Al Rajhi Bank limits lending ahead of Saudi economic reforms

Al Rajhi Bank expects low single-digit loan growth for the rest of the year as it cuts back on loans as economic reforms get underway in the Kingdom, Reuters reported, citing chief executive Steve Bertamini.

Bank lending in the Kingdom remains generally subdued, with Al Rajhi's loan growth declining 1.7 percent in Q2. However, the lender expects a return to more "normalized" growth in the mid-single digits in 2019, Bertamini said.

Opportunities are expected in the medium-term from the Kingdom’s Vision 2030, a multi-billion dollar plan to diversify the Saudi economy away from oil.

"There's not enough liquidity in the banking system to support all of it, so there will need to be a large component of international finance to come on line. Being very well capitalized, very liquid, will be an asset for us," he was quoted as saying.

As reforms aiming to boost home ownership in Saudi Arabia take shape, some initiatives to boost the housing market are already helping Al Rajhi Bank, the Kingdom's biggest mortgage provider. These include the government’s decision to raise its home ownership target for Saudis to 60 percent by 2020 from around 47 percent now.

Other reforms expected to drive growth are the increasing participation of women in the workforce, particularly after the Kingdom’s landmark decision to allow women to drive.

The bank has already seen an overall rise in banking and car loans for women, he said, adding that increasing numbers of women in the workforce will boost demand for accounts, loans and saving products.

"Women driving and increased participation of women in the workforce will take a bit of time to work its way through the system, but in my view that should more than offset any short-term impact from the departure of expats," he said.

The number of foreign workers in Saudi Arabia has fallen by more than 700,000 since last year, following efforts to increase employment of Saudi nationals in various sector.

Al Rajhi Bank, nevertheless, saw steady growth in its consumer base, the CEO said. The expatriate exodus, however, might have some impact on its remittance business.

Meanwhile, Al Rajhi’s consumer lending division has seen record volumes, ahead of the implementation of new rules by the central bank on Aug.12 to help control indebtedness.

Corporate lending, on the other hand, has been generally flat as businesses put off borrowing until they had adjusted to new economic conditions such as the introduction of value-added tax (VAT), higher utility costs, and any changes in their workforce mix.

"We expect three or six months from now, rates will improve and margins will improve as demand for loans begins to increase again from the lower levels of the last 18 months," Bertamini said.