Saudi bank lending activity forecast to decline in 2015

Credit to private sector recorded double digit growth at 12.6 percent year-on-year in November

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A slowdown in the Saudi private sector during 2015 should translate into lower growth for lending activity, Jadwa Investment said in its latest report on Saudi economy.

As finance sector growth stems from the direction of private sector activity, Jadwa forecast that the slowdown in the private sector during 2015 should translate into lower growth for lending activity.


Credit to private sector recorded double digit growth at 12.6 percent year-on-year in November.

“However, continuation of this growth is expected to be curbed by the commencement of new consumer credit rules and the start of compulsory compliance with SAMA’s Finance Companies Control Law,” the report noted.

New consumer lending rules include caps on fees around either 1 percent or SR5,000, whichever is lower, that banks may charge.

Another rule requires residential home seekers to make a 30 percent down payment of the original property value whenever they apply for a mortgage loan to finance their purchase.

Under this scenario, Jadwa believes “that these new rules will reduce credit to the private sector to 11.7 percent year-on-year at the end of 2015.

Based on the above indicators, we expect growth for the finance sector to slow to 4 percent in 2015, down from 4.5 percent in 2014.”

Moreover, the report forecast a fall in the current account surplus in 2015 because of lower oil export revenues.

The surplus is forecast to decline to 3.7 percent of GDP, down from 10.8 percent of GDP in 2014.

In dollar terms, the surplus is expected to decline to almost a third of its level in 2014, and its lowest since 2009 to reach $27 billion.

A relatively moderate growth in non-oil exports is not expected to provide a strong support to overall exports due to weak external demand.

Non-oil exports to grow by 4.8 percent compared with an average annual growth of more than 10 percent in the last five years.

Imports were expected to grow by 5.4 percent in 2015, rebounding from negative growth of 2.4 percent in 2014.

The invisibles balance, which consists of flows of remittances, incomes, and payments and receipts for services, will remain in a large deficit.

Oil revenues constitute 80-85 percent of total export revenue, so the decline in oil production and prices we are forecasting for 2015 will cause a 15 percent fall in total exports.

Total exports were expected to decline to $272.3 billion in 2015, down from an estimated $320.6 billion in 2014.

The gradual recovery in global economy is expected to dictate the trend of non-oil exports.

Hence, the demand for petrochemical and plastic products would remain weak in the first half of the year, but gradually improve toward the second half of the year, Jadwa said.

The decline in oil prices is likely to add more pressure on Saudi petrochemicals in the short-term, given that lower oil prices would reduce the competitive advantage of Saudi petrochemical companies relative to their international competitors.

Petrochemicals and plastics already account for more than 60 percent of the Kingdom’s non-oil exports.

While a continuation of strong demand for imports is expected owing to the ongoing infrastructure work and a robust domestic consumption, the negative sentiment associated with low oil price environment is likely to limit upside growth of domestic consumption, the report noted.

“We, however, think that as the government maintains its expansionary fiscal policy which was highlighted in the 2015 budget, economic activity will remain robust thereby maintaining a positive growth for imported products,” Jadwa added.

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