Saudi bank lending growth lowest in almost seven years

01/03/2017 15:03 AST

January 2017 saw annual growth in Saudi Arabian bank lending slow to its lowest level in nearly seven years, according to official data.

This slowdown is a sign of weak corporate demand–compared to 2.4 percent in December bank loans to the private sector rose just 1.8 percent, according to a statement by the central bank. This is the bank’s slowest growth since February 2010, following the financial crisis. This slow growth suggests private companies are reluctant to make new investments owing to the economic slump following the drop in oil price and the Government’s subsequent austerity measures.

But it is also a sign of increased liquidity. During most of 2016 the Government delayed paying debts to private firms; its finances were stressed by lower oil export earnings and forced it to draw down credit facilities with banks just to obtain operating funds, inflating loan growth figures.

In recent months the Government's resources have slightly improved by higher oil prices and a $17.5 billion debut international bond issue, encouraging it to resume paying its debts, which in turn has made firms less inclined to approach banks for loans.

Furthermore, the Government is continues to draw down assets abroad to help cover a budget deficit caused by low oil prices. Net foreign assets at the central bank fell by $12 billion from the previous month to $516.7 billion in January, their lowest level since August 2011. The central bank's holdings of foreign securities dropped by $4.5 billion to $359.5 billion, while deposits with banks abroad decreased by $6.7 billion to $100.3 billion.

Finally, October's international bond issue opened up a new channel for the Government to raise funds and reduce pressure on its foreign reserves. At least one more foreign bond sale is expected in coming months.

CPI Financial