Bahrain-based financial services company SICO said given an environment of high interest rates, Dubai-based banks, Emirates NBD and Dubai Islamic Bank are better placed in H1-2023 as they are likely to benefit from elevated net interest margin (NIM)

In a new report, the brokerage says equities as an asset class is now less attractive, "making bottom-up stock picking an important strategic approach versus top-down or passive investing this year".

SICO also picks Qatari banks, Qatari National bank and Commercial Bank of Qatar in the second half of 2023, "as government spending-related borrowing demand kicks in".

Among Saudi Arabian banks, the report notes that Saudi National Bank and SABB are preferred as they have better CASA (current account and savings account) books. CASA are a cheap source of funds for banks.  SICO said it "would remain skeptical on KSA banks in H1-23, until we see liquidity normalization".  

The report said the surge in interest rates, following the tightening by the US Federal Reserve, was unprecedented this time, and "after the initial NIM expansion, it appears to have stabilized and is expected to remain flat in FY23, save for Saudi banks, which may in fact witness a mild contraction unless they strategize to cut the pace of their lending book growth."

"High crude prices ensured low borrowing demand by public sector entities, while high interest rates are likely to translate to elevated delinquencies in FY23."

(Writing by Brinda Darasha; editing by Daniel Luiz)