03 February 2016
JEDDAH -- 2016 Saudi government budget allocations to specialized credit institutions (SCIs) have moderated significantly, yet their continuation reflects support for the economy,  the National Commercial Bank (NCB) said in its latest monthly "Saudi Economic Review" report.

According to the budget announcement, SR49.9 billion will be allocated to SCIs, namely the Public Investment Fund (PIF), Saudi Industrial Development fund (SIDF), Saudi Credit & Saving Bank (SCSB), and the Real Estate Development Fund (REDF). According to the latest available data published in SAMA's 4Q2015 bulletin, the consolidated balance sheet for government SCIs points to: (1) a significant increase in the disbursements of new loans by SR27.3 billion during the first two quarters of 2015, a 17% Y/Y growth rate that is the highest since 2Q2013, (2) an increase of in the total value of investments to around SR133.04 billion by the end of 2Q2015, which was attributed to a growing domestic portfolio that rose from SR115.9 billion by the end of 2014 to SR119.1 in 2Q2015, (3) an insignificant increase in foreign investments that remained around SR14 billion mark, and (4) a 4.5% Y/Y decrease in deposits with SAMA that stood at SR74.5 billion, reflecting the withdrawal of such deposits in order to extend loans to local companies rather than passively investing them whether internationally or locally.

These latest data reflect the central role played by SCIs as a catalyst in the domestic economy.

As expected, the REDF was largest among these institutions in terms of the outstanding loans that registered SR141.5 billion, and it is our believe that such figure might have crossed the SR150 billion threshold as will be shown in the coming data releases. It is no surprise that REDF will maintain its status as the largest lender among SCIs with the government trying to mitigate the housing market imbalances especially at the demand side.

The PIF and Saudi Credit &Saving Bank had also maintained the second and third rank given their participation in project finance across different sectors that enhance the kingdom's absorptive capacity, with the outstanding loans to both standing at SR96.4 billion and SR44.4 billion, respectively. On the Small and Medium scale Enterprises (SMEs) front, the Loan Guarantee Program "Kafalah", which is a collaboration between the Ministry of Finance represented by SIDF and Saudi banks continued to gain ground, facilitating credit worth around SR1.6 billion by the end of 1H2015 to 752 establishments, representing 12% of the aggregate beneficiaries since the inception of the program in January 2006. In our opinion, lending to SMEs is critical and there is still room for growth, especially that loans to such asset class is estimated to be just 3% of banks' loan portfolio in contrast to emerging and advanced economies where that percentage stands at 20% and 25%, respectively. Bottom-line, although the accumulation of savings from the oil windfall was important, the utilization of savings in the most efficient manner will be critical, and apparently the Kingdom is enhancing this virtuous link between savings and investments.

The collapse in oil prices has been a focal point for the global economy, leading to an oversupply theme that coincided with waning demand, expected to stretch into 2016.

The Saudi economy is still heavily reliant on oil as its main revenue source. However, the government is trying to change this growth model through economic diversification strategies. The government is improving its spending efficiency, adapting to oil price changes and expanding non-oil revenues as a part of its fiscal consolidation strategy. The government is in the process of implementing long-term economic plans by the year of 2025, and have presented measures to promote trade, and attract more foreign direct investment to support economic growth.

During November, non-oil trade continued a declining trend on exports as well as imports, falling in comparison to the same period last year. In value terms, non-oil exports reached SR15 billion compared to SR17.2 billion 12 months ago, sliding by 12.5% Y/Y. In contrast, imports slid 14.4% on a Y/Y basis after posting a total of SR47.2 billion. In weight terms, total non-oil exports during the month weighed 4.3 million tons, rising up by 9.9% Y/Y, whereas imports weighed 5 million tons, deteriorating by almost 24.5% compared to last year.

By composition, plastics accounted for 30.7% of November's non-oil exports, valued at SR4.6 billion, followed by petrochemicals representing 29.4% at SR4.4 billion. Moreover, in comparison with last year's performance, exports of plastics fell by 18.3%, while exports of petrochemicals faced a decline by 15.2%. Exports of base metals which account for 8.1% of total non-oil exports at SAR1.2 billion recognized a 10.5% Y/Y drop.

The leading export destination during November were the UAE, China and Singapore. Each respectively accounting for 14.3%, 9.4% and 4.9%.

Conversely to the rest of export destinations, nonoil exports to the UAE amounted to SAR2.1 billion, edging up by 0.5%Y/Y. On the other hand, exports to China fallen 25.7% Y/Y after posting SAR1.4 billion. Exports to Singapore recorded SAR0.74 billion, dropping of the last year's figure by 21% Y/Y. Machinery and electrical equipment held for the largest share at 27.8%, with a total value SR13.1 billion, compared to the same period last year, imports of machinery and equipment descend by 16.2%.

According to NCB's construction contracts fourth quarter 2015 index, a significant decrease in awarded contracts value occurred specially in November and December. Thus, less imports of machinery and equipment decreased since the construction activities are weak. In contrast, imports of transport equipment which represent 21.2% of total imports marked a slight decay at SAR10 billion, declined by 1.9%. Furthermore, imports of base metals plummeted for the second month in row by 25.9% Y/Y, posting SAR4.1 billion.

The main countries of source were the United States, China and Germany, each accounting respectively for 15.2%, 14.4% and 17.4%. Imports from the US were valued at SAR6.8 billion, declined by 6.2% Y/Y. Imports from China also recede by 19.1% Y/Y at SAR6.1 billion. In comparison, Germany's imports gain a little momentum by 2% Y/Y at SR3.5 billion. Additionally, letters of credit settled and bills received in November acknowledge a slight decrease of 0.7% Y/Y, posting SAR18.9 billion. The negative annual growth is an indicator of a slower business cycle and tighter liquidity.

© The Saudi Gazette 2016