News Column

Bank lending to KSA private sector up 12.3%

August 7, 2014

Arab News, Jeddah, Saudi Arabia

Aug. 08--JEDDAH -- The Kingdom's economy remains robust with the key Saudi stock market index rising above the 10,000 mark last month for the first time in six years, Jadwa Investment says in its latest report.

"Data for June shows that the economy remained robust. The two key indicators of consumer spending we track were strong owing to seasonal factors, with both the value of point of sale transactions and cash withdrawals from ATMs hitting an all-time high," says Jadwa's Saudi Chartbook for August 2014.

The value of cash withdrawals from ATMs in June recorded an all-time high with a 11.7 percent rise, year-on-year and record high point of sale transactions also suggest strong consumer spending ahead of Ramadan, according to the report.

It said that cement sales plunged in June in line with the seasonal trend as working hours are reduced during the summer months. Cement sales were 3.7 percent lower than in June 2013.

Bank lending to the private sector jumped in June. Monthly growth was the second highest since April 2013. This lifted the year-on -year increase to 12.3 percent, according to Jadwa Investment.

Manufacturing accounted for the largest share of new lending in the first half of the year, followed by commerce. Despite ongoing major infrastructure spending, credit outstanding to construction companies remains relatively low, said the chartbook. Banks drew down their excess deposits to finance the increase in lending.

The report said that both headline and core inflation rates were not changed in year-on- year terms for a third consecutive month in June. Food prices surprised with a decline of 0.2 percent month-on-month, but still remain the second largest contributor to annual inflation, after rental and housing related services.

It said that year-on-year inflation remained unchanged at 2.7 percent for the third consecutive month in June. Food prices surprised with a decline of 0.2 percent month-on-month, reversing a regular trend of higher food prices ahead of Ramadan.

According to Jadwa researchers, rental inflation reversed the previous month's drop and rose to 4.1 percent year-on- year in June, making it the largest single contributor to headline inflation.

The current account surplus fell to $30.7 billion in the first quarter 2014, from $38.1 billion in the fourth quarter 2013 owing to a record high deficit in the services account. A notable change in the latter is an all-time deficit in the government goods and services account (probably related to elevated level of external financial aid and assistance granted to other Middle Eastern countries), said the report.

Both imports and exports fell in the first quarter compared with the last quarter of 2013. In year-on- year terms, however, higher oil production supported exports while imports fell by almost 10 percent, according to the chartbook.

The report said that Saudi crude production increased in June, month-on-month, to meet the seasonal rise in domestic electricity generation. Latest available data shows that Saudi exports declined in May. This was due to increased Saudi consumption and larger crude output from both non-OPEC and OPEC sources.

Jadwa researchers also noted that Saudi authorities' proposal to open up the Saudi stock market pushed the Tadawul All Share Index (TASI) to levels last seen back in May 2008. This news brought about a large positive swing in monthly performance and saw the largest net purchases of swap agreements by foreign investors.

The TASI moved above the 10,000 mark, in July, for the first time in six years.

Buoyed by the positive news, investors brought about the largest monthly swing in performance in two years while the value of shares bought by foreign investors, via swap agreements, reached record levels in July.

All 15 sectors saw positive gains as a result of the huge rise in the index in July.

Larger sectors, such as petrochemicals and real estate performed well, whereas agriculture and foods benefited from seasonal uplift. Smaller sectors, such as multi investment and media performed less strongly. Agriculture and food stocks benefitted from the Ramadan period. The cement sector suffered due to seasonality, whereas the media sector is struggling to recover from recent negative sentiment, said the Jadwa report.

Net income of listed companies totaled a record SR32.2 billion in Q2 2014 with the petchem and banking sector leading the way. Petchems saw the largest rise in profits, year-on-year.

A macro-economic environment underpinned by high government spending and strong oil revenues supported net income growth, which rose by 26 percent, quarter-on-quarter, to SR32.2 billion.

Petrochemicals and banks remain the overall outstanding performers, contributing 56 percent to the total net income in the second quarter of this year.

One-off exceptions boosted both energy and telecoms sector profits, while increased international sales and higher product prices supported the petchem sector.


(c)2014 the Arab News (Jeddah, Saudi Arabia)

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Source: Arab News (Saudi Arabia)

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