Credit growth in Saudi Arabia almost came to a halt in September compared to August as banks in the biggest Arab economy dealing with a debt crisis of family firms remained cautious, official data showed on Wednesday. Bank credits were almost flat, reaching 721.6 billion Saudi riyals ($192.4 billion) in September after 721.4 billion riyals in August, the Saudi Arabian Monetary Agency (SAMA) said.
In August credit growth was up almost 2 percent compared to July, the data on SAMA's website showed. John Sfakianakis, Chief Economist at Banque Saudi Fransi in Riyadh, attributed September's figure to the holy Muslim month of Ramazan, which covered most of September, but said he expected lending to rise as the Saudi economy was slowly recovering.
"The data looks better than four months ago. Bank lending could have risen faster but the Ramazan effect had its impact," he said. Letters of credit settled and bills received, which show private sector imports financed through commercial banks, dropped 19 percent in September compared to August, the data showed.
"The banking sector looks liquid but credit growth is still very subdued," said Simon Williams, regional economist at HSBC in Dubai. Monica Malik, regional economist at EFG-Hermes in Dubai, agreed: "Credit growth remains volatile." Saudi Arabia, home to the biggest Arab bourse, is grappling with the fallout of debt problems of family-owned conglomerates Saad Group and Ahmad Hamad Algosaibi and Bros which have to restructure billions of dollars in debt.
Annual growth of M3 money supply, an indicator of future inflation, was 12.5 percent, reaching 999.9 billion riyals in September, slightly higher than the 12.3 percent expansion in the previous month. Banks' claims on the private sector, a key indicator of lenders' confidence in the economy, rose by 0.5 percent to 746.3 billion riyals in September from August. "The data shows that the economy is on a recovery path with money supply data slowly rising," said Sfakianakis.