GulfBase GCC Cap Indices
Large Cap3,991 -0.08
Med Cap3,831 -0.01
Small Cap4,863 -0.26
Micro Cap8,466 0.09

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Ticker Price Volume
GFH 0.49 1,642,170
QNBK 133.5 133,285
AMLAK 1.07 4,593,610
DSI 0.37 10,758,890
BKMB 0.37 624,000
SABIC 97.69 2,746,187
AIRARABIA 1.13 3,611,365

Market Review and Outlook

Source: NCB Capital

Saudi Macro and Equity Market

The Outlook for Credit Hinges on Unutilized Funds

After the first decline in lending activities since at least 2002, will Saudi banks have enough resources to deploy in 2010? The answer is clearly a yes, given the fact that capacity utilization had receded in 2009, with loans to deposits ratio falling from 87% in 2008 to 77.6% in 2009. This capacity manifested itself in the substantial increase in net foreign assets and excess deposits with SAMA, amounting to USD29 bn and USD26 bn in 2009, respectively. Therefore, it is not the capacity question that matters, but the willingness to extend credit lines to existing credit holders and to finance new clients. The accommodative monetary policy was expected to spur lending last year, with SAMA opting for a further cut in the benchmark reverse repo rate from 0.5% to 0.25% in June 2009, however, banks continued to amass reserves despite the lower return on funds at SAMA. On the demand side, project financing deals are still plenty, which, in our opinion, creates ample opportunities for banks if they mobilized the funds. An estimated USD622.2 bn of projects planned and underway by the end of Jan10, with a relatively meager USD52.4 bn in on-hold projects, will require tapping into conventional credit. Project finance deals for Jubail and Yanbu is likely to provide initial signs of recovery in lending in 2010, with an expected tranche for Saudi banks worth USD3 bn. After assessing the supply and demand sides, banks still have fire power, but from their credit provisioning cycle, especially in 4Q2009, they were in a transition phase of reassessing their portfolios in 2009.

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