Saudi credit growth at fastest level since before 2010

27 September 2011

August credit growth rises by 9.4 per cent

Private sector credit growth in Saudi Arabia has risen by 9.4 per cent in August, compared with the same time last year, the fastest rate of credit expansion since before 2010.

The latest figures released by the Saudi Arabian Monetary Agency (Sama) show that private sector credit expansion has been generally picking up steadily since August 2010. Slow credit growth has been one of the main worries of economists, who fear that it could hold back a recovery in the kingdom’s private sector.

Most local economists have been predicting private sector credit growth of about 8-10 per cent in Saudi Arabia.

Banks in Saudi Arabia are especially liquid at the moment, with the loan to deposit of the entire banking sector at 79.4 per cent. While this is significantly lower than elsewhere in the region, the figure has risen in August as the total volume of deposits in the banking system fell by 0.7 per cent compared with the previous month to SR1.045 trillion.

Year-on-year though, deposits were up 13 per cent, still in excess of the 9.3 per cent growth in loans in the Saudi banking system. Loan growth overall is still slow though. Month-on-month overall loans in the banking sector only rose by 0.8 per cent. This is down from the last few months when month-on-month loan growth has been in excess of 1 per cent.

One economist in Saudi Arabia says the banks are increasingly reallocating funds from abroad and with the central bank to the private sector and government clients as loan growth picks up.

The latest figures from Sama also reveal that its assets have continued to accelerate at a time when the government is spending more domestically than ever. Riyadh has announced plans to spend SR485bn on measures to support the domestic economy, but that has not stopped Sama assets rising to SR1.92 trillion. Sama’s net foreign assets rose only slightly in August, adding only SR2bn to reach SR1.878 trillion. The central bank continues to favour investing in US securities over those in the EU.

After a rapid acceleration earlier in the year, Sama net foreign asset are expected to rise more slowly now as he government has said it does not want to drawdown on foreign reserves to fund its current spending packages.

The number of point-of-sale transactions also rose slightly in August, although the overall value of those transactions fell from SR9.4bn in July to SR8.7bn in August. The figures indicate that Saudi consumer confidence remains fairly robust. In 2010, point-of-sale transactions were valued at SR6.5bn.

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