Bank of America Merill Lynch, HSBC Holdings and Standard Chartered have raised their 2012 growth forecasts for Saudi Arabia since March, as oil above $100 a barrel and credit growth spur expansion of the non-oil economy. Higher loan demand has led the premium of Saudi borrowing costs over US rates to more than double this year. Saudi bank loans to private businesses grew 12.1 percent in the year to February, the most since March. Al Rajhi Bank last week posted its strongest first-quarter profit growth in six years, with net income at the kingdom's biggest lender by market value jumping 18 percent and topping analysts' estimates. "We are at a point where banks are moving from the risk- management mode to the renewed-growth mode, so they are eager to mobilize their resources, eager to go to the market again and start making money again," Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, the largest Saudi bank by assets, said. "This is a sweet spot for them." The three-month Saudi interbank offered rate known as Saibor, used by banks use to price loans, rose for a sixth week to 0.88938 percent Sunday, the highest level since May 2009. Saibor's spread over the three-month London Interbank Offered Rate more than doubled this year to 42 basis points Sunday, the most since June, data compiled by Bloomberg revealed. Bank loan growth is recovering from a slowdown in 2009. The credit pick up this year comes as the government embarks on investment programs valued at more than $500 billion to build infrastructure, industry and homes, as well as create jobs. Oil prices have also buoyed the revival. Brent crude is up 13.5 percent this year to $121.83 a barrel on April 13. Lending to the private sector, adjusted for inflation, may expand 10.2 percent this year, the second-biggest increase in the six-nation GCC after Qatar, HSBC economists Simon Williams and Liz Martins said in a report released this month. They also raised their forecast for gross domestic product expansion to 4 percent from 2.9 percent. EFG-Hermes Holding, the biggest publicly traded Arab investment bank, raised its economic growth forecast for the Kingdom to 5 percent in March from 3 percent earlier to reflect higher oil production to compensate for international sanctions on Iran. "We see the focus of the central bank is to ensure that there is ample liquidity in the banking sector, with the developments in Europe," Monica Malik, Dubai-based chief economist at EFG-Hermes, said Sunday. Monetary data "point to a strong liquidity position of Saudi banks, despite the accelerating loan growth," she said. The nation's loan-to-deposit ratio is among the lowest in the Gulf Cooperation Council at just above 80 percent, according to Bloomberg News calculations based on central bank data. The ratio exceeds 100 percent in Qatar, the UAE and Oman. Bank of America Merill Lynch raised its GDP growth forecast to 5 percent from 3.3 percent, while Standard Chartered lifted its estimate to 4.7 percent from 2.9 percent. The economy will expand 6 percent this year, Finance Minister Ibrahim Al-Assaf said in January. A surge in credit to "uncomfortable levels" would prompt the central bank to sell more treasury bills and pay higher yields, Jean-Michel Saliba, a London-based economist at Bank of America Merill Lynch, wrote in an April 1 report. He deemed this scenario unlikely. Credit growth had accelerated to as much as 35 percent in mid-2008, pushing inflation to a three-decade high of more than 11 percent. Consumer prices rose 5.4 percent in February, the highest in 15 months. The yield on one-year treasury bills advanced six basis points in March to 0.58 percent. There is scope for Saudi banks to boost lending as they offer more loans to small-and medium-sized companies, NCB's Kotilaine said. The Kingdom wants to support small companies to reduce youth unemployment. Consumer lending is also garnering more attention from Saudi banks. Loans to individuals to buy real estate, cars and other goods expanded 21.8 percent in the fourth quarter, the most in more than three years, central bank data show.
