The Saudi Arabian Monetary Agency (SAMA) released monetary data for February 2016. Major highlights are:   - Deposits decline 0.8% M-o-M; first ever Y-o-Y decline as demand deposit base shrinks - Loan growth accelerates to 10% Y-o-Y - Sector LDR rises to 88%; balance sheet liquidity tightening - Sector aggregate profits rise 2% M-o-M - Samba better placed due to low LDR compared to peers   Sector deposits decline 1% Y-o-Y; money supply shrinking: Aggregate deposits of the sector declined, driven mainly by a drop in deposits from government entities (-5.5% M-o-M). Private sector deposits rose 1.0% M-o-M, though there was a switch from demand to time deposits. Overall, sector demand deposits declined 0.5% M-o-M, slower than the 1.8% M-o-M decline in time deposits. The country’s monetary base shrunk on a M-o-M for the third consecutive month, while declining on a Y-o-Y basis for the first time since June 1999.   Loan growth accelerates: Loan book expanded 1.6% M-o-M, continuing a steady recovery that started in November 2015. Loan growth accelerated to 10% Y-o-Y in February 2016. However, the acceleration in loan growth is driven primarily by slower government payments, in our view, which is pushing corporates to look for bank financing to plug the funding gap. An analysis of the maturity profile indicates that short-term and medium-term maturity loans have increased since December 2015, while longer-term maturity loans declined.   Banks’ balance sheet liquidity levels tightening: Sector LDR rose to 88.1% - highest level since December 2008. With the Central Bank providing some leniency by raising sector LDR to 90%, we believe banks are less aggressive on raising deposits, and are utilising some of the excess headroom available. However, at the current pace, we believe the LDR headroom is likely to be filled up quite quickly.   Sector profits improve 2% M-o-M: We believe this is primarily due to loan related fees and some improvement in margins as deposit pricing is likely to have eased post year-end. Moreover, the leniency in LDR limits is also likely to have contributed to banks being relatively less aggressive on raising expensive deposits.   Other macro drivers weak on a M-o-M basis: ATM withdrawals and POS transactions fell on a M-o-M basis, while new letters of credit (LCs) opened rose 4% on a M-o-M basis.   Samba relatively better placed; remains our defensive play in Saudi banks universe: Samba and BSF remain our top picks in the sector. However, given the ongoing liquidity squeeze in the sector, we view Samba as relatively better placed compared to peers due to its balance sheet liquidity. Samba’s LDR stood at 75.7% in December 2015 compared to sector average of 88.1%, while the bank has seen only marginal deterioration in its demand deposit mix (64.6% in 4Q2015 compared to 66.6% in 3Q2015). (SAMA, Murad Ansari)   Samba Financial Group: SAR20.29 as of 28 March 2016, Rating: Buy, FV: SAR26.50 per share, MCap: USD10,821 million, SAMBA AB / 1090.SE Banque Saudi Fransi: SAR25.50 as of 28 March 2016, Rating: Buy, FV: SAR34.00 per share, MCap: USD8,196 million, BSFR AB / 1050.SE