Saudi Arabian banks have plenty of scope to fund loan growth in 2012 as the sector relaxes the cautious approach to lending that has dominated in the last few years, Fitch Ratings has said in a new report.
Rising deposits and several years of subdued loan growth have allowed Saudi banks to build up substantial surplus liquidity in the form of government securities and deposits with the Saudi Arabian Monetary Agency (SAMA), the rating agency said.
"We believe this will enable the sector to sustain lending growth that has risen in the last few months. This growth is likely to be at a reasonable pace and therefore should not hurt asset quality or banks' viability ratings," it added in a statement.
Fitch said funding was a key strength for Saudi banks, where deposits constitute around 89 percent of non-equity funding at Fitch-rated banks.
It added that capital levels were generally good and can support loan growth, despite relatively high dividend payouts.
Fitch noted that Saudi banks had taken a cautious approach to lending since 2009, due to the collapse of the Saad and Al Gosaibi family-owned groups and as a response to the global financial crisis.
"We believe the increase in lending seen in recent months is a sign of rising confidence among Saudi banks, but that they are not relaxing lending standards too far," Fitch said.
"In any case, lending to established companies in Saudi Arabia is relatively safe in comparison to other countries given the benefits they enjoy from government-sponsored projects."
The Fitch report said growth was likely to continue as major government expenditure in areas such as housing, education and economic development would create more demand for credit from contractors and suppliers.