Saudi public sector’s bank credit rebounds

JEDDAH – Bank lending in Saudi Arabia is continuing at a generally brisk pace, the National Commercial Bank said in its “GCC Financial Market Quarterly” released Monday.The report said liquidity conditions supporting this credit expansion remain very benign. However, the growing economic confidence has begun to hit deposit growth somewhat and the annual pace of expansion decelerated to 7.6 percent in May. At this point, credit growth is almost twice as fast.
Private sector credit growth in May reached 13.1 percent YoY while public sector credit rose by as sharp 59.2 percent to a total of SR44.1 billion as of May. Recent months have seen a fairly pronounced pick-up in bank lending to the public sector.

Overall, the annual pace of credit growth was 14.7 percent. However, the positive momentum, especially in the private sector, has slowed down somewhat in recent months, possibly reflecting the slower pace of deposit growth, higher interbank rates, and the persistent global economic uncertainty. On the average, bank credit in the three months to May advanced by an annual 14.1 percent.Q2 offered a very mixed picture for the GCC equity markets.

The growing external economic uncertainty – above all mounting concern about the euro-zone outlook – meant that the secondary markets lost much of the gains they had made during the opening months of the year. By contrast, while primary issuance activity is still far below the levels of seen before the global crisis, the second quarter saw a sharp rebound in IPO volumes.

The market witnessed the highest aggregate value of primary offerings since 3Q08 – $1.1 billion. By contrast, the total number of new issuers was still a relatively modest four. This took the total number of public offerings during the first half of the year to six with a total IPO value of $1.2 billion. Saudi Arabia remains by far the dominant center of IPO activity in the region, accounting for three of the four offering in Q2 and five of the six in 1H12. A 31 percent rally on Tadawul between November and April, accompanied by a sharp rise in volumes, helped create auspicious conditions for new offerings.

The only other GCC market to see primary activity was Oman which in fact is the only other regional stock market to have experienced any IPOs during the past year. Saudi issuance in Q2 totaled $945.6mn in value whereas the one Omani IPO was worth $159.0 million.

Three Saudi companies tapped the IPO market during Q2. Najran Cement Co. led the way with its April offering. The company, established in 2005, floated 50 percent of its total equity capital of SR1.7 billion giving the IPO a total value of SR850 million (USD226.7mn). The offering was an example of the so-called mandatory IPOs which apply to cement companies under the Raw Materials Quarry License 35K.

The offering of Najran Cement benefited from the relative outperformance of the cement sector at a time when construction activity is strong. The offering was well received, oversubscribed more than three times.

Saudi Airlines Catering Co. closed the quarter with its June offering. It was the first company in the restructured Saudi Airlines consortium to go public.

The Saudi Gazette , Jul 17 2012