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MOODY’S: SAUDI BANKS LIQUIDITY IMPROVES IN 2017

According to Moody’s which provides financial credit ratings, research, tools and analysis, domestic liquid assets in Saudi Arabia’s banking system ended 2017 at a record high of SAR 457 billion ($122 billion), despite subdued deposit growth and challenging business conditions. Assets grew 11 percent in 2017 and equaled 20 percent of total Assets at year-end 2017 versus 14 percent as of year-end 2015. The ratio of reserves to total deposits was 14.8 percent as of year-end 2017, its highest since year-end 2012. The positive trends were achieved amid muted 0.1 percent deposit growth in 2017 and were mainly driven by a contraction of 1.0 percent in banks’ loans and a 43 percent increase in the banks’ holdings of domestic government bonds. Successive sovereign debt issuance in 2017, notably Sukuk bond issuance allowed banks to transfer their excess liquidity into high-quality government investments, the report said. As of year-end 2017, government bonds comprised 56 percent of Saudi banks’ domestic liquid assets, up from 27 percent in 2015. Moody’s expects that economic activity in Saudi Arabia will recover over the next 12-18 months, in line with the spending increases planned in the government’s 2018 budget. In particular, Moody’s expects that Saudi banks will benefit from the government’s private-sector stimulus of SAR 72 billion ($ 19.2 billion) to support private-sector growth over the next four years. As a result of improved liquidity, Moody’s believes banks are in a better position to absorb a pick-up in lending in 2018, which it expects will grow by around 4 percent