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.


India names Modi demonetization backer as cenbank head

Visitors are seen standing next to a logo of the Reserve Bank of India (RBI) at the bank's head office in Mumbai on December 5, 2018. (AFP)
Updated 12 December 2018
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India names Modi demonetization backer as cenbank head

  • Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization

MUMBAI: Ex-finance ministry official Shaktikanta Das took charge of the Reserve Bank of India on Tuesday, in a swift appointment expected to ease a dispute with the government as it pushes for looser credit rules ahead of a general election.
The announcement by Prime Minister Narendra Modi’s administration came just a day after Urjit Patel resigned from the post, following months of clashes between the two institutions over lending curbs and how to deploy the central bank’s surplus reserves.
Pressure on the RBI to take immediate steps to boost the economy, including a transfer of the excess reserves to the government, could well rise after Modi’s ruling Bharatiya Janata Party (BJP) suffered likely election losses in three key states on Tuesday.
Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization — will serve a three-year term as governor, effective immediately.
RBI watchers said they expected the 61-year-old, who retired last year as secretary of the department of economic affairs having previously served on the RBI’s board, to put relations between the Mumbai-based bank and the finance ministry in New Delhi on a stabler footing.
Investors will also look closely at his ability to hold up against outside influences after recent efforts by the Modi government to gain greater control over the central bank’s regulatory powers.
“The incoming governor will have to work hard to prove that he has his own independent mind,” said Deepak Jasani, head of retail research at Hdfc Securities.
Investors said any openly political appointee with little macro-economic experience, would not sit well with financial markets that already sold off following the BJP’s election setbacks.
But Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai, said he expected India’s debt and currency markets to react positively.
“He is a bureaucrat...We expect the RBI to take a pragmatic approach under him, be pro-growth and change its stance going ahead given that inflation has come off sharply,” he said.
Finance Minister Arun Jaitley told Reuters partner ANI that the government acknowledged the bank’s independence.
“Government will fully support the RBI and coordinate with it in areas where consultations of government are required to make sure India’s economy benefits from both government policy decisions and areas which fall within domain of the RBI,” ANI tweeted, quoting Jaitley.

SWIFT APPOINTMENT
Pronab Sen, India’s former chief statistician, said he was surprised by the speed of Das’s appointment.
“If you have a situation where a position as important as the governor of the RBI is filled within 24 hours of the resignation of the incumbent, that will raise eyebrows,” Sen told Reuters.
“People are going to say, clearly this guy had already been identified. And, the situation was created where Urjit Patel had to quit.”
Das — widely seen as a contender for the top RBI job after Raghuram Rajan’s term ended in 2016 — did not answer calls from Reuters to his mobile phone.
RBI officials who have worked with him closely said Das was likely to be more inclusive in the decision-making process than Patel.
“He has a balanced approach and is good at consensus building,” said a former deputy governor. .”..We have had our fair share of differences. But he has always been solution-centric rather than festering on those differences.”
Das worked in the finance ministry under both Modi’s government and the previous coalition led by the main opposition Congress party and was also involved in drafting the Insolvency and Bankruptcy code aimed at protecting small investors.
He came under fire for his pro-demonetization stance and was the most vocal bureaucrat at the time Modi withdrew the high-value bank notes to fight tax evasion.
Das last year criticized the methodology of global rating agencies and sought a sovereign rating upgrade for India.