Saudi bank shares may get boost from central bank action

A rebound in crude prices may help lift oil-sensitive shares in the Gulf during Monday trade, while sentiment in Saudi Arabia is likely to be positive after the central bank said it would inject capital into the local banking system.

Signals have been mixed so far on whether a deal on cutting or freezing production of oil is possible. But Algeria’s energy minister said on Sunday that all options were possible for an oil output cut at this week’s informal meeting of OPEC producers, pulling Brent futures above $46 a barrel, after slumping 4 percent on Friday.

Saudi Arabia’s central bank said on Sunday it would deposit about 20 billion riyals ($5.3 billion) at commercial banks and introduce two new money market instruments to fight a surge in market interest rates caused by low oil prices.

The central bank’s move was seen as an effort to make its money market management more transparent and predictable, which could ease investors’ concerns and may encourage them to return to equity markets, after a year of constrained activity and heightened volatility.

Banking shares have been underperforming the general index over the last several months as an illiquid construction sector – which makes up a large portion of corporate loans – weighed on market sentiment.

But many analysts believe that some lenders are trading at a discount to what they predict to be their fair value, and that the central bank’s measures could help alleviate some pressure on the banking system.

Samba Financial Group, which closed at 17.80 riyals on Friday, is trading at a 27 percent discount to its average fair value as estimated by 13 analysts, according to Reuters data.

Source: Reuters