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Credit Suisse Raises Target Prices of Six UAE Banks

DUBAI — Credit Suisse has raised the target prices of six UAE banks and upgraded the Dubai Islamic Bank and the National Bank of Abu Dhabi to ‘neutral’ from ‘underperform,’ citing the banks’ share prices have risen as investors are increasingly getting confident about their ability to recover from the 
liquidity crisis.

Credit Suisse kept its ‘outperform’ rating for its top picks — First Gulf Bank and Union National Bank. These two bank were favoured for their attractive valuations, high capitalisation and superior asset quality.

FGB which is 63. 5 per cent owned by the Abu Dhabi ruling family, and is one of the most higly-capitalised banks in the UAE, had its target price raised to Dh21.5 from Dh13.83. The target price of Union National Bank, a mid-sized commercial bank focusing on retail and corporate banking services, was raised to Dh5.66 from Dh4. Both Abu Dhabi Commercial Bank and Emirates NBD maintained their ‘neutral’ rating.

ADCB, the third largest bank in the country which also operates in India, and holds an equity stake in RHB Capital of Malaysia, had its target price upgraded to Dh3.26 from Dh1.98.

The brokerage cited the bank’s transparency in disclosing asset quality and normalisation of risk premium in 
the UAE.

“We expect the market to ignore the rising non-performing loans in the first half of 2009. We think that the market is well anticipating a significant detoriation in asset quality, hence the significant valuation discount to peers.”

Emirates NBD, UAE’s biggest bank by assets, had its target price raised to Dh5.13 from Dh3.32. Dubai Islamic Bank’s target price was also upgraded to Dh3.33 from Dh2.03, while the National Bank of Abu Dhabi’s target price improved at Dh16.13 from Dh9.

“As the sector moves out of the liquidity crisis into a credit cycle, investors should be positioned for the next big thing,” Credit Suisse said in a note to clients.

The brokerage however, cautioned that significantly wider margins enjoyed by banks previously, is unlikely to continue, while balance sheet expansion has become more difficult as easy funding from government injection of liquidity has already played out.

Credit Suisse also said it expected customer deposits to remain flat, and non-performing loans and credit costs to accelerate in the second half.

rocel@khaleejtimes.com