Private-sector credit growth in Saudi Arabia rose to almost 13 per cent in March, as banks continued to become more aggressive in booking new deals.
Credit growth is at its highest level for three years and could be set to expand even faster later in the year and early in 2013. Bankers in the kingdom say a glut of new corporate and project financings are expected to come to the market in the third quarter of 2012.
One banker says there are about $60bn-worth of facilities that will come to market before the end of 2012. Included in that is the estimated $20bn Sadara Chemical Company project, a joint venture of Saudi Aramco and the US’ Dow Chemical Company. The two partners are expected to start seeking funding for that project later this year.
Several other smaller projects and corporate deals are expected to follow. Saudi Arabian Mining Company (Maaden) has already started approaching banks for a loan of SR7bn ($1.86bn).
Not all of these facilities are expected to be completed before the end of the year, but as they start seeking commitments from banks it could prove a significant drain on the substantial liquidity currently available in the local banks. That could help improve margins on lending, which have fallen over the past year as banks compete for assets.
The latest figures released by the Saudi Arabian Monetary Agency (Sama) show that although private-sector credit growth was nearly 13 per cent, and loan growth was 12.7 per cent, deposit growth has also remained high. Deposits rose by 10 per cent in March compared with March 2011. Deposit growth, meanwhile, has remained above 10 per cent for most of the past year. Bank deposits with Sama have also fallen for the third consecutive month, as lenders adopt a less cautious stance to booking new deals.
That has kept the loan to deposit ratio of the Saudi banks low, at just 78 per cent in March, well below the regulatory limit of 85 per cent, putting banks under pressure to find a use for their excess liquidity. Private-sector credit growth is expected to average about 12-15 per cent this year.
In a further sign of the health of the Saudi economy, the consumer sector has also been showing positive signs. Cash withdrawals from ATMs were at their highest levels since August and point-of-sale transactions were also at an all-time high.
High oil prices have also allowed the government to keep building foreign assets. Sama’s foreign assets have risen by $100bn since March 2011, although in March this year the pace of growth has slowed, with only $5bn added to the total, compared with $13bn in February.