High loan growth to the private sector in Saudi Arabia is likely to continue in the next two to three years as government spending supports a surging economy, Saudi British Bank (SABB) Managing Director David Dew told Reuters on Tuesday.
According to central bank data, bank lending to the private sector was up 15 percent in August against the same period in 2012, growth that will likely push SABB to raise its own capital as it loan book grows, Dew said.
"We do see that range (of loan growth) in the mid teens as sustainable over the next two-three years because of the underlying growth of the economy and government revenues," he said in a rare interview with a head of a Saudi bank.
Real gross domestic product growth in Saudi Arabia, the world's top oil exporter, was 5.1 percent last year and 8.5 percent in 2011 when government spending surged to help avert protests during the Arab Spring.
"If you're going to maintain your capital adequacy ratios, which we are, you've got to grow your capital at least at the same rate as your loans," Dew said.
SABB, the kingdom's fourth-largest listed bank by market capital and 40 percent owned by HSBC, has one of the lowest capital ratios of any Saudi bank, but one that is still nearly double the minimum 8 percent mandated by the central bank.
While Dew said he would not discuss specific plans to raise capital, banking sources told Reuters in August SABB was aiming to sell a riyal-denominated sukuk by the year-end to boost its Tier 2 capital position.
However, he said other options were also available.
"Instruments such as convertible bonds that will convert to equity or be written down in the event of breaches of ratios and so on, those are being issued with increasing regularity around the world and I think you will see them in Saudi Arabia," he said.
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