BANK STOCKS LIFT SAUDI AFTER RATE HIKE; SABIC UP

     

DUBAI: Bank stocks led gains on Saudi Arabia's bourse as investors bet that interest rate hikes at home and abroad would boost lending margins.

National Commercial Bank climbed 2.9 percent, Al Rajhi Bank jumped 6.4 percent and Samba Financial Group rose 2.8 percent.

Saudi banks' funding costs are perhaps the lowest globally because most depositors put their money in non-interest paying current accounts for religious reasons, said Hisham Tuffaha, head of equity investments at Riyadh-based Mulkia Investments.

Therefore, traders have bought bank stocks on expectations that interest rate rises will increase lenders' margins, he said.

The Saudi central bank has raised its reverse repurchase rate, the rate at which commercial banks deposit money with the central bank, to 0.5 percentage point.

That should limit the incentive for the banks to move money overseas in search of higher returns and came within an hour of the United States raising interest rates for the first time in nine years. The Saudi riyal is pegged to the U.S. dollar.

Saudi Basic Industries Corp 2010.SE (SABIC) rose 2.1 percent after it proposed a cash dividend of 3 riyals per share ($0.80) for the second half of 2015. This would be the same as for the corresponding period of 2014 and comes despite a 9.3 percent drop in third-quarter profit.

"SABIC has maintained generous dividends and that's why it's popular with investors," Tuffaha said.

Some bank stocks such as SABB, Banque Saudi Fransi and Saudi Hollandi are trading at trailing price to earnings ratios of less than 8.5, Reuters data shows.

"We've not seen PE ratios this low for 7-8 years. Valuations are very attractive even with the low oil price," said Tuffaha. "We don't have listed energy companies - for most sectors where's the direct link to oil?"

He forecast Saudi's market would bottom out, pointing to a combined PE ratio of less than 13 when the historical average is 16-17.

Saudi's index rose 2.2 percent to 7,020 points, taking its gains to 5 percent since Monday's three-year low.