RIYADH, 29 August 2005 — Latest Saudi Arabian Monetary Agency (SAMA) data show that total bank lending (including loans, advances and overdrafts, but not bank investment in securities) increased by a spectacular SR27 billion in May and June.
This growth was bigger than the banking sector’s deposit growth (SR13 billion), meaning that the loans-to-deposit ratio, already at record highs, rose even further. For the year 2005 till June, bank lending has grown by a whopping SR61 billion, which is almost double the growth in the same period of 2004, and twenty-four times the growth in the same period of 2003! In contrast, total bank deposits grew SR46 billion in 2005 and SR28.5 billion in 2004 (same period). What accounts for this dizzying growth in bank lending? A look at the details is revealing.
First, it is notable that the overwhelming bulk of the growth has been in lending to the private sector (which includes individual/retail borrowing) — SR60 out of the 61 billion in 2005, and SR35 billion out of the 39 billion in 2004 (only in 2003, was growth higher in the public sector).
In terms of tenor, the growth was almost even between short-term and long-term loans in 2005 (and earlier in 2002), but was overwhelmingly skewed toward short-term lending in 2004 and 2003 (overall, in total for the past four years, short-term lending wins out). Short-term loans (maturity under one year) include primarily working capital and overdraft facilities in the corporate sector and consumer loans, credit cards and margin trading in the retail sector. Long-term loans include (among others) project financing in the corporate sector and collateral-based loans (primarily automobile) in the retail sector. The most interesting surprise, however, is in the sectoral breakdown of bank lending.
SAMA data show that the sector which has seen the biggest growth in lending in recent months is “miscellaneous”, which includes primarily personal loans (credit cards, consumer loans, mortgage, personal investment, margin trading, etc.). In fact, this is the only sector which has increased its share in bank lending consistently over the long-term (21 percent in 1993, 29 percent in 2002, 39 percent in 2005). All other sectors’ shares were flat or declining, except ‘finance’ which is showing a spurt since mid-2004.
(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)