Loan growth accelerates in Saudi Arabia

Slowing inflation in Saudi Arabia is giving banks room to boost lending as the government increases spending on infrastructure and housing in the largest Arab economy. Consumer prices rose 4 per cent in July, the lowest rate of increase since October 2009, according to data from the Central Department of Statistics. Food, medical care and transport services led the slowdown, it said. Inflation concerns are easing even as loan growth to private businesses accelerates. The kingdom has started implementing its $514 billion (Dh1.89 trillion) plan to build homes, industrial cities and airports. The projects helped boost lending to private businesses in the world’s biggest oil-exporting nation by 14 per cent in July. Banks have “sufficient room to increase lending and I don’t think liquidity is much of a concern at this point in time,” Murad Ansari, an analyst at Egyptian investment bank EFG-Hermes Holding SAE, said in a telephone interview from Riyadh. “Bank lending, although it has picked up, isn’t really at levels which would be a concern to the central bank yet.” Loan demand has lifted the three-month Saudi interbank offered rate, known as Saibor, and the benchmark used by banks to price some loans, to 0.9563 per cent on Saturday, the highest since April 2009, data compiled by Bloomberg show. The rate’s spread over the equivalent US rate widened to 55 basis points on Saturday, from 20 basis points at the end of 2011, according to the data. T-bill sales The yield on one-year Saudi treasury bills is up eight basis points this year to 0.59334 per cent at Monday’s auction. Saudi Arabia holds weekly bill sales on Mondays. Inflation in five of the six Gulf Cooperation Council (GCC) countries, including Saudi Arabia, the UAE and Qatar, exceeded 10 per cent in 2008 as rising oil prices spurred economic growth and created a shortage of housing and services, while a weaker US dollar made imports more expensive. Saudi inflation was a record 11.1 per cent in July 2008, a year when bank credit expanded 27 per cent, increasing pressure on the central bank to abandon its dollar peg and curb lending. The rise in food and beverage prices slowed to 4.5 per cent in the first seven months, compared with 5.8 per cent a year earlier, according to data. Transport and telecommunication services price increases slowed to 1.9 per cent from 2.1 per cent. Price drop “There’s been a sharp fall in commodity prices and the dollar has been quite strong as well,” Giyas Gokkent, chief economist at the National Bank of Abu Dhabi PJSC, the UAE’s second-biggest bank, said on Sunday in a telephone interview. Bank lending in Saudi Arabia should grow at an annual 15 per cent rate this year, EFG-Hermes’s Ansari said on Sunday. Should lending accelerate further, banks have room to increase deposits by offering higher interest rates to clients, he said. Companies including Saudi Arabian Mining Co. and Saudi Acrylic Monomer Co. are increasing borrowing from banks to expand as the government moves to diversify the Saudi economy. Saudi developers are also tapping bank loans to build real estate projects. Makkah-based Jabal Omar Development Co. signed a 5 billion riyal (Dh4.77 billion) Islamic financing deal in June to complete the first stage of its projects in the city. Emaar Economic City, a unit of Dubai’s Emaar Properties PJSC, is developing King Abdullah Economic City on the Red Sea coast that will house about 2 million people. Red Sea Housing Services Co., based in Jubail, said in July it’s investing 2 billion riyals in expansion. The Saudi economy grew 6.8 per cent last year compared with average growth of 1.3 per cent among Group of 10 industrialised nations, according to data compiled by Bloomberg. The economy is set to grow 5 per cent this year, the second-fastest pace in the GCC after Qatar and on par with Kuwait, according to the median estimate of 12 economists compiled by Bloomberg in July. Saudi home lending grew at the fastest pace in at least four years in the second quarter, jumping 83 per cent to 48 billion riyals, according to the Central Bank. From: Gulf News.