Saudi spending to drive loans from five-year low

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SLOWING DOWN Syndicated loan growth in the $1 trillion Islamic finance industry has slowed every year since reaching a record high of $23.7bn in 2007 (ITP Images)

SLOWING DOWN Syndicated loan growth in the $1 trillion Islamic finance industry has slowed every year since reaching a record high of $23.7bn in 2007 (ITP Images)

Saudi Arabia will lead a rebound in Islamic loans from a five-year low in 2011 as accelerating economic growth and development spending boost financing needs, Banque Saudi Fransi and Standard Chartered say.

Syndicated loans that comply with Islam’s ban on interest declined 23 percent to $6.2bn in 2010 for Europe, the Middle East and Africa, compared with a 59 percent increase in total lending to $916bn, according to data compiled by Bloomberg. Borrowers from the Persian Gulf dominated the market last year while HSBC Holdings Plc and Standard Chartered were among the top 36 arrangers, the data show.

Demand for Islamic loans and sukuk will climb in Saudi Arabia this year, with borrowers tapping the financial markets to fund expansion, said John Sfakianakis, the Riyadh, Saudi Arabia-based chief economist at Banque Saudi Fransi, in an interview February 1. The Arab world’s largest economy will expand 4.5 percent this year, from an estimated 3.4 percent in 2010, the International Monetary Fund reported on October 6.

“Given that the economy and private sector are returning back to the fold, and growth is picking up, certainly I think appetite for sukuk and loans will be there much more than the last two years when it was very modest,” said Sfakianakis.

Syndicated loan growth in the $1 trillion Islamic finance industry has slowed every year since reaching a record high of $23.7bn in 2007, data compiled by Bloomberg show. Banks lent $8bn in 2009 and $14.8bn in 2008.

Saudi Arabia announced a SAR1.44 trillion ($384bn) five-year development plan in August as the kingdom seeks to bolster growth through spending on human resources, housing, education and transportation. The programme is 67 percent larger than the previous one.

Saudi International Petrochemical Co said December 14 it may sell as much as SAR2bn of Islamic bonds in the first quarter. Saudi Electricity Co, a state-controlled utility, plans to raise funds to help pay for more than SAR30bn in projects this year, CEO Ali Al Barrak said in a December 14 interview.

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