Boom in credit for Saudi Arabia

Private-sector credit growth in Saudi Arabia accelerated at its fastest rate in more than two and half years last month as the kingdom's banks benefit from government injections of cash into the economy.

Expansion rose 11.7 per cent compared with January last year, its fastest rate since May 2009.

Credit growth grew 1.7 per cent last month compared with December last year, according to data from the Saudi Arabian Monetary Agency. "This is reflecting liquidity in the banking system and a strong balance sheet of banks," said Khatija Haque,a senior economist at Emirates NBD.

Credit growth in Saudi Arabia has rebounded strongly after falling to close to zero in 2009 as the global financial crisis hit.

A combination of a stimulus through higher spending on projects from the government and an increase in pay for public-sector workers since last year has helped to revive bank confidence in lending. The credit is helping to support the economy as companies expand their activities and consumers spend more.

In contrast, lending in the UAE has lagged behind that of Saudi Arabia and Qatar.

The latest data for private-sector lending showed growth in September of 1.9 per cent from the year-earlier month. Analysts say Saudi Arabia's stronger credit growth reflects a healthier standing of the country's banks.

Unlike UAE banks, Saudi lenders have not suffered from exposure to a weak property market or debt restructuring at firms.

"The Saudi banking system remains in robust shape and the outlook is encouraging.

"The system weathered the 2008-2009 financial crisis without undue distress and is well capitalised," analysts at Samba wrote in a research note this month. Lending growth should reach 12 per cent this year, the note said.

Other data for last month also reflects a steady improvement in the kingdom's economy.

Deposits grew 12.7 per cent on a yearly basis and rose 0.9 per cent from the previous month. Money supply grew in line with deposit growth.