Saudi banks seen shifting to local market

Saudi Arabia’s banks are cutting their foreign assets and turn to the domestic market and this was reflected in a sharp rise in credit to the public and private sectors, according to the Gulf kingdom’s largest bank.

Domestic credit growth was accompanied with a slowdown in monetary aggregates in the largest Arab economy, with the monetary base and the money supply registering annual growth rates of 15.7 and 13.1 per cent in the second quarter compared to 24.7 and 13.8 per cent, respectively in the first quarter, National Commercial Bank (NCB) said in a study sent to 'Emirates24|7'.

The abating growth was attributed to the waning impact from the two-month salary allowance that was provided through a royal decree by the end of the first quarter and the sharp drop in banks’ reserves, it said.

The study showed banks’ net foreign assets had decelerated sharply by 11.2 per cent, or around SR14.2 billion, falling from an all time high of SR127.1 billion at the end of the first quarter to SR112.9bn at the end of the second quarter.

“The decline was attributed to the plunge in assets due from banks abroad by SR9.1bnn, the downfall in investment abroad by SR6.3 billion, reaching SR119.1bn and the surge in liabilities due to foreign banks by SR2.5 bn. In our opinion, banks had shifted this significant amount to the domestic market market, especially that claims on private and public sectors had edged higher by around SR53.4bn, a quarterly pace unseen since the third quarter of 2008.”

The report showed banks’ claims on the public sector increased by SR31.9bn in the second quarter of this year from the previous quarter.

This growth was derived from the significant treasury bill issuances, amounting to a staggering SR38.4bn, largely undertaken to proactively replace the soon to be maturing government bonds that, currently, stands at SR50.8bn, it said.

Private sector credit grew by 7.8 per cent year-on-year, the highest growth rate since the first quarter of 2009 and the sixth consecutive quarter of positive growth, according to NCB.

“The bulk of the growth was attributed to a robust increase in credit to the manufacturing and commerce sectors, which grew by 27.9 and 6.3 per cent respectively. Surprisingly, however, the building and construction sector was not a beneficiary of last quarter’s increased allocations, sliding by a hefty 12.3 per cent, around 6.9bn contraction in its portfolio.”

As for bank deposits, the report showed their growth accelerated marginally in the second quarter, with the incremental quarterly growth amounting to SR10.8 billion, far below the staggering SR58.6 billion in the first quarter that emanated from the king’s supplementary spending initiatives in February and March.

Turning to inflation, it said the second quarter marks the fourth consecutive drop in prices as the inflation rate falls to 4.7 per cent year-on-year.

The rise in rental prices continues to cool as annual growth declines for the twelfth consecutive month, reaching 7.2 per cent in the second quarter.

This resulted in food inflation becoming the main driver of inflation albeit slowing down to 5.7 per cent year-on-year compared to 5.9 per cent during the previous quarter. The report expected food prices to pick up slightly due to slowly rising global commodity prices.

“We believe inflation will hover around five per cent this year as increasing oil prices and diminishing dollar value will result in higher priced imports.”

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