Saudi credit growth hits highest level since financial crisis

06 February 2013

Saudi loan to deposit ratio drops on sudden influx of cash in December

Private-sector credit growth in Saudi Arabia has hit 16.4 per cent in December, the highest level since the onset of the financial crisis.

The latest figures issued by the Saudi Arabian Monetary Authority (Sama) also show that an influx of deposits in December helped push the system-wide loan to deposit ratio down to 75 per cent, from almost 79 per cent the previous month.

If the loan to deposit rate stays at these lower levels in early 2013, it will ease concerns that the Saudi banks will soon have to start putting the brakes on such rapid credit growth. Bankers in the kingdom say they have been put under pressure by management to book more assets throughout 2011-12. That has pushed down loan pricing as banks compete to lend to the relatively small number of top-tier clients in the kingdom.

Total loans by Saudi banks were also at their highest in recent years in December, reaching 16.7 per cent.

Senior bankers in the kingdom say there is much more caution starting to creep into their thinking. “Looking at the trend in the loan to deposit ratio, it has been rising over the past two years and it is still unclear at the moment how that will transfer to risk appetite,” says the head of structured finance at one local lender.

“Banks do probably need to slow down a bit, pricing has fallen far too low,” adds another banker in Riyadh.

In December, Saudi Arabia Mining Corporation (Maaden) completed a SR9bn loan with a group of mostly local banks priced at just 85 basis points above the Saudi interbank offered rate (Sibor). The response from banks was so strong that Maaden had earlier increased the size of the loan by SR2bn.

One banker says his management has approved him a smaller budget for 2013 than he requested, “so the emphasis is shifted away from aggressively booking assets like we did last year”.

Although banks may become less eager to book new deals, demand should remain high. The $20bn Sadara Chemical financing is expected to reach financial close early this year, as is the $2.5bn Rabigh 2 power project. Later this year, Maaden will start approaching banks to finance its $7.5bn new phosphates project in the north of the country.

In another sign of Riyadh’s financial resources continuing to grow, assets held by Sama hit almost $650bn at the end of 2012, or enough to cover almost three years of government spending. Point-of-sale transactions also hit their highest level in over two years, while ATM withdrawals were at their highest since April 2011, indicating that consumer confidence also remains high.

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