Saudi loan-to-deposit ratio at 3-year high - Emirates24|7

Saudi loan-to-deposit ratio at 3-year high

A pick up in lending by Saudi Arabia’s banks boosted the loans-to-deposits ratio to its highest level in nearly three years and this will positively affect the banks’ performance this year, the Gulf Kingdom’s largest bank said on Tuesday.

Deposits with the Kingdom’s 12 banks swelled by more than 10 per cent year-on-year in August but the growth was outpaced by domestic credit, National Commercial Bank (NCB) said in a report sent to Emirates 24/7.

It showed total claims of the country’s banking sector, excluding T-bills and government bonds, surged by around 15.6 per cent to SR960.9 billion at the end of August.

The report noted that Saudi banks have recently shifted their focus to fund small to medium enterprises, adding that the maturity of credit reflects the initiative.

Short term credit increased by an annual rate of 15.7 per cent while long term credit gained a relatively small 8.4 per cent Y/Y. Meanwhile, medium term credit added the highest percentage at 27.4 per cent to reach SR168.3 billion by the end of August.

“The pickup in lending has outpaced the flow of deposits which led to the improvement

in the loans-to-deposits ratio to reach 83.2 per cent, the highest since April 2009. This will support banks in growing their profit levels which have already made a strong recovery from the financial crisis.”

As for the private sector, total claims increased by an annual 14.4 per cent during August, the report said, noting that the momentum of private sector growth continues to climb as business activity in the Kingdom grows.

It showed fresh lending to the private sector has reached SR93.1 billion for the first eight month of 2012 compared to SR81.7 billion for the whole 2011.

In contrast, claims on the public sector contracted by 12.4 per cent Y/Y as the level of treasury bills dropped drastically due to the elevated issuances last year in an attempt from SAMA to mop up excess liquidity in the market which is unlikely to occur this year.

According to NCB, Saudi interbank overnight rate (SAIBOR) has been rising since late September 2011 from 60bps to 97bps by mid-October 2012.

However, it added, the interbank market remains subdued owing to the low policy rate taken by SAMA.” Interestingly, interbank liabilities have gained a substantial 20.7 per cent Y/Y, far below the peak of 78.2 per cent during May…we expect SAIBOR to remain around the 100bps level in the short-term due to the healthy cash levels of most Saudi banks,”the report said.

Turning to deposits, NCB said Saudi banks, which control the second largest Arab asset base after UAE banks, have benefited from the large deposit base which has been accumulated due to the global financial crisis.

It showed total deposits grew by around 10.4 per cent during August against the same month last year, reaching SR1.16 trillion.

Representing the largest portion of deposits, demand deposits have increased their share to 60.6 per cent by an annual gain of 15.3 per cent.

Businesses and individuals have added 14.4 per cent Y/Y to their demand deposits while government entities amassed an annual 31.9 per cent.

“Elevated oil prices and production levels have aided the government in building up their funds in order to support their fiscal expansionary plans,” it said.

“Additionally, foreign currency deposits rose by 18.6 per cent during August which is probably due to the poor performance of the US dollar lately which will likely continue as a result of the third round of quantitative easing.”