RIYADH: Saudi Arabia’s business sector saw a boom across most segments in May, with banks extending loans, overdrafts and lines of credit to companies seeking to invest in their projects, purchase capital goods and expand operations.
Out of the 16 business segments of the National Classification of Economic Activities, 15 registered an annual increase in bank credit for May. The only segment that witnessed a dip was agriculture, forestry and fishing, which fell by 8.06 percent.
Bank credit to professional, scientific and technical activities in Saudi Arabia increased 49.49 percent to SR5.01 billion ($1.34 billion) in May, from SR3.35 billion in the same month last year, showed the latest data from the Saudi Central Bank, also known as SAMA.
SAMA’s recent monthly report revealed that the segment also recorded a 21 percent increase in bank credit compared to SR4.11 billion in April.
It encompasses a wide range of professional services, including legal and accounting, architectural and engineering, technical tests and analysis, and research and development in scientific fields.
The Kingdom has seen significant growth in the segment, with state-run institutions such as Research Development and Innovation Authority collaborating with the private sector to promote innovation and entrepreneurship.
The sector is also set to play a crucial role in the Kingdom’s Vision 2030 diversification strategy that aims to reduce dependence on oil revenues and develop a knowledge-based economy, with German research platform Statista projecting it to reach $8.5 billion in 2024.
Boosting the energy mix
The other segment that attracted significant bank credit was that covering electricity, gas and water suppliers, which booked a 34.79 percent rise to SR124.49 billion in May from SR92.35 billion in the year-ago period.
The segment also includes activities such as generating, transmitting and distributing electricity, gas and steam.
Water collection, treatment and supply are also included, as is the production and distribution of ice.
One of the biggest drivers in this sector is the Saudi Vision 2030 blueprint that aspires to replace the petroleum used to generate 42 percent of the country’s 110 gigawatts daily electricity needs with a mix of 50 percent natural gas and 50 percent renewable energy by 2030.
Moreover, the Ministry of Energy’s spending on power and renewable energy projects is expected to reach $293 billion by 2030.
“Serious actions have been taken by the Kingdom aiming to diversify the energy supply mix and introduce energy efficiency programs. This strategy would benefit Saudi Arabia in the long-term by lowering the reliance on fossil fuels,” said Hani Aldhubaib, assistant professor of electrical engineering at Umm Al-Qura University, in his paper on the future of electrical energy in Saudi Arabia published in December 2022.
Bank credit to financial and insurance activities in May also rose 29.41 percent on an annual basis to SR95.77 billion. The segment also received loans worth SR101.43 billion in March, its highest since May 2022..
The segment includes national commercial banks, branches of foreign commercial banks and firms involved in financial technology and management of cash centers.
Much of the growth in this segment can be attributed to the Kingdom’s expanding economy, which has increased demand for financial services, such as loans, investments, and insurance coverage.
Quick estimates for the first quarter of 2023 indicate that real gross domestic product increased by 3.9 percent compared to the same period a year earlier, fueled by 5.8 per growth in non-oil activities and 4.9 percent in government services.
“By leveraging favorable macro conditions and strong sector growth, Saudi banks can pursue strategic investments to grow revenues and optimize costs,” said Markus Massi, managing director of the Middle East office of Boston Consulting Group, in its recent report on the Kingdom.
SAMA has also been instrumental in driving the financial and insurance sector by creating a regulatory environment that provides stability and confidence, encouraging banks to lend to the industry.
In the first quarter, the bank launched the Open Banking Lab, enabling banks and fintech companies to develop, test and license open banking services.
The property market has also been up, with bank credit to real estate activities increasing 29.39 percent to SR227.36 billion in May, compared to SR175.71 billion in the same month last year.
According to the NCEA classification, this segment comprises buying, selling, leasing and managing warehouses and residential and non-residential properties.
The stimulus to this growth has been spurred by a growing population, urbanization, and increased demand for housing.
This demand and government initiatives to address housing shortages and improve affordability have created opportunities for real estate companies to undertake residential projects.
“The provision of world-class housing sits at the heart of Vision 2030. With demand pivoting toward community living, there remains an opportunity to develop more town housing, which offers the privacy and outside space buyers are looking for,” said Yazeed Hijazi, associate partner, real estate strategy and consulting, Knight Frank, in its recent report on Saudi Arabia.
The overall increase in bank credit among various economic segments is a reason to cheer as it leads to increased business activity, job creation and higher production levels, contributing to economic growth and the lofty ambitions of Vision 2030.