By Massoud A. Derhally
Lending in kingdom hit US$249.8bn in June, up 15.1 percent from same month last year
Lending in Saudi Arabia hit a record SAR936.7bn (US$249.8bn) in June, an increase of 15.1 percent from the same month a year earlier, National Commercial Bank (NCB) said in a report.
The portion of medium and short-term lending increased 17.8 percent, shifting away from long term financing as more banks financed small and medium- sized enterprises (SMEs) in the kingdom. As a result of the pickup in lending activity, the loan-to-debt ratio has been supported to reach 80.7 percent for June, NCB said in the report.
Credit to the building and construction industries grew the most, rising by 49.4 percent year-on-year to reach SAR73.4bn, the bank said. The sector will remain one of the strongest for the next few years as demand outpaces current supply levels. The services sector reported the second highest growth at 47.1 percent year-on-year, followed by the utilities and health services at 45.6 percent.
Saudi Arabia's central bank is likely to maintain its current interest policy rate, in line with the US Federal Reserve Bank, which is expected to keep the rate at near zero till 2014. NCB said. The Saudi interbank overnight rate (SAIBOR) remains under 100 basis points, helping local banks to easily manage cash levels in order to expand their balance sheet items and support local business and the economy as a whole, it said.
"The Saudi economy continues to maintain an upwards trajectory and record robust growth figures despite the fragility of the global economy," NCB said. "This has been partially driven by utilising large amounts of excess liquidity and benefiting from the cautious approach of the financial system last year."
Inflationary pressures are subdued, dropping to 4.9 percent in June, the lowest since August 2011, due to falling real estate and rental prices, the bank said. Rising prices can be handled by adjusting the required reserve requirement, a decision opted by SAMA in 2008, the bank said. The kingdom's inflation rate is forecast to fall to about 4.8 percent this year and 4.5 percent in 2013 from 5 percent last year.
Saudi Arabia's economic growth is projected to slow to 3.9 percent in 2012 from about 6.8 percent last year, according to NCB.