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Saudi lending seen up despite cuts by European banks

Saudi lending-foreign banks

Foreign bank credit drops in Saudi Arabia; Local banks and government funds fill gap, liquidity high; Saudi bank lending fastest in three years

May 24, 2012 2:27 by



A sharp drop in lending by foreign banks in Saudi Arabia is not likely to stifle credit growth in the world’s top oil exporter as local lenders and government funds have been filling the gap, bankers and analysts said on Wednesday.

“If you look at the fourth quarter of last year, which is the latest data we have, it suggested foreign banks’ lending to Saudi Arabian entities fell $12 billion quarter-on-quarter,” said Daniel Cowan, an analyst at Morgan Stanley, citing data from the Bank for International Settlements (BIS).

“That was the quarter when the liquidity issues … hit European banks and it was an immediate reaction to that,” he told a financial conference in the Saudi capital.

Saudi Arabia, the biggest Arab economy, has only a limited exposure to European banks, which are strained by the continuing debt crisis, government officials and bankers said.

Moreover, generous public spending, which the finance ministry expects to be higher than its original plan of 690 billion riyals ($184 billion) in 2012, is helping to compensate for any cuts in foreign credit lines.

It also prevents a repeat of a 2009 scenario when the global financial crisis brought Saudi lending growth to a halt.

“We have seen some slack being taken by other entities, government funds … we have seen export credit agencies fill the gap as well. So it’s not hopeless what happened, some Saudi banks have a bigger role today in taking up a bigger piece of the pie,” Cowan said.

Bank lending in the OPEC member’s private sector jumped 12.6 percent in March from a year ago, the fastest clip in three years, Saudi central bank data show.

The International Monetary Fund said last August it expected Saudi Arabia’s credit growth rate to reach 16.8 percent on average in 2012, below 27.1 percent seen in 2008.

“Lending is growing, there is huge liquidity in the market and there are huge projects also available in the market,” said Abdul mohsen al-Fares, managing director and chief executive officer of Alinma Bank.

“We are expecting this to continue. It will be a double-digit growth. Cutting funding by some international banks is creating opportunities for local banks,” he said at the same event.

The government expects Saudi economic expansion to slow to 6 percent this year from 6.8 percent in 2011, partly due to a global slowdown.

Worries about debt-laden Greece and easing growth in China, a major importer of Saudi oil, have cut oil prices to $106 per barrel. However, that level is still well above the Saudi budget break-even oil price of $80 estimated by the IMF in 2011.

Saudi Finance Minister Ibrahim Alassaf said on Tuesday the kingdom would keep spending even if oil prices drop. The desert country has massive foreign currency reserves of $561 billion, allowing it to keep expenditures up in case its budget balance slips into the red.

Asked about the main risks for the banking sector in the next 12 months, Yasser al-Sharif, chief executive officer at Manafea Holding, a Riyadh-based investment company, said: “Europe of course and a prolonged decline in oil prices, those are the major risks.”

Alinma’s Fares said another potential future risk for the kingdom’s banks was a maturity mismatch between assets and liabilities: “Local banks should be creative finding different products that will help the liability side, i.e. long-term products instead of relying on the short-term only.”

“It is a risk for the future growth … if your source of money is short-term and you are funding a long-term growth,” he told reporters.



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