Private sector loan growth in Saudi Arabia fell slightly in April, as banks continued to be nervous about extending credit despite sitting on excess liquidity and a growing deposit base.
In April, credit growth fell to 6.4 per cent from a 22-month high of 6.5 per cent in March. Bankers and analysts say the Saudi banking system has more liquidity than the banks know what to do with.
Although the figures show growth flattening out in April, analysts expect growth to pick up again over the coming months, with predictions ranging between 9-12 per cent.
“Growth is definitely on an improving trend, although in April, there was a slowdown after three months of strong growth,” says Paul Gamble, head of research at the local Jadwa Investments. “Banks have now got the bulk of their loan loss provisions out of the way and are more confident about the economy.”
Two royal decrees issued over the past few months have added more than SR135bn ($36bn) to the government’s spending plans and played a big role in reassuring the banking sector that the economic recovery will continue to accelerate. Opportunities to lend do not seem to be arising as fast.
John Sfakianakis, chief economist at the local Banque Saudi Fransi, says credit growth is low because of low demand. “The private sector has recovered from the financial crisis now, but the financing opportunities available now are not as big as people imagined because of the role of the state as the main financier of development,” he says.
“The banks in Saudi Arabia will fund anything that moves at the moment, they just don’t get much opportunity,” says a syndications banker in Dubai.
“Banks are a lot keener on lending now than they were, but the demand isn’t always from the most credit worthy borrowers,” says Gamble.
A financial adviser in Riyadh says that lenders on one project are trying to get the developer to accelerate drawdown on the loans for the scheme in order to use up more of their liquidity while they struggle to find uses for it.
As a result of the slowdown in loan growth and a continued rise in deposit levels, the loan to deposit ratio of the Saudi banking system fell to 74.8 per cent in April, down from 82.3 per cent in April 2010. That puts the ratio at its lowest level for six years.
Although banks are in a good position to accelerate loan growth, tough rules mean growth will continue to be a long way off the over 30 per cent growth that was typical in 2008.