Saudi loan-to-deposit ratio at year-high

Saudi banks continued to open up their lending purses to the private following a stagnation of nearly three years and this boosted the loan-to-deposit ratio to its highest level in a year, according to the largest bank in the Gulf Kingdom.

The ratio stood at 82.1 per cent at the end of August and it also followed a decline in deposits with banks, National Commercial Bank (NCB) said in a study.

Deposits decreased from their all-time high to settle at around SR1325.6 billion by the end of August. However, on an annual basis, banks managed to increase their total deposits by SR170.5 billion, a 14.8% rise, the study said.

Regarding individuals and businesses, they opted for demand deposits as they increased 15.8 per cent annually while their time and savings deposits only gained about 1.1 per cent year-on-year.

“Given the economy’s influx of revenues, the government had the opportunity to finance megaprojects domestically,” the study said.

It showed Saudi banks, which have the second largest asset base in the Arab world after UAE banks, have benefited from the government’s liquidity by holding SR72.3 billion in demand deposits for government entities, a 71.1 per cent annual increase. Additionally, other quasi-monetary deposits grew by 2.7 per cent annually, with its main component, foreign currency deposits, dropping by 2.7 per cent year-on-year.

Assessing the other side of the balance sheet, total claims of the banking system, excluding T-bills and government bonds decelerated for yet another month, increasing on an annual basis at a rate of 14.7 per cent, NCB said.

“Following banks’ turbulent years post the financial crisis, asset quality improvement has been a key guideline from SAMA to avoid the damaging defaults in from a few family conglomerates in the past couple of years,” it said.

The report showed that banks have targeted syndicated loans for government and semi-government projects, noting that in the first half of 2013, the top 25 megaproject contract awards by value averaged SR4.2 billion.

“Accordingly, long term credit on banks’ balance sheets posted an expansion of around 31.8 per cent year-on-year. Meanwhile, medium term credit increased by 21.5 per cent and short term credit only gained 5.5 per cent annually.”

As for the private sector, the bulk of banks’ portfolio is focused towards household credit, the study said, adding that during the first half of 2013, household credit, including credit card loans, surged by 21.5 per cent annually.

“Evaluating household credit further shows a 25.2 per cent increase for real estate purposes which is expected to continue rising as demand for housing is not projected to be met anytime soon. On the business side, the commerce category holds the largest share of total bank credit to the private sector at 21.4 per cent,” it said.

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