Saudi banks to make record profits in ’13

RIYADH – Saudi banks were anticipated to make record profits in 2013 amid surge in government spending in Saudi Arabia due to strong oil prices which also spurred lending by local banks to the private sector, Jadwa Investments said in a recent study.

“We expect growth in credit to the private sector to expand further this year (16 percent year-on-year), although with a smoother trajectory than we saw last year (16.4 percent year-on-year),” said the study on Saudi Arabia’s monetary developments.

“On this basis, we expect the incremental increase in bank credit issued to the private sector to reach SR154 billion in 2013 compared with SR135.7 billion last year and close to an all-time high record of SR155.3 billion in 2008… expansionary government fiscal policy and rising disposable income are expected to be the main growth driver, while regional geopolitical risk and external economic environment present a downside risk on general market sentiment, hence on credit growth.”

Credit to the private sector (excluding securities lending) expanded by around 15.9 percent year-on-year, or about 1.4 percent month-on-month, in June compared with 16.5 percent year-on-year (1.3 percent month-on-month) in May, the study noted.

In nominal terms, banks increased their credit portfolio by SR13.9 billion in June compared with SR12.8 billion the previous month, it said, adding that loans, advances and overdrafts combined to make the largest contribution (15.7 percentage point) to the year-on-year credit growth in June.

In addition, total claims on the private sector, which include investment in private securities, expanded 1.4 percent month-on-month in June leading to a year-on-year growth of 16 percent compared with 16.5 percent the previous month.
Moreover, Jadwa said it expected credit with long-term maturity profiles to maintain a “solid expiation” on the back of higher government capital spending.

“The expansion in credit and low funding costs continue to contribute to a pick-up in bank profits. In June, banks recorded a profit of SR3.3 billion, the highest monthly profit since January 2012, taking the year -to-June profit to SR17.7 billion,” it said.
“Based on an expected solid path for credit growth and low funding costs, we expect this year’s bank profits to surpass the all-time high of SR34.7 billion recorded in 2006.”

© The Saudi Gazette 2013, Aug 07 2013