Recently released market study: Saudi Arabia Commercial Banking Report Q3 2012

New Financial Services research report from Business Monitor International is now available from Fast Market Research
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Aug. 2, 2012 - PRLog -- BMI View: Saudi Arabia's commercial banks continue to benefit from the country's ongoing economic  boom. Robust deposit inflows and strong domestic demand for credit have spurred lending, and we expect  loose fiscal policy to keep the sector growing swiftly throughout 2012.  The Saudi Arabian banking sector has long been among our regional favourites, and the sector is set to  remain in good shape throughout 2012. Loose fiscal and monetary policy has cultivated demand for new  credit, while strong aggregate balance sheet positions have left banks in a good position to ramp up  lending. We see relatively few risks to the sector's outlook in 2012, and expect credit and asset growth to  continue apace through the year. We forecast total assets to grow by 10.0% to SAR1.7trn (US$453.6bn)  in 2012, compared with growth of 9.1% in 2011.  Deposits Still Pouring In  Since the beginning of 2011, the commercial banking sector in Saudi Arabia has been buoyed by strong  economic growth and, in particular, by heavy government spending. Riyadh responded to the Arab Spring  by ramping up public sector wages and making a series of one-off transfers to its citizens. The result was  a sharp rise in bank deposits, and the sector's total stock of client deposits increased by 12.1% last year,  standing at SAR1.1trn in January. Growth remains strong (coming in at 13.0% y-o-y in January), and  while base effects coinciding with large bonuses granted to government workers early last year will kick  in over the coming months, we nevertheless forecast total deposit growth of 9.0% in 2012.  Robust deposit inflows have left the sector's aggregate balance sheet in good shape. Reliance on loan  financing is low (accounting for just 14.3% of total liabilities) - indeed, 'other liabilities' fell by 0.7% y-oy  in January - and the loans-to-deposits ratio stands at a healthy 0.82. With few concerns over asset  quality (SAMA recorded a non-performing loans ratio of just 3.0% in 2010), banks would have little  difficulty tapping credit markets even in the event of a slowdown in deposit inflows. This is particularly  the case given the recent spike in oil prices, which will boost liquidity throughout the kingdom's financial  system.  No Let-Up In New Lending  Abundant financing has allowed banks to rapidly expand their loan portfolios, with credit growth  accelerating to 11.5% y-o-y to SAR903.5bn in January (compared with 5.9% in January 2011). There are  several reasons to expect domestic demand for new loans to remain robust. Massive state spending on  infrastructure projects will create investment opportunities for construction firms in the country, while  interest rates are set to remain low in line with loose policy in the United States. Moreover, a strong  economy will further spur demand, and the most recent Dun & Bradstreet business optimism survey  records that 51% of non-hydrocarbon private sector companies planned to expand their businesses in the  upcoming quarter, compared with 45% in the previous survey, conducted in Q111. Robust demand for  credit is reflected in banks' move out of lower-yielding fixed income instruments, with the sector's bond  portfolio shrinking by 10.2% y-o-y in January.  One factor that will weigh on credit growth is our expectation for a string of new government and  corporate bond offerings this year. Riyadh has announced its intention to ramp up its debt issuance, both  to encourage the private sector bond market and as a means of mopping up excess liquidity in the  financial system, which risks stoking inflation. New bond issuances would likely divert banking sector  funds away from private loans. Nevertheless, we expect loan growth to remain relatively robust,  pencilling in a further expansion of 12.0% in 2012.  Rapid asset growth is also reflected in banking sector profitability. The sector's net profits grew by 18.4%  in 2011, with the two largest banks by total asset size - National Commerical Bank and Al Rahji -  posting profits of SAR6.0bn and SAR7.4bn, respectively. Banking sector equities have responded  accordingly, and the Tadawul Banking Sector Index has rallied by 19.0% since October 2011. Indeed,  given our broadly positive outlook for the sector, equities are likely to see further upside throughout the  year.

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Location:Massachusetts - United States
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