The Saudi Central Bank (SAMA) published its monthly bulletin for August 2022. Banks loan book increased by 1.6% mom (+15.8% yoy) to SAR2.29trn, taking ytd growth to 11.3%. New mortgages origination by banks increased by 76.6% mom (-0.3% yoy) to SAR12.7bn. New mortgages accounted for 36% of new loans in August, which indicates a more broad base growth in the loan book. The liquidity in the banking system remains tight as indicated by the increase in the regulatory LDR to 81.5% in August 2022 vs 80.9% in July 2022. Excess deposits (total deposits minus loans) remained negative at SAR49bn in August 2022 vs negative SAR27bn in July 22. We believe this will continue to impact the sector’s cost of fund and negatively impact margins going forward.
From a macro perspective, total reserves decreased by 1.4% mom (+0.5% yoy) to SAR1.72trn (US$457bn), while CPI stood at 3.0% yoy in August vs 2.7% in July 2022.
The Saudi banking sector’s assets increased by 0.9% mom (+14.3% yoy) to SAR5.56trn in August 22. This takes 2022 ytd increase to 8.6%.
The loan book increased by 1.6% mom (+15.8% yoy) to SAR2.29trn. This takes the ytd growth to 11.3% vs 11.0% in the same period last year.
In absolute terms, the new loan origination stood at SAR35.1bn in August vs SAR14.0bn in July. Although mom recovery in mortgages helped improved new loan origination in August, but we believe it was more broad base as mortgages only accounted for 36% of new loans in August 2022 (51% in July 2022 and 79% in August 2021).
New mortgage originations increased by 76.6% mom (-0.3% yoy) to SAR12.7bn in August 2022. We believe the sequential recovery in the new mortgage origination is positive for the sector.
Overall, the sector has originated new mortgages of cSAR87.2bn in 8M 22 (38% of total new loans) vs cSAR196bn in 8M 21 (53% of new loans), down 16.3% yoy. In addition to higher interest rates, we believe higher real-estate valuations and cost of construction are also impacting the demand for new mortgages, in our view.
The Fed raised the interest rates five times in 2022 to a range of 3.0–3.25%, after it was almost zero at the beginning of the year. Furthermore, there is an anticipation that the Fed will raise the rate further by another 75-100bps in December 2022. Given the currency peg, SAMA is expected to follow.
On the other hand, deposits increased by 0.6% mom (+10.3% yoy) at SAR2.24trn. Demand deposits increased marginally by 0.3% mom (+6.5% yoy) to SAR1.40trn, while T&S deposits increased by 1.1% mom (+6.5% yoy) to SAR525bn.
Subsequently, regulatory loan to deposit ratio (LDR) increased to 81.5% in August 2022 vs 80.2% in July 2022. Excess deposits (total deposits minus loans) remained negative at SAR50bn in August 2022 vs negative SAR27bn in July 2022.
We believe tight liquidity situation will continue to impact the sector cost of funds going forward, particularly for those banks that have higher LDRs.
The sector reported a net profit of SAR6.59bn in August, up 13.5% mom (+22% yoy).
We highlight that last year’s numbers reflect higher provisioning mainly from SAMBA (prior to the merger with NCB).
In 2M Q322, the sector reported a cumulative profit of SAR12.4bn, up c11% qoq and c35% yoy.
Banks and other financing companies signed 16,573 new residential mortgage contracts for individuals in August 2022 vs 9,239 a month earlier (+79% mom, 5% yoy).
The total disbursed amount stood at SAR13.0bn in August 2022 vs SAR7.4bn in June 22, up 76% mom (-1% yoy).
Average contract value remained flat mom at SAR0.80mn.
Other Macro data
In August 2022, total personal transfers declined by 6.3% yoy (+2.8% mom) to SAR18.2bn.
Saudis transfers increased by 10.2% yoy (+2.8% mom) to SAR6.3bn, while non-Saudis transfers declined by 13.2% yoy (+2.8% mom) to SAR11.9bn.
Total reserves increased by 0.6% mom (-1.4% yoy) to SAR1.72trn (US$457bn).
Broader money supply (M3) increased by 8.9% yoy (+0.3% mom) to SAR2.44trn.
The yoy growth was due to a combination of growth in T&S deposits and Other Quasi Money deposits.
M1 increased by 5.7% yoy (-0.01% mom) to SAR1.60trn, with demand deposits increasing by 6.4% yoy (+0.3% mom) while currency in circulation (CIC) was down by 3.8% yoy (-2.2% mom).
T&S deposits increased by 13.8% yoy (+1.1% mom).
CPI increased by 3.0% yoy (+0.4% mom) in August 2022 and is higher than 2.7% recorded in July 2022.
The increase is primarily due to higher food and transportation prices, which increased by 4.02% yoy and 4.0% yoy, respectively.
In 8M 22, average CPI stood at 2.2% yoy, primarily driven by higher food (+3.5% yoy) and transportation prices (4.1% yoy).
PoS transactions stood at SAR49.0bn in August 2022, up 21.2% yoy (+8.6% mom).
ATM cash withdrawals (Banks and Mada) decreased by 1.3% yoy (-1.75% mom) to SAR46.2bn.