Saudi private sector credit growth hits 29-month high

01 March 2012

Banks remain liquid and eager to book new assets

Private sector credit growth in Saudi Arabia has hit 12 per cent year-on-year in January, the highest level in 29 months as banks continue to loosen credit.

Credit to the private sector rose to SR838bn ($223bn) by the end of January, which was also the highest month-on-month rise for well over a year at 1.65 per cent. In January, SR13.7bn of new credit was issued, the highest level since August 2009.

The growth in credit was almost matched by the rise in deposits, which rose 12.7 per cent year-on-year in January, pushing the loan-to-deposit ratio of the banks up to 78.1 per cent. Although the loan-to-deposit ratio has been slowly rising, banks continue to be highly liquid in the local currency.

During 2011, private sector credit growth rose was 11 per cent. In December, credit growth showed some signs of leveling off, before starting to rise again in January.

“We continue to be in an aggressive asset booking mode,” says one banker in Riyadh. “There is still a great deal of competition among the local banks for new business.”

The pace of credit growth is expected to pick up further over coming months following the completion of SR14.5bn of corporate loan deals in February. Economists expect the average credit growth for 2012 to be around 12 per cent.

Following the successful close of the two loans earlier this month, bankers are expecting more corporates to start trying to raise finance to take advantage of the good terms on offer from Saudi banks. So far, most of the corporate loan growth in Saudi Arabia has been to government-linked companies, but more privately owned firms are expected to try and raise money later in the year. “The Saudi loan market is very borrower-friendly at the moment,” says another banker at a local lender. “We expect to see a lot more private sector firms trying to raise money over the next year, after seeing that other deals have got such good terms.”

Already the privately-held Al-Fanar Group is planning to raise around SR3bn ($800m) from banks, one of the first private sector firms to try and do so.

Although banks say they are keen to book assets, a degree of caution is still clear. Bank deposits with Saudi Arabian Monetary Agency (Sama) totalled SR95.4bn in January, a near record high, indicating that banks are continuing to be cautious about who they will make new loans to.

The latest figures from the Sama also show that its foreign assets have continued to expand in January, adding SR27bn from the previous month rising to SR2.03 trillion.

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