Saudi banks have benefitted from the robust economy as they are able to extend credit lines to growing businesses, which in turn, translated to record profits for financial entities, the National Commercial Bank said in its latest Saudi Economic Review released Sunday.
The depositary base reached an all-time high at amost $400 billion, increasing 12.7 percent on an annual basis by the end of June.
Banks’ total deposits have been growing at double digits for the past couple of years as oil prices remain elevated and supportive of a liquid economy.
The majority of deposits are demand based with a share of 62.8 percent as they climbed 14.1 percent Y/Y during June.
Businesses and individuals hold 93.8 percent of demand deposits while government entities make up the remaining 6.2 percent portion.
However, government entities have been decreasing their demand deposits, 19.2 percent Y/Y during June.
Meanwhile, the government’s time and savings deposits have increased by 28.4 percent, adding almost $9 billion YTD to reach almost $49 billion in June.
Opting for yielding assets reflects the willingness to utilize resources.
On the other hand, businesses and individuals are more inclined towards riskier alternatives given that their level of time and savings deposits stagnated at $47 billion, an annual gain of 0.1 percent.
The suppressed interest rate environment is unable to lure investment capital especially as Tadawul is on track to test the 11’000 level.
Additionally, other quasi-monetary deposits grew by 6.1 percent annually as foreign currency deposits increased by 5.7 percent Y/Y annually during the month of June.
Assessing the other side of the balance sheet, total claims of the banking system, excluding T-bills and government bonds accelerated at an annual pace of 11.8 percent last June.
The utilization of deposits is represented by the loans-to-deposits ratio which climbed to 81 percent during the first half of 2014. In comparison, Qatar and UAE’s L/D’s ratios are above 100 and 90, respectively.
However, SAMA favors a more conservative approach and prefers to limit potentially riskier positions.
By maturity, the share of short term bank credit still represents the majority of credit with a share of 52.9 percent.
The previous inclination towards medium and long term credit have faded as they grew by 11.7 percent and 11.8 percent on annual basis while short term credit outpaced both at 12.0 percent Y/Y by the end of June.
Additionally, total claims on the public sector gained 24.9 percent as the government have been using Treasury bills to control liquidity levels.
The government has accumulated an additional $14.2 billion worth of T-bills over the first half, indicating the proactive measures taken by SAMA to control liquidity levels.
As for the private sector, fresh lending reached $23.4 billion this year, an increase of 12.4 percent Y/Y, to reach a record $309 billion in June.
The credit portfolio of Saudi banks continues to be largely compromised of the commerce sector which holds 20.2 percent of banks’ total financing, $65 billion.
The second largest sector, manufacturing and processing, grew at an annual 11.6 percent while the building and construction sector recorded a second quarter of substantial growth at 12.0 percent Y/Y.
The mining and quarrying sector increased at 39.5 percent Y/Y to reach SR20.0 billion, albeit being benign in size it is almost four times its level five years ago.
Additionally, SAMA released updated regulations for consumer lending which include more transparency by creditors, ability to pay the loan in full early without bearing future interest payments, and limiting administrative fees to $1, 333 or 1 percent of total loan whichever is lower.
SAMA is proactively seeking the benefit of consumers and financial entities by proactively developing their rules and regulations.
This article was first published in the Saudi Gazette.