JEDDAH – Macroeconomic conditions remain supportive of the Saudi financial system with non-oil GDP expected to grow over eight percent this year following 7.5 percent in 2012, driven by the benefits of economic diversification and vast projects sourced by record oil revenues, National Commercial Bank said in its latest Saudi Economic Review. The asset/liability composition in the form of loans and deposits have been on a positive trajectory and offer improvement opportunities for 2013 as the loans-to-deposits ratio slid to 79.3 by the end of December, down from 82.7 during the previous month. NCB said “as a catalyst for future financing, total deposits set a record level at SR1.26 trillion by gaining 14.2 percent Y/Y by the end of last year. Over 2012, total deposits added a substantial SR157 billion which have been mainly sourced from demand deposits as interest rates remain relatively subdued. Furthermore, businesses and individuals have increased their demand deposits by 13.7 percent annually, while the government almost doubled their holdings by reaching SR58.7 billion. The sluggish growth of time and savings deposits, 6.2 percent Y/Y during December, is likely to continue throughout 2013 as economic conditions pressure interest margins. Additionally, foreign currency deposits rose by 16.8 percent on an annual basis during December. “On the financing front, total claims of the banking system, excluding T-bills and government bonds, posted an increase of 16.7 percent to break a key milestone of SR1 trillion. The strong performance throughout 2012 is expected to stagnate with a slight moderation. However, we do expect long and medium term credit to gain more appeal given the rise in business activities within the economy. Starting off 2013, short-term credit represents 53.7 percent, the lowest level on record. Meanwhile, medium term credit expanded by a staggering 47.2 percent annually during December while long-term credit rose by 12.0 percent during the same period. The focus towards longer credit maturities has been apparent by local banks since May 2012 when growth rates started diverging. The credit portfolio of Saudi banks continues to be largely comprised of the commerce sector which holds 20.6 percent of banks' total financing, SR206 billion. The fastest growing category was mining and quarrying with an annual rate of 59 percent as local banks are more comfortable with joint financing with state sponsors given the large nature of the projects. Considering the pickup in lending activities and the anticipation of codifying mortgage law, the finance category posted a 35.5 percent increase by the end of the year. The estimated consumption of electricity is projected at 240,296 GW for 2012 and expansionary plans are needed to meet the estimated consumption of 289,437 GW by 2015, financing for the electricity, water, and healthcare sector rose by 33.4 percent Y/Y. Meanwhile, the only sector to record a contraction during 2012 was transport and communication, declining 1.3 percent annually. “However, we expect this category to rebound as railway projects proceed within the Kingdom's transportation grid,” the report added. – SG
