As one of the essential variables in determining the future of lending, deposits in the Saudi financial system are more than adequate to accommodate the rising credit market and its potential. The depositary base of Saudi banks has reached SR 1.27 trillion during January, according to the latest SAMA (Saudi Arabian Monetary Agency) bulletin, a rise of 13.7 percent over the same month last year.
Representing the largest portion of deposits, demand deposits have increased their share to 60.2 percent by an annual gain of 15.5 percent. Businesses and individuals have added 11.9 percent Y/Y to their demand deposits while government entities amassed a staggering 87.8 percent on annual basis. The suppressed interest rate environment continues to keep investors away from time and savings deposits.
“SAMA's policy is likely to mirror that of the US; consequently, we do not foresee any changes before 2014,” the National Commercial Bank (NCB) said in its report yesterday.
However, time and savings deposits managed to increase by 9.1 percent Y/Y during January to reach SR 323.4 billion. Interestingly, it is still below the peak level recorded by the end of 2008 at SR 367.6 billion. Furthermore, other quasi monetary deposits increased at an annual 14.9 percent as foreign currency deposits expanded by 12.8 percent during January.
Saudi banks' combined loans portfolio rose for another month to reach SR 1.01 trillion, setting an annual rate of 16.3 percent Y/Y for the month of January, a slight deceleration over the previous month.
The robust economy facilitated the possibility of maintaining an elevated level of credit expansions as investments increase within the Kingdom. Local banks are expected to maintain the current level of credit with a more selective approach for 2013.
“As we have projected, medium and long-term credit is outpacing short term credit growth. Despite dropping marginally on a monthly basis, medium term credit grew by 41.6 percent annually by reaching SR 196.9 billion, a level that has been doubled since March 2009,” the bank said.
In addition, long-term credit accelerated at an annual pace of 16.5 percent during January to raise its share of total credit to 26.8 percent from 26.3 percent during December. Representing the bulk of credit, short-term credit stands with a share of 53.7 percent following its 9.2 percent Y/Y growth.
As for the private sector, total claims expanded by 16.0 percent on an annual basis during January. The banking system is expected to soften the pace of credit to avoid overheating their balance sheets.
The bank said, the pace of credit will slightly moderate during 2013. Furthermore, credit to the public sector gained 6.8 percent Y/Y as treasury bills recorded a gain of 13.5 percent annually. The risks from excess liquidity remain subdued, thus, SAMA will continue their wait-and-see approach. The growth of lending has once again outpaced deposits which contributed to the rise of the loans-to-deposits ratio to 79.9 by the end of January.
As for the interbank rate, SAIBOR, the subdued interest environment will aid banks in avoiding any liquidity shortages by allowing to access funds cheaply. However, given the rise in credit which translated into larger liquidity movements, the differential between SAIBOR and LIBOR has widened to over 70 bps. The pace is far from worrying as SAMA is closely monitoring risk indicators for the Saudi financial system. SAIBOR is expected to hover around 100 bps.
Source: Arab News