Biggest Mideast Bank Is Cheapest in Four Years as Crisis Swirls

(Bloomberg) -- Qatar National Bank QPSC, the biggest lender in the Middle East, is trading at the cheapest relative to emerging-market peers since 2013 as a regional political storm engulfs its home country. That doesn't mean analysts are suggesting it's a good time to buy the stock.

The Doha-based bank is trading at close to nine times its expected earnings, the nearest it's been for four years to the average among 110 emerging-market lenders in MSCI Inc.'s index for the sector. Shares in QNB, whose biggest investor is the state sovereign wealth fund, fell 7.2 percent in the past two sessions to the lowest in more than six months as a Saudi Arabian-led alliance including the United Arab Emirates and Egypt severed links with the Gulf nation over its stance on Iran and Islamist groups.

With a market value of $34 billion and about $204 billion in assets, QNB has the largest weighting in Qatar's main stock benchmark. Even before regional tensions erupted this week, lenders in Qatar and across Gulf Cooperation Council markets have struggled with declining cash reserves and higher interest rates after governments used bank deposits to maintain spending as oil prices dropped by more than 50 percent in less than three years.

“We would refrain from Qatari banks in general, despite a sharp correction in recent times,” said Aarthi Chandrasekaran, vice-president for research at Shuaa Capital PSC in Dubai. “QNB is heavily reliant on foreign funding and is highly exposed, accounting for about 10 percent of revenues, to the GCC and Egyptian markets.” That's through its Commercial Bank International business in the U.A.E. and QNB-Al Ahli in Egypt.

READ: Qatar Banks Dealt Financing Blow as Saudi-Led Alliance Cuts Ties

Kuwait's ruler, Sheikh Sabah Al-Ahmed Al-Sabah, will travel to Saudi Arabia on Tuesday to mediate an end to the feud, according to a Gulf government official with knowledge of the matter, who spoke on condition of anonymity. Sheikh Sabah also spoke with Qatar's ruler and urged him to avoid any escalation, Kuwaiti state-run media reported.

If the standoff among the Middle Eastern neighbors is prolonged, “we expect Qatari bank valuations to trend lower, thus narrowing the valuation the gap of about 50 percent with their GCC peers and signaling a new normal,” Chandrasekaran said.

Qatar's main stock index fell 1.6 percent on Tuesday, adding to a 7.3 percent slump the previous session. Banks in the U.A.E. and Saudi Arabia have been asked to share information on inflows and outflows, as well as details on equity, bonds, swaps, interbank funds and custody operations related to Qatar, according to people familiar with the matter.

“The question is what action is now required to convince an emboldened Saudi and Abu Dhabi to back down? This arguably needs to be answered before being seduced by the attractive valuation of Qatar equities,” said Hasnain Malik, head of global equities research at Exotix Partners LLP.

--With assistance from Arif Sharif Archana Narayanan and Fiona MacDonald

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Todd White