Saudi Arabia’s banks recorded a profitable first nine months of 2013 and continue to reflect a strong financial system whereas many economies are still suffering from the global financial crisis. One of the essential components of facilitating such performances was the high level of liquidity in the domestic market, according to a report by the National Commercial Bank (NCB).
By the end of September, total deposits reached SR1.35 trillion, an annual gain of 14.1 percent. Non-bearing interest deposits are still favored by businesses and individuals as their share of demand deposits stood at 91.3 percent in Q3, 2013 while government entities represented the remaining 8.7 percent.
However, the report said government demand deposits have been rising rapidly, recording a staggering 86.8 percent Y/Y during September. As for time and savings deposits, growth was solely driven by government entities which in- creased their deposits to SR149.6 billion, a 26.7 percent annual jump. Meanwhile, businesses and individuals were somewhat unchanged at SR176.0 billion. In addition, foreign currency deposits decreased on an annual basis by 3.5 percent albeit recording a strong M/M rebound by 8.9 percent. Interestingly, outstanding remittances have averaged SR14.7 billion during the first nine months of 2013 in comparison to SR10.9 billion for the first three quarters of 2012 due to the Ministry of Labor’s strict saudization quest, the NCB report said.
On the financing front, total claims of the banking system, excluding T-bills and government bonds, posted an annual increase of 13.8 percent during September, the fifth consecutive deceleration. Saudi banks experienced a sturdy comeback for the credit market following 2009 and the momentum is evidently easing at sustainable levels. As total deposits outpaced the loans portfolio, the efficiency gauge represented by the loans-to-deposits ratio dropped slightly to 82.3 during September. Financing efforts continue to seek longer maturities as long- term credit posted another substantial gain at 30.5 percent Y/ Y.
Meanwhile, medium-term credit recorded a gain of 16.9 percent annually and short-term credit posted a growth of 5.5 percent annually by the end of September. Additionally, total credit to the public sector spiked by 23.5 percent as the government have been using Treasury bills to control liquidity levels. The government has issued an additional SR54.0 billion worth of T-bills over the past twelve months, indicating the proactive measures taken by Saudi Arabian Monetary Agency (SAMA) to control any risks to the local market.
In assessing credit to different economic activities, the commerce sector is the largest recipient of funds in the local market. Since the beginning of the year, banks have granted SR24.7 billion worth of credit lines to commerce related business activities by the end of September, bringing the stock credit level to SR230.7 billion. The least active sector was utilities (electricity, water, gas, and health services) which only recorded a marginal gain of 0.2 percent on an annual basis. On the other hand, credit to the mining and quarrying sector in- creased by 39.7 percent Y/Y. furthermore, banks expanded their exposure to agriculture and fishing businesses as credit to the sector grew by 34.5percent annually during September.
NCB’s Saudi Business Optimism Index rebounded to 54 from 49 on the back of stronger outlook on volumes, new orders, and profitability. Banks are likely to maintain their current level of credit expansions given the opportunities arising from an expanding economy.