The credit growth in Saudi Arabia’s banking system is strong and will be driven by corporate loans, said Al Rajhi Capital, a leading financial services provider in the kingdom, in a new report.
However, relatively modest growth in profits (before Zakat) indicates the ongoing pressure on the cost of funding, according to the report.
Mortgage origination came in at SR7.1 billion ($1.89 billion), lower than January, but slightly better than our expectations. “Our updated estimate for monthly mortgage origination for 2023 is SR6.8 billion (earlier: SR7.0 billion),” Al Rajhi Capital said in the report.
“Our loan growth estimate of 10% for 2023e is on the conservative side and we see upside risks to it. Total deposits in the month of Feb grew 1.2% m-o-m, higher than credit growth of 0.9%, which should ease some pressure on the funding side going forward.”
Credit: Credit growth for February in the system came in strong, +0.9% m-o-m and +13.2% y-o-y (January: 0.8% m-o-m and +14.0% y-o-y). Bank lending to the private sector grew 0.9% m-o-m in February and grew 11.0% y-o-y (January: 0.4% m-o-m and +11.9% y-o-y).
Deposits: Deposits grew stronger than credit 1.2% m-o-m and +8.2% y-o-y in February (January: -0.9% m-o-m and +8.7% y-o-y), led by increase both Demand deposits (0.8% m-o-m, -3.8% y-o-y) and time deposits (0.4% m-o-m, 35.9% y-o-y). The rise could be seen coming from both private time deposits (3.7% m-o-m) and private demand deposits (+2.8% m-o-m).
Liquidity: The simple LDR in the system improved 0.3% m-o-m coming around 103.8% in February, while the adjusted LDR (SAMA reported) contracted 0.2% to 83.0% (January: 82.8%). The interbank liabilities grew +7.7% m-o-m to SR107 billion in February from SR97 billion in January.
Total sales value for Point-of-sale (POS) increased 15.2% y-o-y in February (+10.9% y-o-y in January). Meanwhile, cash withdrawals in value terms increased 0.2% y-o-y in February (-1.5% y-o-y in January) to SAR41.8 billion.
Mortgage: Residential mortgage originations came in at SR7.1 billion for February, decelerating from SR8.4 billion in January due to higher residential prices weighing on mortgages. YTD average origination is around SR7.8 billion (our 2023 estimate is SR6.8 billion).
Banking sector net profit before Zakat and tax: Profit before zakat and tax for February came in at SR5.2 billion, -19% m-o-m and +7% y-o-y (January: 4% m-o-m and 19% y-o-y). 2M23 profitability came in 13% higher than 2M22 profits.