Saudi credit growth hits new peak

26 June 2013

Local banks still awash with excess liquidity

Private-sector credit growth in Saudi Arabia hit 16.5 per cent in May, the highest level since before the onset of the financial crisis as banks in the kingdom continue to aggressively seek new deals.

Despite rapid growth in private sector credit and overall loan books growing by over 10 per cent since October 2011, banks in the kingdom are still awash with liquidity that they are struggling to find a home for.

In May the loan-to-deposit rate was 76 per cent, according to the latest figures from the Saudi Arabian Monetary Agency (Sama). That is well below the regulatory limit of 85 per cent, indicating that there is still ample liquidity in the banking system.

“There is still plenty of liquidity, the problem is that there are not enough deals,” says one investment banker in Riyadh. “The first half of the year has been quite slow in terms of new opportunities and new projects.”

Another banker at a local institution says, “There has definitely been a shortage of deals compared to last year and although there is a feeling that there is still a lot of pent up demand for credit that has still not been satisfied, we don’t seem to be seeing those deals coming through.”

Total loan growth was over 16.6 per cent in May compared to 2012, only slightly less than the 16.7 per cent growth in deposits. In order to find a profitable use for their liquidity banks are putting more emphasis on higher margin retail lending to combat declining interest margins.

Lending margins on corporate loans have been falling as the liquidity in the banking system creates intense competition between banks and drives down pricing. “It is a great time to be a borrower in Saudi Arabia and almost every new deal is being massively oversubscribed,” says one structured finance head in the kingdom.

However, with Ramadan beginning in early July, corporate lending activity is expected to slow down until after the holiday season in late August.

The latest Sama figures also indicate that the kingdom’s savings are still growing at a significant pace despite high government spending levels. Saudi Arabia’s foreign assets held at Sama hit $694bn at the end of May, an increase of around 19 per cent compared to May 2012.

In another sign of growing consumer confidence cash withdrawals from automated teller machines (ATMs) and point-of-sale transactions before hit new highs in May. Almost SR58bn was withdrawn from ATMs, above the last monthly high of SR57bn in April 2011. The 2011 figure was buoyed by salary increases and a one-off bonus payment announced by King Abdullah a few months previously.

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