Public sector credit booms, private lending stays stagnant despite liquidity
Despite a small 0.8 percent increase in private-sector lending in September, Saudi banks are still looking for other locations to park their liquidity, according to the latest data from Banque Saudi Fransi (BSF).
In its November report, the finance house said that bank investments in foreign assets rose by 34.2 percent in the first nine months of the year, including an 11.1 percent rise month-on-month in September.
According to another Saudi financia outfit, Jadwa Investment, while private sector lending picked up on both a month-on-month and year-on-year basis, bank deposits outpaced that growth. However, Jadwa also said that money supply growth remains low and is not feeding into inflation.
BSF said that the credit scenario was likely to recuperate in 2011 as a greater volume of project financing deals come on stream.
“The recovery in credit expansion is taking longer than earlier anticipated, but the gradualist approach is more prudent than the exuberance practised by many banks prior to 2009,” said John Sfakaniakis, BSF’s chief economist.
“We are unlikely to see a return of double-digit rates of credit growth before 2012 and 2013, when private sector appetite picks up following a period of deleveraging.”
BSF said that without a big turnaround in the fourth quarter, growth in private sector claims might fall slightly short of its eight percent forecast for the year.
Bank credit grew 4.4 percent in the first three quarters, but between 2005 and 2009, it rose by almost 70 percent.
On the public financing side, however, the story is different, with BSF reporting that credit to public sector enterprises had jumped nearly 18 percent in September.
Saudi Arabia is in the process of funding significant infrastructural expansion, and has been helped by robust oil prices. In early November, oil prices hit two-year highs, with a barrel of West Texas Intermediate (WTI) closing above $87 on one occasion.