Saudi bank loans increase by 11% to reach $706bn, as foreign assets held by the sector also surge
Real estate financing for corporate dealings surged by 26.4% in the second month of the year
Saudi banks extended loans totaling SR2.65 trillion ($706.3 billion) in February, marking an 11 percent rise from the same month in 2023, according to the latest official data.
Figures released by the Kingdom’s central bank, also known as SAMA, showed an increase in personal borrowings accounted for 32 percent of this growth, while the remaining 68 percent was attributed to the expansion of corporate lending, particularly for real estate activities, as well as electricity, gas, and water supplies.
Real estate financing for corporate dealings specifically surged by 26.4 percent in the second month of the year, marking the highest annual growth rate in 9 months, reaching SR271.18 billion. This increase can be attributed to the Kingdom’s extensive giga-projects, which have helped counter the impact of rising borrowing rates due to highinterest levels.
Saudi Arabia is also strengthening its power sector, focusing on electricity generation, transmission and distribution, as well as smart grid technologies to efficiently meet the growing demand from residential and commercial consumers.
The shift toward cleaner environmental sources like solar, wind, and bioenergy, supported by favorable government policies and global diversification efforts, is expected to drive advancements in renewable energy capacity, according to the American International Trade Administration in a January commercial guide.
Personal loans, which include all types of credit provided to individuals, amounted to SR1.26 trillion, showing an annual rise of 7.2 percent.
The fast-paced progress of digitalization, leading to quick lending and approval procedures, could have played a substantial role in personal loan expansion. An additional factor could be the need for residential properties from expatriates arriving in the Kingdom, along with government initiatives aimed at modernizing the financial system.
In February, lending for real estate constituted the highest share of corporate credit at 19 percent, totaling SR271.2 billion. Figures released by Saudi Arabia’s General Authority for Statistics earlier this year showed that the Kingdom’s real estate price index witnessed a 0.7 percent increase in 2023, primarily attributed to a surge in residential sector prices.
This underlines the growing need for credit from financial institutions, with average prices in the housing sector rising by 1.1 percent in 2023 compared to the previous year.
This increase was particularly driven by a 1.2 percent rise in land plot purchasing expenses.
Similarly, apartment prices experienced an uptick of 0.8 percent in 2023 compared to 2022.
This figure came as the Kingdom braces itself for more growth in this sector, with CEO of the Kingdom’s Real Estate Authority Abdullah Saud Al-Hammad telling the Future Real Estate Forum in Riyadh in January that Saudi Arabia is undergoing significant transformations in this sphere.
Lending for real estate in February was followed closely by wholesale and retail trade at 13.32 percent, amounting to SR185.23 billion, with manufacturing activities making up 12.6 percent of corporate lending, totaling SR175.1 billion.
Based on data from SAMA, financing for professional, scientific, and technical activities soared by 56 percent, hitting SR6.49 billion, marking the highest growth rate among sectors.
Education loans also showed robust growth, with an annual increase of 31 percent to reach SR6.17 billion. Additionally, financing for administrative and support service activities rose by 29 percent, totaling around SR35 billion.
Although the lending share for the scientific and education sectors remains low, the Saudi government recognizes its crucial role in the Kingdom’s transformation.
Various initiatives aimed at fostering innovation and scientific thinking may have contributed to the steady growth of lending
provided for these sectors by financial institutions.
Saudi banks’ foreign assets surge by 22%, reflecting robust international investments
The figures also showed that foreign assets of Saudi Arabia’s commercial banks surged by 22 percent in February, reaching a total of SR347.63 billion, compared to the same month of the previous year. This notable increase reflects a significant expansion in the institution’s international holdings and investments.
Conversely, Saudi banks witnessed a 38 percent surge in foreign liabilities over the same period, increasing to SR288.22 billion. This rise, which encompasses various financial obligations to banks outside the Kingdom, resulted in the calculation of net foreign assets amounting to SR59.41 billion. Despite the growth achieved by international holdings, the increase in liabilities has resulted in a 21 percent decrease in the net figure from SR75 billion, which was recorded during the same month in the preceding year. Additionally, SAMA reported that its net foreign assets reached SR1.55 trillion in February. This figure indicates the overall financial strength and global position of the Kingdom’s banking sector. However, it reflects a 5 percent decline compared to the same month last year.
The main difference between the foreign assets of central and commercial banks lies in their purpose and role within the financial system.
Central banks’ foreign holdings are primarily for reserve management and monetary policy purposes, while commercial banks’ foreign assets are for business operations, customer services, and investment activities. Total reserve holdings totaled SR1.62 trillion in February, a 5 percent decline from the same month last year.
Reserve assets for financial institutions comprise a range of highly liquid assets held to ensure stability and fulfill shortterm financial obligations. Among these holdings are monetary gold, which serves as a traditional store of value and a hedge against currency fluctuations.
Special Drawing Rights represent an international reserve asset created by the International Monetary Fund and allocated to member countries, acting as a supplement to their existing funds. The reserve position refers to a country’s holdings of foreign currencies with the IMF, providing an asset that can be utilized when needed.
Additionally, banks hold foreign currency and deposits in international institutes, enabling them to meet obligations denominated in other currencies.
Furthermore, banks invest in foreign securities, such as government and corporate bonds issued by global entities. These investments not only provide a source of income but also offer diversification benefits to the institutes’ portfolios.
In February, investments in international securities accounted for 60 percent of the reserve position.
Saudi Arabia has been bolstering its investment approach by channeling capital into national funds such as the Public Investment Fund and National Development Fund. Consequently, a decrease in reserves could indicate that SAMA’s holdings are being spread across various financial opportunities.
Education loans also showed robust growth, with an annual increase of 31 percent to reach SR6.17 billion.