Saudi bank credit outpaces GDP

A surge in domestic demand triggered by a second oil boom boosted bank credits in Saudi Arabia by over 17 per cent annually over the past nine years to largely outpace economic growth, the kingdom's largest bank said yesterday.

From around SR173.5 billion (Dh172bn) in 2000, total credit provided by banks in the world's largest oil exporter jumped to nearly SR753bn at the end of November 2009, an annual growth of around 17.7 per cent, National Commercial Bank (NCB) said in a study sent to Emirates Business.

The kingdom's nominal gross domestic product expanded from around SR706.7bn to SR1,384.4bn in the same period, recording a growth of nearly 7.8 per cent, the study said.

"Bank credit to the Saudi economy had been growing at an average annual rate of 17.7 per cent during 2000-2009, much faster than the 7.8 per cent yearly average growth rate recorded for the nominal GDP over the same period."

The study showed that credit growth had been particularly rapid at 49.6 per cent during 2006-2008 before the loans started slowing down in 2009 because of the global financial crisis, which sharply depressed crude prices and reversed years of rapid growth in the Saudi economy, the largest in the Arab World. A breakdown showed the concentration of short-term credit was 61.6 per cent of the total followed by 15.4 per cent medium-term, and 22.9 per cent long-term. In contrast, the banks' deposits base, the main source of funding credit, was 44.4 per cent short-term, followed by 36.8 per cent time and savings deposits, with government entities having significant portion, suggesting a slight assets-liabilities mismatch, according to NCB.

"While Saudi firms have started utilising other channels for seeking funds including issuance of syndicated bonds and sukuk, credits continued to expand both in absolute terms and in relation to the size of domestic economy," it said.

"In the last decade, Saudi banks' credit expanded from around 24.5 per cent of the size of the domestic economy to about 54.3 per cent in 2009. The private corporate sector received by far the largest share, around 75 per cent of the total bank credit while the residual went to consumers."

Figures by the Saudi Arabian Monetary Agency (Ssma), the kingdom's central bank, showed bank credits recorded one of their largest increases in 2008, when they shot up by around 25 per cent to SR744.8bn at the end of 2008 from nearly SR594.8bn at the end of 2007.

Growth sharply slowed down in 2009, standing at only around 1.2 per cent to reach SR752.7bn at the end of November.

The slowdown was a result of waning domestic demand due to slackening economic growth and the adoption of a strict lending policy by Saudi banks following the global crisis and local debt default problems. To offset lower credit activity, Saudi banks sharply boosted their overseas investments and bankers expect lending operations at home to remain weak at least for the next six months. From SR64.8bn at the end of 2008, the banks' combined investments abroad surged to one of their highest levels of SR110.4bn at the end of November.

The investments at the end of November 2009 were the highest in more than 10 years and one of their highest levels in the Saudi banking history. The figures showed they were almost six times their level at the end of 2003.

"Many banks have opted to channel surpluses towards higher-yielding foreign securities. The continued weakness in lending growth comes despite fresh measures by the authorities to stimulate lending," Samba said in a study.

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