Saudi banks' lending falls amid solvency fears

Saudi banks' lending to the private sector fell for a third straight month in May, official data showed, amid growing concerns over the solvency of some family-owned firms and the local lenders' exposure to bad debts.

Bank claims on the private sector, a key indicator of lenders' confidence, stood at SR724.87 billion (Dh710bn) in May, their lowest level since August, showed the data published on the Saudi Arabian Monetary Agency's (Sama) website. Compared to April, bank claims on the private sector made in May their sharpest month-on-month drop since January.

At 7.6 per cent, their annual growth was the lowest in at least one year.

May's annual growth of money supply – as measured by the broadest M3 measure of money circulating the economy – also fell for the first time since January.

It was 16.9 per cent in May down from 18.3 per cent in April. On June 16, Sama sought to boost lending by halving the reverse repo rate – what it pays to commercial banks for deposits – after concerns mounted about their exposure to two troubled Saudi conglomerates.

Saudi Arabia, which pegs its currency to the US dollar, kept its benchmark repo rate unchanged at two per cent after Sama had reduced it by more than half through successive cuts since October.

But the cuts have failed to spur credit growth.

An economist at a Saudi bank said: "Banks have not been lending since November because of the slowdown in the economy and concerns about the health of some of the family businesses".

"Sama cannot change the repo rate because banks cannot go out and lend when you don't know what is happening in the market," he said on condition of anonymity.

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