Record Slide in Saudi Loans to Companies Poses Risk to Recovery

(Bloomberg) -- Saudi bank lending to private companies shrank for an 11th month in January, the longest stretch in at least two decades, underscoring the challenge facing officials trying to boost growth in the largest Arab economy.

Data released last week by the Saudi Arabian Monetary Authority showed total credit issued to private companies fell 1 percent from a year earlier, compared with a 41 percent jump in lending to the public sector -- the most in 11 months. That's a problem for authorities looking to bolster non-oil private industries to overhaul an economy long reliant on oil revenue and state spending.

It also illustrates how the government is caught between competing desires to stimulate the economy while shoring up public finances, after the plunge in oil prices in 2014 caused the budget deficit to surge. The kingdom has introduced value-added tax and removed some fuel subsidies, but also rolled out a package of handouts to offset the impact.

Last week's data indicate the new levies hit retail activity, with sales transactions plunging by almost a fifth from December.

Saudi Outlook Is Too Rosy for Economists Even With New Handouts

Both declining credit and wary shoppers are likely to concern a government expecting a 2.7 percent expansion this year -- well above the 1.5 percent median estimate in a Bloomberg survey of economists. The economy shrank 0.5 percent in 2017, the government said in its December budget statement.

“The current state of credit activity is probably a reflection of a longer term economic cycle, and creates a headwind for the economy,” said Duygu Akkoca, a Middle East and North Africa economist at Ziraat Bank in Istanbul, adding that her own estimate for 2018 growth is 1.7 percent. “The economic reaction to the introduction of VAT is also understandable.”

Below are some highlights in the SAMA data:

• Total bank credit to private companies was 1.34 billion riyals in January, down from 1.36 billion riyals in 2017; the 11-month streak is the longest since 1998, the earliest data available
• Bank lending to the public sector rose 40.7 percent to 308.3 billion riyals
• Point-of-sale transactions fell 18.7 percent from December to 16.4 billion riyals -- though that was still 4.3 percent higher than a year earlier
• SAMA's total net foreign assets fell 2.1 percent to $486 billion, the first monthly decline since September, led by a drop in the value of investments in foreign securities

To contact the reporter on this story: Onur Ant in Ankara at oant@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Stuart Biggs, Mark Williams

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