Summary: SAMA’s stats for November show that loan growth remains weak, investment book growth continues to be strong and there are no immediate liquidity concerns. Meanwhile POS activity remains buoyant and ATM transactions are holding up well. Volume of new LCs opened is still weak mainly due to weakness in motor vehicle LCs.  Higher interest rates and Saudi’s EM upgrade cycle should underpin Saudi banks’ stocks at least in 1Q19. Rates - Fed raised rates in Sep & Dec 2018 and is likely to do two further hikes in 2019 – is likely to be the key driver of revenue and earnings this year. Our strategist expects equity passive inflows in phases from March (FTSE trackers – cumulative USD5.2bn) and May (MSCI trackers – cumulative USD11.0bn). We have a Buy rating on Rajhi, Samba, SABB and Riyad. We have a Sell rating on BSF. 
 
Loan growth remains weak: Sector loans grew 0.3% M-o-M in November compared to 0.2% a month ago. On a Y-o-Y basis, loans were up 2.2% in November 2018 compared to 1.7% in October 2018. Loans were up 3.7% year-to-date (YTD), compared to 0.4% during the same period a year ago. 
 
Monthly profit up 4% Y-o-Y: Sector profit rose 4% Y-o-Y in November versus 3% Y-o-Y in October. Profit in the first 11 months of 2018 is up 8% Y-o-Y. 
 
Deposits rise slightly: Deposits rose 1.5% Y-o-Y and 0.2% M-o-M in November. Sector deposits were up just 0.3% YTD mainly due to a decline in gov’t deposits.
 
Liquidity – LDR stable: LDR was stable at 88.5% in November relative to October as loan growth was broadly in-line with deposit growth. Going into the year-end, we don’t expect a liquidity squeeze as loan growth should remain lukewarm in December.  
 
Investment book growth strong: Investments declined 0.3% M-o-M however they are up 17% Y-o-Y.  The strong Y-o-Y growth in investments was led by growth in public sector investments (+21% Y-o-Y). Private sector investments are up just 2% Y-o-Y. The gov’t projects a budget deficit of SAR131bn (4.2% of GDP) for 2019 versus a deficit of SAR137bn in 2018, which suggests that the gov’t funding requirements will be similar in 2019.       
 
Macro – POS, LCs & ATM volumes: Point-of-sale (POS) transaction volumes continue to be strong in November - up 49% Y-o-Y (+3% M-o-M). By value, POS transactions were up 18% (+3% M-o-M). Rajhi, NCB and Riyad have the largest network of POS terminals in the Kingdom.  New LCs opened, however, fell 12% Y-o-Y mainly due to a decline in motor vehicle LCs. NCB and SABB are the key players in trade. ATM transactions were up 4% Y-o-Y in November. Rajhi, NCB and Riyad have the largest ATM networks in Saudi Arabia.
 
Trading activity on Tadawul: Value traded on Tadawul was up 23% Q-o-Q but down 5% Y-o-Y in 4Q18. Value traded was up 4% Y-o-Y in 2018.  The velocity (value traded to average market capitalization) of the market was 47% in 2018 compared to 50% in 2017 and well below the 105% in 2015 and 10-year average of 85%. Rajhi, BJAZ and NCB were the most active brokers on Tadawul in October and November. (Shabbir Malik, Company Disclosure)
 
Al-Rajhi Bank: SAR86.60 as of 1 Jan. 2019, Rating: Buy, TP: SAR95.00/share, MCap: USD37,527mn, RJHI AB/1120.SE
Samba Financial Group: SAR31.45 as of 1 Jan. 2019, Rating: Buy, TP: SAR34.00/share, MCap: USD16,773mn, SAMBA AB/1090.SE
Saudi British Bank: SAR32.65 as of 1 Jan. 2019, Rating: Buy, TP: SAR37.00/share, MCap: USD13,060mn, SABB AB/1060.SE
Riyad Bank: SAR19.76 as of 1 Jan. 2019, Rating: Buy, TP: SAR20.00/share, MCap: USD15,808mn, RIBL AB/1010.SE
Banque Saudi Fransi: SAR31.10 as of 1 Jan. 2019, Rating: Sell, TP: SAR29.00/share, MCap: USD9,996mn, BSFR AB/1050.SE