Saudi bank lending set to grow 4% in 2018: Moody’s

Bank lending activity in Saudi Arabia is slated to gain pace this year, supported by the government’s SAR 72 billion package to boost private sector growth over the next four years, Moody's Investors Service said in a new report.

The ratings agency expects bank lending to grow by 4 percent as economic activity in the Kingdom will recover over the next 12-18 months, in line with the spending increases planned in the government’s 2018 budget.

The positive credit outlook comes after Saudi Arabian Monetary Authority’s (SAMA) December 2017 bulletin showed domestic liquid assets reached a record high SAR457 billion last year, despite subdued deposit growth and challenging business conditions.

Domestic liquid assets rose 11 percent and equalled 20 percent of banks’ assets in 2017, compared to 14 percent in 2015. Similarly, banks’ ratio of reserves to total deposits reached 14.8 percent last year, its highest since year-end 2012.

The positive trends were achieved amid a muted 0.1 percent deposit growth in the last year, driven mainly by a contraction of 1 percent in bank loans and a 43 percent increase in banks’ holdings of domestic government bonds, the report said.

“Successive sovereign debt issuance in 2017, notably sukuk issuance, allowed banks to transfer their excess liquidity into high-quality government investments,” Moody's said.

Government bonds comprised 56 percent of Saudi banks’ domestic liquid assets as of end-2017, up from 27 percent in 2015.

In December, the ratings agency maintained its outlook for banks at stable, citing “increased government spending and strong capital buffers.”