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|14 August, 2018

Al Rajhi Bank limits lending ahead of Saudi economic reforms

Al Rajhi Bank curtails its loans while economic reforms take shape.

A man walks past a sign of Al Rajhi Capital company in Riyadh, Saudi Arabia, November 8, 2017.

A man walks past a sign of Al Rajhi Capital company in Riyadh, Saudi Arabia, November 8, 2017.

REUTERS/Faisal Al Nasser

DUBAI- Al Rajhi Bank, Saudi Arabia's second-largest lender by assets, expects low-single digit loan growth for the rest of 2018 as it curtails its loans while economic reforms take shape.

Saudi Arabia is in the early stages of "Vision 2030", a multi-billion dollar drive to open up society and diversify its economy away from oil revenues, and Al Rajhi's chief executive Steve Bertamini is expecting medium-term opportunities from it.

"There's not enough liquidity in the banking system to support all of it, so there will need to be a large component of international finance to come on line. Being very well capitalised, very liquid will be an asset for us," he said.

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While Saudi bank lending remains generally subdued, with Al Rajhi's loan growth shrinking by 1.7 percent in the second quarter, it should post low-single digit loan growth for the remainder of 2018, before a return to more "normalised" mid-single digits in 2019, Bertamini said.

Some initiatives to boost the housing market - the government has raised its home ownership target for Saudis to 60 percent by 2020 from around 47 percent now - are already helping the kingdom's biggest mortgage provider.

WOMEN TO PLAY BIGGER ROLE

Other reforms are taking more time to have an effect.

"Women driving and increased participation of women in the workforce will take a bit of time to work its way through the system, but in my view that will should more than offset any short-term impact from the departure of expats," Bertamini said.

A plan to reduce reliance on expatriates to generate jobs for Saudis has seen the number of foreign workers fall by more than 700,000 since last year.

Al Rajhi was nevertheless seeing steady growth in its consumer customer base, he said, adding that the expatriate exodus might have some impact on its remittance business.

The bank has already seen an overall rise in banking for women and car loans for women have begun to rise substantially from a low base, Bertamini said, adding that their entry into the workforce will mean more demand for accounts, loans and saving products.

In a bid to help control indebtedness among consumers, the central bank has introduced caps on retail lending.

Ahead of the rules, which came into force on August 12, Bertamini said consumer lending had hit record volumes.

Within corporate banking, lending was generally flat as businesses put off borrowing until they had adjusted to new economic conditions such as the introduction of VAT, higher utility costs and any changes in their workforce mix.

"We expect three or six months from now, rates will improve and margins will improve as demand for loans begins to increase again from the lower levels of the last 18 months," he said.

(Editing by Alexander Smith) ((Tom.Arnold@thomsonreuters.com; +97144536265; Reuters Messaging: tom.arnold.thomsonreuters.com@reuters.net))