Higher personal income hits Saudi consumer loans

A surge in personal wealth because of soaring oil prices has sharply depressed bank consumer loans in Saudi Arabia over the past three years and they could remain subdued because of official curbs, said the kingdom's largest bank.

From about SR188 billion (Dh186.2bn) in 2006, the total consumer loans extended by Saudi Arabia's banks declined to SR183.4bn in 2008 and nearly SR183.2bn in the first quarter of 2009, said the National Commercial Bank (NCB) in a study sent to Emirates Business.

"The banks' portfolio of consumer and credit card loans has been shrinking every year since 2006 because of spreading prosperity," it said.

Its figures showed the consumer loans as a proportion of banks' overall loans to the entire economy dwindled 13 per cent, from 37.8 per cent in the fourth quarter of 2006 to 24.8 per cent in the first quarter of 2009.

"Continuing high profitability, increasing dividend disbursements by the corporate sector and hefty payroll enhancement by the government together have lessened consumers' borrowing appetite in recent years."

The report showed credit card loans accounted for around 4.8 per cent of the banks' total consumer loans. Purchases of cars and equipment amounted to around 20.6 per cent while it stood at 8.4 for real estate and as high as 66.2 per cent in the pool of "other" category.

The kingdom's average per capita consumer loans was around SR7,387 (Dh7,313) in 2008, nearly 10.4 per cent of the overall GDP per capita income, suggesting an adequate room for expansion, said NCB.

"However Saudi Arabian Monetary Agency's (Sama) 2006 regulations, which stipulated that (1) only a third of the net salary can be used to repay the loan and (2) repayment should be complete within a five-year time frame, will keep the outlook for loan growth subdued."

Like other Gulf oil producers, Saudi Arabia had witnessed a seven-year economic boom because of a surge in crude prices before it came to an end following the eruption of the global fiscal distress in mid September 2008.

The crisis severely hit oil demand, which in turn sent crude prices crashing to as low as $35 in December from an historic peak of $147 in late July. Prices have improved through 2009 but they remain at about half their July level.

Strong oil prices allied with higher output by Saudi Arabia to boost its personal income to its highest level in current prices last year.

According to Sama, the country's central bank, the kingdom's GDP hit an all time high of SR1,753.5bn in 2008, up from SR1,437.6bn in 2007.

The Saudi population grew by around 2.3 per cent, far higher than the GDP growth. It peaked at 24.81 million last year compared with 24.24 million in 2007.

The report showed the country's GDP per capita soared to its highest level of SR70,677 in 2008 against SR59,310 in 2007.

By Staff Writer