DUBAI, Jan 30 (Reuters) - S&P Global Ratings said on
Monday that rapid credit growth in Saudi Arabia has reduced
banking liquidity and it was unclear whether the government
would boost deposits with the banking system to lessen pressure.
While corporate lending is seen picking up due to projects
linked to the "Vision 2030" agenda to diversify away from oil,
"funding availability will likely be a constraint for the first
time in a while," S&P said in its Saudi Banking Sector 2023
Outlook.
Credit growth, which rose rapidly in the low-interest rate
era, is seen slowing, along with mortgage loan growth, amid
rising rates and as the market saturates.
The Saudi banking sector's loan-to-deposit ratio rose to
102% in the third quarter of 2022 from 85% at the end of 2018,
"owing to lagging deposit growth, mostly from the private
sector," S&P said, noting that term deposits barely increased in
that period due to low interest rates.
"At the same time, Saudi investors have been increasingly
investing in foreign stocks," the ratings agency said,
estimating that the $600 billion sovereign Public Investment
Fund may have accounted for 25%-40% of those outflows.
The Saudi Central Bank (SAMA) made liquidity injections
during the pandemic as well as last year to help avoid a credit
crunch and support economic activity, S&P said.
"As a result, the system reached a structural liquidity
deficit in mid-year 2022, with borrowings from SAMA exceeding
placements with it."
The government has kept deposits at SAMA rather than placing
them with commercial banks, S&P said.
"In 2023, SAMA will continue extending tenors for its
support packages and other facilities to avoid a credit
crunch--and possibly increase the volume of support-- while
encouraging banks to attract private sector deposits," S&P said.
While S&P has a positive outlook on most Saudi banks,
mirroring the outlook on the sovereign, it sees profitability
rising less than expected as customers shift to term deposits
from current and savings accounts, further pressuring lenders'
margins.
(Reporting by Yousef Saba; Editing by Christina Fincher)
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