According to a recent Sama bulletin, Saudi banks’ domestic liquid assets ended 2017 at a record high SR457 billion ($122 billion), despite subdued deposit growth and challenging business conditions, which Moody’s said was a credit positive.

 Key points:

•    Banks’ domestic liquid assets grew 11 per cent in 2017 and equalled 20 per cent of banks’ assets at year-end 2017 (versus 14 per cent as of year-end 2015).

•    Similarly, Saudi banks’ ratio of reserves to total deposits was 14.8 per cent as of year-end 2017, its highest since year-end 2012.

•    The positive trends were achieved amid muted 0.1 per cent deposit growth in 2017 and were mainly driven by a contraction of 1.0 per cent in banks’ loans and a 43 per cent increase in the banks’ holdings of domestic government bonds.

•    Successive sovereign debt issuance in 2017, notably Sukuk issuance, allowed banks to transfer their excess liquidity into high-quality government investments. As of year-end 2017, government bonds comprised 56 per cent of Saudi banks’ domestic liquid assets, up from 27 per cent in 2015.

•    Moody’s expects that economic activity in Saudi Arabia will recover over the next 12-18 months, in line with the spending increases planned in the government’s 2018 budget.

•    In particular, Moody’s expects that Saudi banks will benefit from the government’s private-sector stimulus of SAR72 billion to support private-sector growth over the next four years.

•    As a result of improved liquidity, Moody’s believes banks are in a better position to absorb a pick-up in lending in 2018, which it expects will grow by around 4 per cent. – TradeArabia News Service