Recent regulatory changes in Kuwait and Qatar, retail client preferences for Shariah-compliant banking products, and stronger balance sheets and funding positions, offer better growth prospects for Islamic banks compared with conventional peers, HSBC said as it initiated coverage on four Islamic banks.

The brokerage initiated Saudi Arabia's Alinma Bank and Qatar Islamic Bank with “overweight”.

In an October note, the brokerage said it expects Alinma, which has no legacy credit risk in its loan portfolio, to double its market share in the medium term, helped mainly by corporate lending.

HSBC said it expects Qatar Islamic Bank to gain from recent regulatory changes in the country that do not allow conventional banks to offer Islamic banking services.

The brokerage downgraded Abu Dhabi Commerical Bank to “neutral” from “overweight” saying slowing private sector activity, rising foreign exchange refinancing costs and a flattening US yield curve will impact net interest margins in the long term.

The brokerage also upgraded Qatar National Bank to “neutral” from “underweight” citing the bank's excess capital.

The brokerage however, cut its price targets on Saudi Arabian banks including Riyad Bank and Samba as it expects the cash-rich corporate segment and direct intermediation by the government in the private sector to reduce their growth opportunities.

HSBC also cut its price targets on Abu Dhabi banks including UNB and Abu Dhabi Commercial Bank on slowing growth outlook.

The brokerage cut price targets on Egyptian banks EGB and Credit Agricole Egypt on weaker revenue growth. - Reuters