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| 06 September, 2018

Saudi credit growth to pick up this year: central bank official

Saudi Arabia's banks have combined assets worth $595 billion and are the "key credit providers" to the economy

A Saudi money changer counts U.S banknotes at a currency exchange shop in Riyadh, Saudi Arabia September 29, 2016.  Image used for illustrative purpose.

A Saudi money changer counts U.S banknotes at a currency exchange shop in Riyadh, Saudi Arabia September 29, 2016. Image used for illustrative purpose.

REUTERS/Faisal Al Nasser

Credit growth in Saudi Arabia’s banking sector is likely to pick up this year after a 'flat' 2017, as a result of higher oil prices and the country's improving economic outlook, one of the kingdom’s top central bank officials said on Wednesday.

Speaking at the Corporate Restructuring Summit in Dubai, the deputy governor of the supervision arm of the Saudi Arabian Monetary Authority (SAMA), Dr Fahad Alshathri, said: "Some of the policy reform measures taken to support credit recovery include the easing of capital market restrictions on foreign investors, improving the ecosystem for the SME [small and medium-zed enterprise] sector, and supporting the increase of home ownership."

He said that SAMA had twice increased the mortgage loan limit available to first-time buyers - initially to 85 percent of the property's value, then later to 90 percent.

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"With improving oil prices since the start of 2018, overall GDP growth in the kingdom has improved, which will have a positive impact in terms of improving credit growth and reinstating confidence," Al Shathri added.

He argued that despite the tough macroeconomic conditions the kingdom had endured since the sharp decline in oil prices occurred in 2014, the kingdom's banks remained well capitalised, with its financial sector ranked fifth globally by ratings agency Fitch and third among the G20 nations by the International Monetary Fund.

Alshahthri said that Saudi Arabia's banks had combined assets worth $595 billion and were the "key credit providers" to the economy. And although he said that the level of non-performing loans on Saudi bank balance sheets had edged up slightly to 1.6 percent (from 1.5 percent) at the end of June, "the banking sector also enjoys a strong capital ratio of 21 percent (of total assets)".

A report published by Fitch Solutions last month stated that a "gradual recovery" in credit growth was likely in Saudi Arabia's commercial banking sector over the next few quarters.

Lending to the government "will remain a key driver of asset growth over the coming years", it said, as the government embarks on an ambitious spending programme which should, in turn, support business and consumer confidence.

The Corporate Restructuring Summit is a two-day event held at the Sheraton Grand Hotel which concludes today.

(Reporting by Michael Fahy; Editing by Shane McGinley).

© ZAWYA 2018