Saudi Arabia mortgages grew sharply by 65% in May to SR6.8 billion ($1.8 billion), a smart recovery from April’s SR4.1 billion, according to Al Rajhi Capital Research.

“In our view, non-REDF (Real Estate Development Fund) category has remained resilient and is driving the mortgage demand.”

Corporate loan

Further, corporate loan growth was also strong as total credit was up almost 12% y-o-y and 1.4% m-o-m. On the other hand, demand deposits continue to decline, while time deposits inflow remain strong. Despite the rising funding pressure, profitability for May was solid implying the banks are passing on the high interest costs to the end consumer, said Al Rajhi citing the Saudi Arabian Monetary Authority (SAMA) banking data.

“We continue to believe interest rates will remain higher for longer period time than implied by the consensus, thus maintain our positive view on the corporate banks,” Al Rajhi said.

Credit

Credit growth for May came in strong growing at +1.4% m-o-m and +11.8% y-o-y (April: 0.3% m-o-m and +11.1% y-o-y). Bank lending to the private sector grew 1.3% m-o-m in May and grew 10.3% y-o-y (April: 0.3% m-o-m and +9.7% y-o-y).

Deposits

Deposits contracted for May (-0.7% m-o-m, +9.8% y-o-y), led by a decline in demand deposits (-0.2% m-o-m, -2.1% y-o-y). For the third consecutive month, government time deposit inflows were solid growing at +4.0% m-o-m and +45.8% y-o-y (April: +2.8% m-o-m and 44.9% y-o-y).

Liquidity

The simple LDR in the system grew 2.1% m-o-m coming around 102.5% in May, and the adjusted LDR (SAMA reported) grew 1.3% coming around 82.0%. The interbank liabilities increased 2.6% m-o-m to SR109 billion in May from SR106 billion in April.

Consumer spending increased 15.2% y-o-y in April to SR107.4 billion (+3.9% y-o-y in April). Cash withdrawals in value terms increased 7.7% y-o-y in May (-0.6% y-o-y in April) to SR44.9 billion.

Mortgage

Residential mortgage came in at SR6.8 billion in May, accelerating from SR4.1 billion in April, in line with our yearly estimates. YTD average is around SR6.7 billion (Al Rajhi’s 2023 estimate is SR6.8billion).

Banking sector net profit before Zakat and tax for April came in at SR6.3 billion, +9.5% m-o-m and +14.2% y-o-y (April: -22.2% m-o-m and +3.4% y-o-y). 5M23 profitability came in 13.7% higher than 5M22 profits.-- TradeArabia News Service

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