Deposits in the Saudi financial system reached SR1.3 trillion by the end of May, adding SR70.5 billion YTD. Growth in the depositary base continues to provide opportunities to expand the financing capabilities of the banking system , according to a report by the National Commercial Bank (NCB).
The largest portion of deposits are in the form of demand deposits, of which only 8.5 percent are contributed by government entities. Given businesses and individuals' varying need for the most liquid type of deposits, their demand, time and savings, and foreign currency deposits are distributed at 74.1 percent, 17.5 percent, and 8.3 percent, respectively during May.
Meanwhile, the government's long-term priority is apparent as time and savings deposits represent 47.7 percent of their total deposits while demand and foreign currency deposits hold 23.8 percent and 28.5 percent, respectively. Collectively, demand deposits increased by 20.0 percent annually, outpacing time and savings deposits which rose by 7.3 percent Y/Y as interest rates remain low, the NCB report said.
On the assets side, total claims of the banking system , excluding T-bills and government bonds, accelerated to record an annual growth of 16.0 percent in May, but decelerated marginally in comparison to April. Total deposits outpaced credit which resulted in a slight decrease of the loans-to-deposits ratio to 80.3 by the end of May. By maturity, short-term credit posted the slowest annual increase in over a year at 5.2%, albeit holding the largest share at 53.2 percent. Ostensibly, local banks have been attempting to expand the maturity curve towards longer-term credit. The notion is derived from medium term and long-term credit growth rates , which have been substantially higher than short term credit over the past six months. During May, long-term credit rose by 37.3 percent, while medium term credit climbed by 22.2 percent annually. Local banks are expected to maintain the current level of credit growth as portfolio diversification offers new opportunities to add to their books.
As for the private sector, banks extended credit lines to businesses in the amount of SR12.8 billion during the month of May. On an annual basis, credit to the private sector grew by 16.5 percent, as total fresh lending reached SR61.8 billion during the first five months of 2013. Meanwhile, credit to the public sector increased at an annual rate of 16.0 percent. Bank credit to public enterprises significantly decelerated to 6.1 percent Y/Y while government bonds recorded their eleventh consecutive annual de- cline by 21.9 percent during May. The bulk of bank claims on the public sector are in the form of treasury bills. The issuance of treasury bills has been used as a liquidity management tool to mop up excess liquidity following bond settlements. As the economy's liquidity levels have increased lately , treasury bill issuances increased by 34.6 percent annually to reach SR174.3 billion, a 24-month high, the report said.
As for the interbank rate, SAIBOR, the subdued interest environment will aid banks in avoiding any liquidity shortages by allowing them to access funds cheaply. However, given the rise in credit, which translated into larger liquidity movements, the spread between SAIBOR and LIBOR has widened to over 70bps. The pace is far from worrying as SAMA (Saudi Arabian Monetary Agency) is closely monitoring risk indicators for the Saudi financial system. Accordingly, SAIBOR is expected to hover around 100bps.