x Abu Dhabi, UAEFriday 28 July 2017

Lenders still wary in Saudi

Investment appetite among businesses in Saudi Arabia needs to pick up before credit growth returns to the double-digit levels of two years ago

Investment appetite among businesses in Saudi Arabia needs to pick up before credit growth returns to the double-digit levels of two years ago, economists say. Government-backed projects have accounted for most of the credit growth in the kingdom this year. "While we are seeing an optimistic return in credit growth it's still nowhere near close to 2007 or 2008," said John Sfakianakis, the chief economist of Banque Saudi Fransi.

"If credit growth in the economy reached 8 per cent this year that would be good news on the back of zero growth last year." Liquidity levels within Saudi banks have improved since the global downturn as they have cleansed their balance sheets from exposure to the troubled Saad and Al Gosaibi groups and other corporate restructuring within the region. But a wariness among lenders to deploy further credit has been exacerbated by tepid demand for short-term loans within the private sector.

Bank lending in Saudi recovered last month to record its largest monthly gain since August last year and the second-highest growth since late 2008, Jadwa Investment says. Private-sector bank credit including loans, advances and overdrafts increased 3 per cent on an annual basis last month, marking the sixth month of growth in private-sector bank credit, figures from the Saudi Arabian Monetary Agency show.

But economists say long-term projects, often by state-owned companies, have been accounting for a substantial proportion of the recent credit expansion. Notable deals last month included Saudi Basic Industries Corporation completing 4.5 billion riyals (Dh4.4bn) of financing from National Commercial Bank, while Saudi Aramco and the French oil company Total secured US$8.5bn (Dh31.22bn) for a joint refinery project.

With the petrochemicals company Saudi Kayan saying it intended to secure bank credit to help bridge a $2.4bn rise in building costs for a petrochemical project, other projects are expected to support reasonable credit growth in the second half of the year, said Mr Sfakianakis. @Email:tarnold@thenational.ae