Saudi banks, which are on track to record profits for 2013, have plenty of scope to further increase lending, according to economists.

Bank lending to the private sector posted a healthy rise in November, says the latest edition of Jadwa Investment’s Saudi chart book.

It said the share of credit with short-term maturity profiles maintained its gradual downward trend as the private sector liquidity position improves.

With accelerating credit growth, banks reduced their holding of government securities which could also reflect Saudi Arabian Monetary Agency’s (SAMA) moderate concern about inflation.

Bank lending to the private sector grew by 1 percent in November. This lifted the year-on-year increase to nearly 14 percent, according to Jadwa Investment.

Short-term lending has consistently fallen as a proportion of the total. At the end of November, it was at 53 percent, compared to 58 percent two years ago and above 60 percent following the 2008 financial crisis. In part, this could reflect the improved liquidity position of the private sector compared with their position two years ago.

Banks reduced their holding of government securities in November mainly due to decline in treasury bills. In part, this could reflect SAMA’s moderate concern about inflation.

Despite the rise in bank lending to the private sector, bank grew their excess reserves at SAMA in November due to strong growth in deposits and low claims on the public sector. As a result, the loan-to-deposit ratio fell to a four-month low, said the Jadwa report.

As expected, banks profit is on track to record an all-time high this year.

Inflation is estimated by the Ministry of Finance to have increased to 3.35 percent in 2013 compared with 2.9 percent last year owing to rapid increase in food inflation from 4.6 percent last year to 6 percent in 2013. Annual inflation in November picked up slightly on the back of marginal increase in the core index.

Inflation rose slightly in November to 3.1 percent year-on-year, up from 3 percent in the previous month.

This slight increase was entirely due to pick-up in core inflation while food and rental inflation remained flat in November.

Nonoil exports continued to improve for the third consecutive month in October. Imports fell by 9 percent month-on-month to $11.8 billion in October, according to the report.

As a result, it said the nonoil trade deficit recorded a two-year low of $7 billion. New letters of credit opened at commercial banks for imports fell in November, pointing to lower imports in December.

For the year as a whole, the report said Tadawul All-Share Index rose by 25.5 percent in 2013, the second consecutive year of growth.

Elevated oil prices, an expansionary fiscal budget, robust private nonoil sector performance and gains on global markets will keep sentiment positive in 2014.

The report said 13 of the 15 sectors rose in 2013.

Sectors oriented toward the local economy were the best performers, owing to sound local economic fundamentals, regional unrest and global economic uncertainty.

Changes in labor market conditions continue to affect related sectors for the second consecutive month in December.

Saudi real GDP growth slowed for the second consecutive year in 2013 as the growth of the oil sector fell to the negative territory for the first time since 2009, according to Jadwa Investment.

The negative contribution of the oil sector was offset by a healthy expansion of nonoil sector with the private sector continuing on a robust growth path, though at a slower pace than in 2010-12.

Real GDP growth slowed from 5.8 percent in 2012 to an estimated 3.8 percent last year.

This slower growth was mostly due to lower oil production which fell to 9.6 million barrel per day

(mbpd) in 2013, down from 9.8m bpd in 2012.

November data present a mixed picture for the economy. While volatile on a monthly basis, most guides to consumer spending are above where they were in the same month of last year though they remain on flat trend.

Annual growth of cement sales, however, reached an all-time low in November, Jadwa researchers said.

The value of cash withdrawals from ATMs fell in November, but its annual growth remained positive at 4 percent.

Cement sales in November also slipped compared with October and were 15 percent lower than in November 2012, the largest year-on-year contraction on record.

“As highlighted in our latest chartbook, we believe this reflects the recent changes in domestic labor market,” the report said.

It said broad money supply growth rose in November owing to an increase in demand deposits, largely from business and individuals.

Total deposits continued to grow, with demand deposits accounting for an increasing share of the deposit base as very low interest rates continue to discourage longer-term saving.

Broad money supply growth rose in November owing to an increase in demand deposits, largely from business and individuals, according to Jadwa Investment.

The report said that total deposits continued to grow, with demand deposits accounting for an increasing share of the deposit base as very low interest rates continue to discourage longer-term saving.