Strategy Note /
Saudi Arabia

Saudi Central Bank Monthly Bulletin - June 2022

  • Banks loan book grew by 2.2% mom (+14.8% yoy) to SAR2.24trn, taking ytd growth to 8.9%

  • SAMA deposits has improved the liquidity in the system with headline LDR declining to 79.7% in June 2022

  • From a macro perspective, total reserves increased by 3.3% mom (+4.7% yoy) to SAR1.75trn (US$467bn)

SNB Capital
1 August 2022
Published bySNB Capital

The Saudi Central Bank (SAMA) published its monthly bulletin for June 2022. Banks loan book grew by 2.2% mom (+14.8% yoy) to SAR2.24trn, taking ytd growth to 8.9%. Although mortgages remained the major driver of loan growth in June 2022, we believe the growth was broad base. SAMA deposits has improved the liquidity in the system with headline LDR declining to 79.7% in June 2022 vs 82.2% in May 2022 and lower SAIBOR also reflecting that impact.

From a macro perspective, total reserves increased by 3.3% mom (+4.7% yoy) to SAR1.75trn (US$467bn), while CPI stood at 2.3% yoy vs 2.2% in May 2022.

Banks

  • The Saudi banking sector’s assets increased by 3.4% mom (+13.3% yoy) to SAR3.52trn in July 2022, primarily driven by a strong growth in the loan book. Investments increased by 1.1% mom (+8.2% yoy) to SAR556bn.

  • The loan book increased by 2.24% mom (+14.8% yoy) to SAR2.24trn. This takes the ytd growth to 8.9% vs 9.5% in the same period last year.

  • Comparatively, the growth of 2.24% mom for June 2022 was stronger than May levels of 0.75% mom. In absolute terms, the sector originated SAR49.0bn of new loans in June vs SAR16.3bn in May. This is the highest monthly loan origination on record.

  • Although new mortgagees remained the main contributors, we believe the growth in the month of June was broad base mainly in corporate segment, in our view . New mortgages only contributed c27% of new loans in June vs c54% in May 2022 and reaching the lowest level since April 2020.

  • Having said that, new mortgages increased by 48.9% mom (57.7% yoy) to SAR13.2bn in June 2022 vs SAR8.81bn in May 2022.

  • Overall, the sector has originated new mortgages of cSAR67.4bn in H1 22 (37% of total new loans) vs cSAR81.9bn in H1 21 (48% of new loans), down 17.7% yoy.

  • Amongst the banks that have reported so far, Alrajhi continued to have the largest share of new loan originations in Q2 22. The bank accounted for 41% of the new loans in Q2 22, followed by 27% for SNB.  

  • On the other hand, deposits increased by 2.49% mom (+10.0% yoy) to SAR2.23trn, primarily driven by a 4.9% mom increase in Time and Saving (T&S) deposits. According to Bloomberg, during the month SAMA placed SAR50bn as time deposits in three tranches with banks to improve the liquidity in the system.

  • Subsequently, regulatory loan to deposit ratio (LDR) decreased from 82.2% in May 2022 to 79.7% in June 2022. Although excess deposits (total deposits minus loans) remained negative at SAR9bn in June 2022, it is lower than the negative level of SAR15bn recorded in May 2022. We believe tight liquidity situation will continue to impact the sector’s cost of funds going forward, particularly for those banks that have higher LDRs.

  • The benchmark 3M SAIBOR stood at 3.09% as of 31 July 2022 vs 1.0% on 31 January 2022. However, we highlight that SAMA deposits eased pressures on the SAIBOR as seen towards the end of June. The recent increase is attributed to Fed increasing its target rate by 75bps in its July meeting.

  • The sector reported a net profit of SAR16.7bn in Q2 21, up 2.9% qoq (+31% yoy).

  • We highlight that the last year’s numbers reflect higher provisioning mainly from Samba (prior to the merger with NCB).

  • Based on this, we believe the possibility of any earnings surprise, from the banks that have still to report earnings such as Riyad bank, BJAZ, SAIB and SABB, is limited.

Mortgages

  • Banks and other financing companies signed 16,863 new residential mortgage contracts for individuals in June 2022 vs 11,085 a month earlier (+52.1% mom, 46.4% yoy).

  • The total disbursed amount stood at SAR13.5bn in June 2022 vs SAR8.9bn in May 2022, up 50.4% mom (+58.2% yoy).

  • Average contract value declined to SAR0.80mn in June 2022 vs SAR0.81mn in May 2022.

Other Macro data

GDP

  • According to GASTAT, Saudi Arabia’s real gross domestic product (GDP) increased by 11.8% yoy in Q2 2022, the highest since Q3 2011.

  • The increase was driven by a significant increase in oil activities by 23.1% yoy, while non-oil activities increased by 5.4% yoy. Government activities increased by 2.2% yoy.

  • As compared to Q1 2022, real GDP increased by 1.8% qoq.

Remittances

  • In June 2022, total personal transfers increased by 0.3% yoy (+14.2% mom) to SAR20.0bn.

  • Saudis transfers increased by 5.1% yoy (+8.9% mom) to SAR6.7bn while non-Saudis transfers declined by 2.1% yoy (+17.2% mom) to SAR13.2bn.

Reserves

Total reserves increased by 3.2% mom (+4.7% yoy) to SAR1.75trn (US$467bn).

Money Supply

  • Broader money supply (M3) increased by 8.9% yoy (+2.3% 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 3.6% yoy (+1.8% mom) to SAR1.60trn, with demand deposits growing by 4.3% yoy (+2.1% mom) while currency in circulation (CIC) declining by 1.1% yoy (-07% mom).

  • T&S deposits increased by 22.0% yoy (+4.9% mom).

  • M1 represents 65.5% of the total M3 (vs 68.9% in June 21), with CIC representing 8.5% (vs 9.3% in June 21) and demand deposits representing 57.0% (vs 59.6% in June 21).

Inflation

CPI increased by 2.3% yoy (+0.23% mom) in June 2022 and is marginally higher than 2.2% recorded in May 2022.

The increase is primarily due to higher food and transportation prices, which increased by 4.2% yoy and 4.0% yoy, respectively.

In H1 22, average CPI stood at 1.9% yoy, primarily driven by higher food (+3.4% yoy) and transportation prices (4.2% yoy).

Consumer Spending

  • PoS transactions stood at SAR46.0bn in June 2022, up 18.7% yoy (+8.5% mom).

  • ATM cash withdrawals (Banks and Mada) increased by 1.0% yoy (+13.1% mom) to SAR47.2bn.