Saudi Arabia’s banks need to re-open their purses and resume normal lending to take advantage of soaring deposits and better economic conditions in the world’s oil powerhouse, the Gulf Kingdom’s largest bank said on Tuesday.
The risk averse environment of 2010 prompted the country’s 12 commercial banks to maintain favorable liquidity positions moving into 2011, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.
Deposits expanded by 11 per cent in the first quarter of 2011 on an annual basis to reach an all time high of SR1072.5 billion ($286 billion) while loans only grew by 3.4 per cent over the same period to reach SR763.5 billion ($204 billion).
NCB said the relatively tighter lending criteria pushed deposits to expand at a much faster rate than loans, thereby reducing the Loans-to-Deposits (L/D) ratio to a six-year low of 71.1 per cent at the end of the first quarter and reaffirming the banks' cautious attitude toward lending.
“The highly liquid stance of the banking industry in the Kingdom surely provides ample lending opportunities that are yet to be grasped…..as Saudi banks weathered the aftermath of the financial crisis, this marks the second year of a still highly liquid state,” NCB said.
“Saudi banks will need to redeploy these liquid assets, as the economy has proved to be resilient to external shocks…coupled with the recent royal decrees, and expected approval of the mortgage law, banks need to shift from amassing liquidity to expanding their loans portfolios.”
However, the report added, the May monetary data, released by SAMA, showed that the L/D ratio increased to 73.2 per cent. “This suggests that banks are gradually easing their lending criteria and eying new opportunities.”