Lewes, DE -- (ReleaseWire) -- 03/10/2014 -- We maintain a positive medium-term outlook towards the Saudi Arabian commercial banking sector, despite mixed earnings results for 2013. Progress in the government's infrastructure plans, robust growth in the non-oil sector, and high levels of liquidity will underpin credit growth and profitability in the coming quarters. Although the government's ongoing workforce nationalisation ('Saudisation') efforts have led to disruptions in the construction sector and higher provisioning charges for several banks, we expect these problems to moderate in the second half of the year. Total assets grew by a respectable 9.2% in 2013, on par with our forecast of 9.0%, according to data from the Saudi Arabian Monetary Agency (SAMA). We expect the rate of expansion to moderate only slightly this year, and project asset growth of 8.0% by the end of 2014.
Annual credit growth continued to ease over the second half of 2013, declining to a 22-month low of 12.4% by December (slightly below our forecast of 13.0%). While partly the result of high base effects, the decline was also fuelled by weakness in construction lending, which accounts for approximately 7% of total credit.
With the construction industry having borne the brunt of labour market pressures linked to the 'Saudisation' policy, banks have moved to limit their exposure to contractors. Loans to the construction sector grew by just 1.6% annually over the last quarter of 2013, and lenders have increased provisions to cover for deteriorations in asset quality. Al Rajhi, Saudi Arabia's largest listed lender by assets, and Banque Saudi Fransi posted falls of 19.1% and 66.1% respectively in fourth-quarter earnings - with both declines linked to higher provisioning.
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