12/09/2017 06:24 AST

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 United Arab Emirates, which cut diplomatic and trade ties with the 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 $7 billion (Dh25.7 billion) from their total market capitalisation.

The valuations aren’t “justified” and the shares “have further room to correct downward,” said Jaap Meijer, the head of research at Dubai-based investment bank Arqaam Capital Ltd. 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 row has aggravated a liquidity squeeze for banks in the world’s biggest liquefied natural gas (LNG) 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 Inc index of emerging-market lenders.

Active locals

Still, second-quarter earnings were resilient, given the circumstances. Qatar National Bank reported a 2 per cent rise in profit to 3.45 billion riyals ($934 million; Dh3.35 billion), while Qatar Islamic Bank SAQ posted an 8 per cent increase and Doha Bank QPSC a 1 per cent decline.

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 Ltd 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.


Gulfnews

Ticker Price Volume
QNBK 123.30 103,897
MMG 0.00 0
SABIC 100.87 2,504,855
STC 71.32 119,991
CHEMANOL 7.11 932,192
RIBL 11.97 465,866
TRADEUNION 20.69 200,872

QE 8,360.77 12.72 (0.15%)

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ORDS 81.66 0.10 (0.12%)
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