Saudi bank deposits hit record SR1.36 trillion in Q1

Saudi bank deposits posted a new record of SR1.36 trillion by the end of first quarter of 2013. The expansion in credit portfolios was facilitated by this enormous depositary base. Demand deposits remain the main beneficiary given the globally suppressed interest rate environment, according to a report by the National Commercial Bank (NCB).

NCB’s customer deposits, the largest in the market, reached SR276.7 billion in March 2013 with a growth rate of 11.6 percent Y/Y. Al-Rajhi Bank came second, almost doubled that growth rate of NCB at 20.9 percent, reaching SR231.7 billion. As an Islamic bank, Al-Rajhi Bank has benefited the most from customers’ preference for non-interest bearing deposits.

During the first quarter of this year, demand deposits rose by 18.0 percent Y/Y, while time and savings deposits only grew by 5.3 percent annually. Further-more, foreign currency deposits remained on an upside trajectory in line with 2011, expanding by 17.0 percent Y/Y during 2012.

Despite the redeployment of assets and the expansion in financing portfolios, banks remain relatively liquid albeit at a relatively lower capacity than before. SAMA’s (Saudi Arabian Monetary Agency’s) supervision directed banks to shield themselves from potential external shocks amidst the financial crisis. The large influx of oil revenues has aided banks in increasing the most liquid form of assets, cash, as the cash ratio increased to 12.5 percent by the end of 2012, in comparison to 11.7 percent for 2011.

However, upon rising local financing opportunities, cash ratio decreased to 10.3 percent in the first quarter of 2013.

The industry’s Minimum Risk Assets (MRA) ratio has dropped for the fourth consecutive year in 2012 to 32.7 percent, indicative of the improved confidence by local banks. Being rather conservative, NCB recorded the highest MRA ratio at 46.1 percent for Q1, 2013, while the lowest ratio was recorded by The Saudi Investment Bank (SAIB) at 21.2 percent.

The NCB report said, banks have extended SR153.0 billion in additional financing during last year. Over the first quarter of 2013, Saudi banks have expanded by a further SR40.2 billion.

The credit portfolio of Saudi banks continues to be largely compromised of the commerce sector, which holds a share of 18.7 percent of banks’ total financing.

Credit to the commerce sector, however, recorded a relatively modest growth at 12.2 percent Y/Y in Q1, 2013 as other sectors also gain momentum due to the continued efforts of the government to diversify the Saudi economy.

Additionally, the vast projects in mining and quarrying have been captured by local banks as credit to the mining sector recorded the highest annual growth at 60.3 percent, with the awarding of projects such as Maaden and Alcoa’s aluminum refinery worth SR5.6 billion and Hanwha’s gold processing plant worth SR1 billion.

The strong growth in lending this year and the relatively slower pace of deposits has increased the L/D to 77.3 percent by the end of march 2013 from 75.2 percent during March 2012.

SAIB effectively utilized its deposits by increasing its L/D ratio to 84.0 percent from 75.7 percent over the same period. Additionally, Alinma Bank, Banque Saudi Fransi, and Saudi Hollandi Bank have posted ratios of 114.7 percent, 88.7 percent, and 86.0 percent in March 2013, breaching SAMA’s 85 percent guiding target, which could hinder their expansion plans if their deposit growth level continues to be outpaced by credit growth.

Growth in total banks’ deposits continues to provide opportunities to expand the loans portfolio of the banking system.

Despite lagging in comparison to loans growth, the market’s L/D ratio still stands at a positive level, indicative of potential lending growth. Given the low interest rate environment on a global scale, demand deposits held a share of 62.4 percent of total deposits, while time and savings held a share of 24.2 percent by the end of Q1, 2013.

Demand deposits is mostly contributed by businesses and individuals, while time and savings deposits is mostly sourced from government entities, indicative of the medium to long-term investment horizon of the government. Banks will soon opt to attract more deposits from customers to keep their positions liquid and avoid any limitations by SAMA, the NCB report said.-Arab News