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. Although on monthly basis total deposits marginally contracted by SR6.6 billion, or 0.6 percent, they have risen by over SR 100 billion over the twelve months trailing through July, an annual growth of 9.6 percent. The majority was contributed by demand deposits from businesses and individuals, adding SR 70.7 billion, while the government supplied SR 10.7 billion on an annual basis. However for time and savings deposits, businesses and individuals withdrew SR 3.7 billion, only to be offset by the government’s injection of SR 10.8 billion by the end of July, the National Commercial Bank (NCB) said in its report.
The decelerating rate of total deposits, compared to last year, which currently stands at SR 1.2 trillion has pushed the loans-to-deposits ratio up to 82.4 percent, the highest since August 2010, the report said.
Saudi banks continue to expand their lending portfolios, recording the highest growth rate over the past 41 months at 15.5 percent Y/Y during July. The aggregate claims on private and public sectors reached SR 951.2 billion and according to the NCB crossing the SR1 trillion mark is only a couple of months away.
Since the beginning of 2012, banks have granted SR 94.6 billion in fresh lending, indicative of the risk taking approach witnessed by banks this year. The bulk of fresh lending resided, as expected, in short term credit which added SR 66.2 billion YTD. Meanwhile, medium term credit contributed a further SR 30.4 billion as SMEs became an attractive segment. However, long-term credit contracted over the past 7 months by SR 2.1 billion due to the limited exposure of the financial system to mega project financing albeit recording the fourth monthly increase.
Since the beginning of 2010, credit to the private sector started its rebound and has continued to accelerate through this year, recording a significant 14.1 percent in July. For the first half of 2012, commercial loans represented 67.8 percent of banks’ total performing loans while consumer loans held 28.4 percent. Furthermore, the level of nonperforming loans had dropped by SR 1.8 billion, or 8 percent on annual basis by the end of the first six months. Local banks have managed to “clean up” their portfolios from the damaging effects of the global financial crisis and the family conglomerates mishaps. However, provision levels have edged higher by 2.8 percent Y/Y, adding SR 763.8 million to their safety cushion. “We do not foresee further implication in the local credit market and the buoyant economy should facilitate business expansions for further growth,” the bank said.
As for the interbank rate, SAIBOR, the subdued interest will aid banks in avoiding any liquidity shortages by allowing to access funds cheaply. It is worth mentioning that the differential between SAIBOR and LIBOR has been widening for almost a year, however, the pace is far away from worrying as SAMA (Saudi Arabian Monetary Agency) is closely monitoring risk indicators for the Saudi financial system.
Banks have been somewhat shielded from external shocks and will continue to grow steadily. The risk averseness approach has been widely dissolving, thus providing more opportunities for banks to grasp.
From : Arabnews