Saudi loan growth hits 2011 high

12 July 2011

Loan growth picking up along with Sama’s foreign asset levels

Private-sector loan growth in Saudi Arabia has hit 7.1 per cent in May, the highest level so far this year as banks are becoming less risk averse.

The figures for May are the highest level since November 2010 and indicate that credit growth is recovering steadily since the beginning of the year. In April credit growth to the private sector was 6.9 per cent.

Although loan growth is picking up, banks remain cautious, particularly with pricing on loans to large corporates under pressure and a dearth of lending opportunities.

“For really good deals we can put a lot of money into them, but for everything else we are being told not to go anywhere near it,” says one senior banker at a local lender.

The compression in pricing for strong deals is shown in the margins banks have accepted on the financing for phase two of Saudi Arabian Mining Company’s (Maaden) aluminium project. The deal has been priced at around 20 basis points cheaper than the financing raised for phase one of the project at around the same time last year (MEED 1:07:2011).

The deal, which involves only $1bn of commercial debt, was also four times oversubscribed as banks were desperate to get good quality, government-related assets. Maaden is 55 per cent owned by the government, through three different investment vehicles.

The amount local banks were holding with the Saudi Arabian Monetary Agency (Sama) has also fallen in May as banks put more money to work in the private sector and quasi-government entities instead of holding it in low-yielding deposits with the central bank.

Commercial bank deposits with Sama fell from SR95.7bn in April to SR65.5n in May. “This could be a further indication that banks are becoming less risk averse compared to the last two years,” says John Sfakianakis, chief economist at the local Banque Saudi Fransi.

The latest figures from Sama also show that despite announcing plans to spend SR485bn on measures to support the domestic economy, the central bank’s foreign assets grew to SR1.8 trillion at the end of May. That means that so far this year Riyadh has accumulated an extra SR134bn in foreign assets held by Sama.

Growth in Sama’s foreign assets is expected to slow in the rest of the year as the government has stated that it does not want to drawdown on foreign assets to fund its spending packages.

The value of point of sales (POS) transactions in the kingdom also indicates that Saudi consumers remain confident and are continuing to spend. Although in May POS transactions fell 2.6 per cent month-on-month to SR8.8bn, that followed an 18 per cent rise in April after public sector workers, matched by many in the private sector, received a two-month salary bonus.

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