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.


Oil prices up almost 3 pct as OPEC agrees to raise output

Updated 22 June 2018
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Oil prices up almost 3 pct as OPEC agrees to raise output

  • Oil prices rose almost 3 percent on Friday as OPEC agreed a modest increase in output to compensate for losses in production at a time of rising global demand.
  • The Organization of the Petroleum Exporting Countries agreed on Friday to boost output from July.

LONDON: Oil prices rose almost 3 percent on Friday as OPEC agreed a modest increase in output to compensate for losses in production at a time of rising global demand.
Benchmark Brent crude jumped $2.19 a barrel, or almost 3 percent, to a high of $75.24 before slipping to around $75 by 1305 GMT. US light crude was $1.80 higher at $67.34.
The Organization of the Petroleum Exporting Countries, meeting in Vienna, agreed on Friday to boost output from July after Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage.
Two OPEC sources told Reuters the group agreed that OPEC and its allies led by Russia should increase production by about 1 million barrels per day (bpd), or 1 percent of global supply.
But the real increase will be smaller because several countries that recently underproduced oil will struggle to return to full quotas while other producers will not be allowed to fill the gap.
The deal looked to be in line with many analysts' forecasts.
Analysts had expected OPEC to announce a real increase in production of 500,000 to 600,000 barrels per day (bpd), which would help ease tightness in the oil market without creating a glut.
"The effective increase in output can easily be absorbed by the market," Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas told Reuters Global Oil Forum.
Oil prices have been on a roller-coaster ride over the last few years, with the international marker, Brent, trading above $100 a barrel for several years until 2014, dropping to almost $26 in 2016 and then recovering to over $80 last month.
The most recent price rally followed an OPEC decision to restrict supply in an effort to drain global inventories.
The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.
Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of US sanctions, have all increased market worries of a supply shortage.
Another big uncertainty for oil is the escalating dispute between the United States and its trading partners, which could hit US crude oil exports to China.
Asian shares hit a six-month low on Friday as tariffs and the US-China trade battle start taking their toll.
If a 25 percent duty on US crude imports is implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere.
Chinese buyers are already starting to scale back orders, with a drop in supplies expected from September.