JEDDAH – Despite regional concerns and generally prevailing global economic weakness, the Saudi banking sector continued to show resilience underpinned by the Kingdom's sound macroeconomic fundamentals. In its latest “Saudi Banking Sector Review”, the National Commercial Bank (NCB) said the total banking sector assets grew by an annual 14 percent, the first double digit growth in assets post the financial crisis, and the momentum was carried over with a growth of 11.7 percent by the 1Q2013. Credit to the private sector sustained a healthy pace throughout last year and early 2013, though it is likely to moderate as banks pause to assess asset quality, the report said. The strong growth in lending this year and the relatively slower pace of deposits has increased the L/D to 77.3 percent by the end of March 2013 from 75.2 percent during March 2012. The report further said given the robust economic growth Saudi Arabia is experiencing, banks have been able to expand their portfolios and improve their asset quality since mid-2011, “illustrating the prudent management and supervisory practices that have been applied by banks and SAMA.” In comparison to other countries, the Saudi banking system had a comfortable loan to deposit ratio (L/ D) of 77.3 percent by the end of 1Q 2013, a level that reflects excess capacity to lend and a lower systemic risk. Meanwhile, the capital adequacy ratio (CAR), which rose to 17.4 percent, is another signal of an ample cushion to match the embedded risk in assets, especially after taking into consideration the lower capacity utilization compared to regional and inter-national counterparts, with the UAE, Kuwait and Russia at 90.4 percent, 91.6 percent and 124.3 percent L/D ratios, respectively. The improvement in asset quality since mid-2011 is another plus for the domestic banking system, illustrating the prudent management and supervisory practices that have been applied by banks and SAMA. “The buoyant domestic business cycle had reduced credit and in-vestment provisions, as NPLs fell drastically from a record SR25.8 billion in 2009 to SR19.9 billion by the end of 2012. Additionally, exposure to cross-country spillover effects is minimal, with the foreign lending ratio, mainly investments, of domestic banks amounting to around 6.6 percent of their total assets. During 2012, total banking sector assets grew by an annual 14.0 percent, the first double digit growth in assets post the financial crisis, and the momentum was carried over with a growth of 11.7 percent by the end of March 2013. The oligopolistic market structure remains to be dominated by NCB, RAJHI, SAMBA, and RIBL, holding a combined 58.2 percent of total assets by the end of 1Q2013. NCB maintains its dominant position with regards to total assets at 20.4 percent, followed by RAJHI that captures around 17.1 percent of the banking sector's assets. The newest bank in the Saudi financial system, INMA, has been growing rapidly with its assets rising by 41.0 percent Y/Y, reaching SR56.2 billion by the end of 1Q2013. This helped INMA to surpass BJAZ's SR54.1 billion and judging by INMA's pace of growth, the bank will establish itself in the middle-sized bracket within the next couple of years, the report forecast. Regarding banks' assets, they are mainly composed of loans and investments, representing a combined share of 82.4 percent by the end of March 2013. Net loans and advances climbed over the SR1 trillion mark in 2012 and extended its rise by 16.4 percent Y/Y in 1Q2013 given the improved risk appetite that is expected to continue this year. Credit to the private sector sustained a healthy pace throughout last year and early 2013, yet it is likely to moderate as banks pause to assess asset quality. During 1Q2013, commercial loans grew annually by 13.9 percent, while consumer loans accelerated at a faster pace of 22.6 percent Y/Y. RAJHI's strong retail presence translates into a 17.2 percent market share of total net loans. In its pursuit of joining the top players, INMA expanded its loans portfolio by 42.8 percent to reach SAR39.4 billion by the end of the first quarter 2013. SAIB was the second top performer following their “clean up” of non-performing assets, recording a growth of 32.2 percent Y/Y, while RIBL set the slowest pace at 6.4 percent Y/Y, during the same period. On the liability side, industry-wide deposits posted a new record of SR1.36 trillion by the end of 1Q2013. Demand deposits remain the main beneficiary given the globally suppressed interest rate environment. NCB's customer deposits, the largest in the market, reached SR276.7 billion in March 2013 with a growth rate of 11.6 percent Y/Y. RAJHI came second, almost doubled that growth rate of NCB at 20.9 percent, reaching SAR231.7 billion. As an Islamic bank, RAJHI has benefited the most from customers' preference for non-interest bearing deposits. – SG
