Saudi credit growth to pick up in 2018 after slowdown: analysts

Saudi bank lending to local private companies fell one percent year-on-year in January, but surged by 41 percent for the public sector, according to recent data released by Saudi Arabian Monetary Authority (SAMA).

Lending for local private companies declined to SAR 1.34 billion in January, down from SAR 1.36 billion same month last year. During the same period, bank lending to the public sector rose 40.7 percent to SAR 308.3 billion.

“Groundbreaking changes, new transformation plan as well as the Vision 2030 have brought in a lot of changes. We expected the transition, especially during structural adjustment, to have some impact like this,” Tamer El Zayet, Vice President and Head of Macroeconomics at NCB Capital, told Argaam in a phone interview.

“We believe some sectors will have to streamline their operations and reduce their capacity as well. Besides, the overall cycle is subdued, and it will definitely need a little bit of time until oil prices and revenue start to trickle down to the new (players), whether it is companies or sectors.”

Given the concern, there has been huge injection of amounts to support the private sector through stimulus package, and various plans announced during budget, El Zayet said, expecting things to turn positive by start of the second quarter.

Olivier Panis, Vice President and Senior Credit Officer at Moody's Investors Service, also noted that the slowdown in private sector lending was normal, and not a cause for concern.

“From an asset quality perspective, we are more concerned about overheating of banking credit in a situation of muted economic growth rather than banks and borrowers adapting to slower economic conditions,” he said.

The decline in lending to the private sector reflects a weakening in credit demand last year.

“You have a situation where with the negative GDP growth, a lot of companies focused on deleveraging their balance sheet rather than taking on more debts,” Panis told Argaam.

“If you look at indicators of consumption on the consumer side as well you see a negative trend in POS transactions, in credit cards etc. So that points to basically low credit demand,” he added.

According to SAMA’s data, point-of-sale transactions fell 18.7 percent to SAR 16.4 billion from the previous month, but still remain 4.3 percent higher than a year earlier.

Total net foreign assets reported monthly decline since September last year. It fell 2.1 percent to $486 billion due to a drop in the value of investments in foreign securities, the authority said.

On Monday, Emirates NBD said business conditions in the Kingdom’s non-oil private sector saw modest improvement in February, as output increased at a slightly faster pace in February, but new order growth slowed sharply.

“While the pace of expansion in Saudi Arabia’s non-oil sector was slow by historical standards in February, firms were much more upbeat about prospects for the coming year, citing new project wins and stronger growth prospects,” said Khatija Haque, head of MENA research at Emirates NBD.

Looking ahead, Panis said Moody’s said Moody’s expects a slight rebound in credit growth amid expectations for moderate and gradual economic recovery.

“The key expectation here is that the government spending  more than offsets the negative pressures from fiscal consolidation reforms. So we’ll have a gradual recovery but still modest credit growth of 4-5 percent this year,” he said.