared with 3.3 per cent for Banque Saudi Fransi and 3.1 per cent for Saudi British Bank.
The shares, which traded 0.8 per cent higher to 45.70 riyals yesterday, still offer an upside of 32 per cent, said Jaap Meijer, a banking analyst at AlembicHC Securities in Dubai. The analyst has an "overweight" rating on the stock with a target price of 57.9 riyals.
The bank is 23 per cent owned by Saudi Arabia's Public Investment Fund. The Public Pension Agency and General Organisation for Social Insurance hold 15 per cent and 11 per cent stakes respectively.
Higher lending and lower provisions have helped to improve earnings at Saudi banks as the country's growth accelerates, spurred by a US$130 billion spending plan announced by King Abdullah bin Abdulaziz Al Saud. Samba Bank's third-quarter profit reached 1.13bn riyals, an increase of 3 per cent on the same period last year, beating estimates.
