Saudi bank lending climbs on real estate loans

Bank lending is on the rise again in Saudi Arabia helping to boost retail and real estate spending. (Getty Images)
Updated 29 May 2018
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Saudi bank lending climbs on real estate loans

  • Total real estate loans rise 5.7 percent in first quarter yoy
  • Oil price recovery helps to boost overall bank lending

Bank lending to the private sector in Saudi Arabia rose in April, providing a tentative sign that confidence in the Kingdom’s economy is returning, say analysts.

Total bank credit to the private sector increased by about 0.7 percent compared to the same month the previous year, according to Saudi Arabian Monetary Authority (SAMA) data.

“It’s a hard indicator to read, but it may be a sign that Saudi consumers and business people feel less uncertain about the future and a bit more secure. It is probably linked to the return to fiscal expansion,” said Marcus Chenevix, a Middle East and North Africa analyst at TS Lombard in London.

“However, Saudi Arabia has a comparatively underdeveloped banking sector for its level of per-capita wealth, meaning that this is an area in which we would expect to see pretty strong growth.”

The loan growth was put down in part to a revival in the property sector.

“Lending growth was driven primarily by the construction sector and the real estate retail loans in the first quarter,’ said Mohamed Damak, senior director, financial institutions ratings at S&P Global.

Total real estate loans by banks in the first quarter this year increased by 5.7 percent compared to the same quarter the previous year.

“Under our base case scenario, we expect slight lending growth in 2018 explained by a higher GDP growth in 2018,” he said.

Ashraf Madani, vice president, senior analyst at rating agency Moody’s Investors Service, agreed that lending is likely to rise this year. “We expect credit demand to increase in 2018 boosted by the planned increases in government capital expenditure,” he said.

The April data also revealed that SAMA’s foreign reserves rose to $498.9 billion in April, the highest level in more than a year and an increase of more than $13 billion on the previous month.

The increase is mainly due to the recovery in oil prices which reached approximately $75 a barrel in April.


“It is 90 percent due to rising oil prices,” said Chenevix.

“The remaining 10 percent of responsibility is down to the fact that the Saudi budgetary system is far better managed than it was just three years ago, even though the state is actually spending more money, it is doing so in a more effective and better planned way than before,” he said.

The Kingdom’s reserves also benefited from the government’s international bond issuance of $11 billion in the first half of April.


Saudi energy minister recommends driving down oil inventories, says supply plentiful

Updated 19 May 2019
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Saudi energy minister recommends driving down oil inventories, says supply plentiful

  • Oil supplies were sufficient and stockpiles were still rising despite massive output drops from Iran and Venezuela
  • Producer nations discussed how to stabilise a volatile oil market amid rising US-Iran tensions in the Gulf, which threaten to disrupt global supply

JEDDAH: Saudi Arabia’s Energy Minister Khalid Al-Falih said on Sunday he recommended “gently” driving oil inventories down at a time of plentiful global supplies and that OPEC would not make hasty decisions about output ahead of a June meeting.
“Overall, the market is in a delicate situation,” Falih told reporters before a ministerial panel meeting of top OPEC and non-OPEC oil producers, including Saudi Arabia and Russia.
While there is concern about supply disruptions, inventories are rising and the market should see a “comfortable supply situation in the weeks and months to come,” he said.
The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is de facto leader, would have more data at its next meeting in late June to help it reach the best decision on output, Falih said.
“It is critical that we don’t make hasty decisions – given the conflicting data, the complexity involved, and the evolving situation,” he said, describing the outlook as “quite foggy” due in part to a trade dispute between the United States and China.
“But I want to assure you that our group has always done the right thing in the interests of both consumers and producers; and we will continue to do so,” he added.
OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices.
Russian Energy Minister Alexander Novak told reporters that different options were available for the output deal, including a rise in production in the second half of the year.
The energy minister of the United Arab Emirates, Suhail Al-Mazrouei, said oil producers were capable of filling any gap in the oil market and that relaxing supply cuts was not “the right decision.”
Mazrouei said the UAE did not want to see a rise in inventories that could lead to a price collapse and that OPEC would act wisely to maintain sustainable market balance.
“As UAE we see that the job is not done yet, there is still a period of time to look at the supply and demand and we don’t see any need to alter the agreement in the meantime,” he said.
US crude inventories rose unexpectedly last week to their highest since September 2017, while gasoline stockpiles decreased more than forecast, data from the government’s Energy Information Administration showed on Wednesday.
DELICATE BALANCE
Saudi Arabia sees no need to boost production quickly now, with oil at around $70 a barrel, as it fears a price crash and a build-up in inventories, OPEC sources said, adding that Russia wants to increase supply after June.
The United States, not a member of OPEC+ but a close ally of Riyadh, wants the group to boost output to bring oil prices down.
Falih has to find a delicate balance between keeping the oil market well supplied and prices high enough for Riyadh’s budget needs, while pleasing Moscow to ensure Russia remains in the OPEC+ pact, and being responsive to the concerns of the United States and the rest of OPEC+, the sources said earlier.
Sunday’s meeting of the ministerial panel, known as the JMMC, comes amid concerns of a tight market. Iran’s oil exports are likely to drop further in May and shipments from Venezuela could fall again in coming weeks due to US sanctions.
Oil contamination also forced Russia to halt flows along the Druzhba pipeline — a key conduit for crude into Eastern Europe and Germany — in April. The suspension, as yet of unclear duration, left refiners scrambling to find supplies.
Russia’s Novak told reporters that oil supplies to Poland via the pipeline would start on Monday.
OPEC’s agreed share of the cuts is 800,000 bpd, but its actual reduction is far larger due to the production losses in Iran and Venezuela. Both are under US sanctions and exempt from the voluntary reductions under the OPEC-led deal.
REGIONAL TENSIONS
Oil prices edged lower on Friday due to demand fears amid a standoff in Sino-US trade talks, but both benchmarks ended the week higher on rising concerns over disruptions in Middle East shipments due to US-Iran political tensions.
Tensions between Saudi Arabia and Iran are running high after last week’s attacks on two Saudi oil tankers off the UAE coast and another on Saudi oil facilities inside the Kingdom.
Riyadh accused Tehran of ordering the drone strikes on oil pumping stations, for which Yemen’s Iran-aligned Houthi militia claimed responsibility. 
Saudi Arabia’s minister of state for foreign affairs said on Sunday that the Kingdom wants to avert war in the region but stands ready to respond with “all strength” following the attacks.
“Although it has not affected our supplies, such acts of terrorism are deplorable,” Falih said. “They threaten uninterrupted supplies of energy to the world and put a global economy that is already facing headwinds at further risk.”
The attacks come as the United States and Iran spar over Washington’s tightening of sanctions aimed at cutting Iranian oil exports to zero, and an increased US military presence in the Gulf over perceived Iranian threats to US interests.