After more than two years of global financial crisis, the Saudi banking sector has emerged almost unscathed. But like many banking systems, during the turbulent period, both investment and loan portfolios of Saudi banks were implicated. As a result, all Saudi banks have taken steps to reinforce their fundamentals by allocating provisions and cutting costs, while reaching out to customers, according to the Saudi Banking Sector Review titled "From Recuperation to Moderate Growth" by the National Commercial Bank (NCB) released on Saturday.
Meanwhile, following a sharp deceleration in lending, attributed to banks cautiousness and slower demand for credit, a pick up in lending was resumed since the Q4, 2009. The Kingdoms number one source of domestic financing, banking sector, has managed to rebound on an aggregate level, but showed stronger growth rates with regards to consumer lending. Corporate sector demand for funding has expanded by 2.6 percent in Q3, 2010, marking the third quarter of consecutive growth since its pick-up in Q4, 2009, yet it is far away from the 2008s 30 percent average growth rate. Consumer lending rebounded from the -0.5 percent in Q2, 2009s, surging by 9.2 percent in Q2, 2010, and setting the highest pace since Q4, 2006. Real estate finance took the spotlight growing in double digits for the past four quarters. The momentum is expected to have carried through the rest of 2010 and to continue into 2011, the NCB report said.
The fact that the aforementioned performance materialized, with no recourse to interbank funding and, in turn, no wider maturity mismatches, reflects the strong discipline in managing funding gaps. Saudi banks deposits base, the main source of funding to banks, comprised largely of short-term deposits, does not reflect un unmanageable maturity gap, as the short-term credit accounted for 59.5 percent of total loans. It is worth noting that the SR27.9 billion of credit and investment provisions accumulated since Q1, 2008 and up to Q3, 2010 to have remained just 3.6 percent of gross loans portfolio, the NCB said in its latest report.
Will Saudi banks have enough resources to deploy in 2011 and beyond after registering historically low levels of lending in 2009 and 2010? The answer is clearly a yes, given the fact that capacity utilization is unstrained, with loans to deposits ratio falling from around 83.5 percent in 2008 to 77.5 percent in Q3, 2010. This capacity manifested itself in the substantial increase in net foreign assets and excess deposits with SAMA (Saudi Arabian Monetary Agency), amounting to SR106.6 billion and SR65.3 billion in Q3, 2010, respectively.
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