Lending slowdown concerns persist in Saudi Arabia

14 April 2015

Banks begin posting first-quarter results

  • Saudi banks report rising profits
  • Loan volumes improve on fourth quarter
  • Forecasts suggest loan growth will plateau

Saudi Arabia’s banks are starting to report strong results for the first quarter of the year, despite concerns about a slowdown in their lending activities.  

Riyad Bank saw its profits rise to SR1.17bn ($312m) in the first quarter, marking an increase of close to 9 per cent on the same quarter last year.

However, its loans and advances portfolio only grew marginally in the first three months of the year, rising by just 0.63 per cent compared with the same quarter the previous year.

Yet this is a recovery in activity compared with loan volumes recorded at the end of 2014. 

Lending in the first quarter of 2015 is 3 per cent higher than the fourth quarter 2014, when loan volumes started to slump. The bank’s loan book saw a 5 per cent decline in the final three months of last year compared to Q3 2014.

Similarly Banque Saudi Fransi saw its loan volumes begin recover compared with the end of 2014, rising by just over 3 per cent compared with the fourth quarter, a rate of growth that exceeded some analysts’ expectations.

However, analysts continue to be hesitant about the Saudi bank market.

Earlier this year, ratings agency Standard & Poor’s (S&P) revised its outlook on four Saudi Arabian banks following the downwards revision of Saudi Arabia’s sovereign rating outlook to negative.

Al-Rajhi Bank, The National Commercial Bank, Riyad Bank and Samba Financial Group all had their outlooks changed to negative, although they maintained their high A+/A-1 rating.

The banks’ ratings had to be altered to fall in line with the sovereign’s rating, which was revised downwards due to concerns about the impact of low oil prices on the government’s fiscal position. 

Against this backdrop of low oil prices and the potential negative impact on economic growth, analysts have expressed concern about a slowdown in lending.

Dubai-based Shuaa Capital said in a research report issued on 7 April that weakening loan growth and “severe” price competition would be a key trend to emerge during the first-quarter reporting season.

The note was published after the investment bank held meetings in Saudi Arabia with key Saudi banks, where the banks themselves reportedly said they have lowered their loan growth expectations for 2015.

The Saudi banking sector does continue to be highly liquid and has played a key role in some significant deals in Q1. 

State-owned oil firm Saudi Aramcosigned a five-year $10bn financing to partly refinance existing debt in the first quarter of the year.

The financing featured an Islamic tranche, worth an equivalent of $3bn, which was funded by Alinma Bank, National Commercial Bank and Riyad Bank.

In terms of project finance, both the Rabighindependent water, steam and power project (Rabigh IWSPP) and PetroRabigh Phase 2 closed debt facilities to support their expansion plans, with much of the required funding provided by local banks.

According to the Shuaa Capital note, Saudi banks are not anticipating a slowdown in large projects to finance but there may be a “reprioritisation” depending on the direction of the oil price.

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