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Saudi banks’ credit to private sector steps up

JEDDAH – Saudi commercial banks’ credit to private sector remains on accelerating mode as the growth rate touched 14 percent y-o-y in August, Al Rajhi Capital said in its monthly report on the Saudi economy in September 2012, indicating the health of the banking sector.

The report jibed with figures by the Saudi Arabian Monetary Agency ( SAMA ), central bank, which showed that Saudi banks netted more than SR21 billion in the first seven months of 2012 as lending continued to gain momentum and allow them to net one of their highest incomes in many years.

SAMA ‘s monthly report showed the banks’ net earnings stood at SR21.34 billion during January-July, an average of more than SR3 billion a month.

At that pace of earnings in the first seven months, analysts expect full year net profits of the Kingdom’s 12 commercial banks to largely exceed SR30 billion and the level could be one of the highest incomes in the Saudi banking history.

Al Rajhi Capital said in the report that loans, advances and overdrafts increased by 14.6 percent y-o-y in August. Investment in private securities increased by 5.8 percent in the month compared to a year ago.

The distribution of banks loans to different economic activities remained highly skewed towards personal loans. Personal loans comprised 28 percent of the total loan at the end of Q2-2012 compared to 29 percent at the end of Q4-2011.

Another sector which received large proportion of credit was commerce which received 20.7 percent of total credit. Its share was almost 0.5 percent less than what it was at the end of 2011.

Manufacturing sector received 12.1 percent of the total loans whereas building and construction got 7.8 percent. The two sectors lost 0.9 percent and 0.3 percent respectively in their respective share in total loans.

Government and quasi-government sector’s share was 4.5 percent in Q2-2012 compared 3.7 percent at the end of the last year.

Meanwhile, foreign reserve assets held by SAMA increased to SR2303 billion ($614 billion) in August. This is more than 100 percent of 2011 GDP which was SR2.2 trillion. Total addition to the reserves over the month was SR32 billion which was highest in the last three months.

This reflects the recovery in global oil prices during July and August. The growth rate of reserve accumulation also accelerated to 21.2 percent y-o-y in August compared 19.7 percent y-o-y in the previous month.

However, this remains lower than the average rate of reserve accumulation in 2011. Almost all the increment in total reserves has been invested in foreign securities as the total investment in the same increased by SR32.5 billion to SR1595 billion in August.

Reserve position in the IMF and SDR increased by SR182 thousand and SR399 thousand respectively. However, foreign currency and deposits abroad declined slightly by SAR0.59 million.

Al Rajhi further said growth in money supply seems to have stabilized at decent levels. The narrow measure of money supply growth (M1) has been in the range of 12 percent to 13.5 percent since April. The growth was 13.2 percent y-o-y in August which was slightly higher compared to 12.7 percent y-o-y in July.

Slight pick-up in the growth was mainly due to acceleration in demand deposits which grew by 15.3 percent y-o-y.

Similarly, growth rates in other measures of money supply have also stabilized since April. M2 growth has been in the range of 9.2 percent – 10.4 percent since then. It slightly eased to 9.7 percent y-o-y in August from 9.8 percent y-o-y in July due to a sharp slowdown in time & savings deposits.

The deposits growth slowed to 0.4 percent y-o-y compared to 2.5 percent y-o-y during the same period. Note that this was the third consecutive month slowdown in time & savings deposits which grew 3.6 percent y-o-y in June.

Broader measure of money supply growth -M3- has been hovering just below double digit. The range for M3 growth since April has been 8 percent – 9.8 percent. It was 9.7 percent y-o-y in August compared to 9.5 percent y-o-y in July. The slight tick up in the rate was due to acceleration in “other quasi monetary deposits”.

© The Saudi Gazette 2012, Oct 04 2012

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