Saudi bank lending jumps on mortgages, Aramco IPO boosts money supply

By Davide Barbuscia

DUBAI (Reuters) – Annual growth in Saudi Arabian bank lending the private sector rose at its highest pace in years in December, boosted by mortgages, while the proceeds of Saudi Aramco’ initial public offering lifted money supply, official data showed.

The world’s biggest exporter is aiming to boost the private sector diversify its revenues, but will likely see its growth curbed this year because of sliding oil prices and crude output cuts agreed with OPEC allies.

Bank lending to the private sector <SALOA=ECI> grew 7% year--year in December, the central bank said this week, the highest annual growth rate since October 2016.

Annual growth in 3 money supply <SAM3=ECI>, the broadest money supply measure, jumped 7.1% year on year – the highest in over four years – with some analysts saying the spike was partly due to proceeds coming from the IPO of state oil giant Aramco.

“Money supply is a function of deposits, and we saw an increase of around 73 billion riyals ($19.46 billion) in government and entities deposits in December, which we think has to with the Aramco IPO,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

Aramco initially raised $25.6 billion, which was itself a record level, in its December IPO by selling 3 billion shares at 32 riyals a share, and sold additional shares this month raising the size of its IPO to a record $29.4 billion.

Private credit growth, partly due to lower interest rates, was boosted by a spike in mortgage lending, with residential new mortgages for individuals provided by banks amounting to 9.3 billion riyals in December – their highest level last year and almost three times their total amount in December 2018.

Contribution from mortgages to private credit growth amounted to 46% at the end of last year, according to Arqaam Capital.

“We expect loan growth to further gain momentum in FY 20e (full year 2020 expected) mainly due to accelerating growth in mortgages,” it said in a note this week.

The Saudi government wants to increase activity in the real estate market to revitalize the economy and has taken steps to reform the sector.

Credit sector growth has helped Saudi banks, which saw cumulative profits up 4.8% year on year in December.

Saudi banks have also benefited from an increase in lending to state-backed projects, part of government efforts to boost its non-oil economy. Saudi Arabia’s National Commercial Bank posted a 13.2% rise in fourth-quarter net profit this week.

(Reporting by Davide Barbuscia, Editing by William Maclean)