Domestic credit in Saudi Arabia grew by around 2.9 per cent in the first quarter of 2011 to record its highest quarterly increase in more than two years and indicate banks are shedding their fears and opening up their coffers.
In March, lending by the Gulf Kingdom’s 12 commercial banks recorded its largest increase since mid 2009 because of much better economic prospects as a result of a surge in crude prides and massive financial handouts for citizens announced by King Abdullah over the past few weeks.
“With the loan-to-deposit ratio falling, there is ample scope for further lending,” the Riyadh-based Jadwa Investment said in a study sent to Emirates 24/7.
“Growth in lending in the first quarter was 2.9 per cent, the largest quarterly increase since the global financial crisis intensified in the third quarter of 2008
The bulk of new lending in the past quarter was to the commerce and transport and communications sectors,” Jadwa said in the 10-page study.
It said the jump in deposits with banks meant that despite the increase in lending, the loan-to-deposit ratio fell to 76.5, the lowest for six years.
It gave no lending figures but data by the Saudi Arabian Monetary Agency (SAMA), the country’s central bank, showed claims on the private sector surged to nearly SR798.2 billion at the end of March from around SR775.7 billion at the end of 2010, an increase of 2.9 per cent.
The sharp rise followed modest increases over the past two years as Saudi banks appear to have remained risk averse since the eruption of the global crisis and a severe debt problem involving two local business conglomerates.
Before the crisis, lending was at its height in Saudi Arabia and other Gulf oil producers because of strong domestic demand during the oil boom. Domestic credit in Saudi Arabia, the largest Arab economy and top global oil exporter, leaped by nearly 27.2 per cent through 2008 and 21.2 per cent in 2007.
“The unveiling of the Royal decrees and specifically the payment, and rapid spending, of the two month’s salary bonus was a large boost to the economy in March. All indicators of consumer and corporate spending jumped,” Jadwa said.
“Most of the bonus for public sector workers that has not been spent is sitting in demand deposits in banks, which surged in March. This pushed year-on-year broad money supply growth into double digits for the first time since December 2009….demand deposits surged by SR38 billion in March, with private and public sector depositors accounting for almost equal shares in the increase.”
Demand deposits are now around twice the amount of time and savings deposits; they were equal in January 2009, the report showed.
As a result of the deposit growth, year-on-year board money supply (M3) growth, returned to double digits for the first time since December 2009. Sustained double-digit money supply tends to lead to inflation.
In a separate study, a Kuwaiti bank said Saudi Arabia’s high public expenditure constitutes what it described as a “stabilizing factor for the economy”, adding that it also seems to be increasing the confidence for private sector participation.
“Bank lending to private sector gained pace in the first quarter of this year…this signals a higher momentum for loan growth during the year. The uneven monthly lending growth rates during 2010 seem to be stabilizing during the current year,” Global Investment House (GIH) said.
“The rise in private sector lending is an encouraging sign indicating increase in banks risk appetite while the debt requirement increases due to the business initiatives undertaken by various corporations. We expect the lending activity to further pick up through 2011.”