Saudi private sector likely to see higher bank lending, says Jadwa

Saudi Arabia is expected to see a pickup in bank lending in several sectors such as non-oil manufacturing and non-oil mining, Jadwa Investment said in a recent report.

This comes as the latest gross domestic product (GDP) figures signal a rise of 5 and 3 percent in average in both sectors year-to-September.

“Higher government spending in the 2019 budget, reaching SAR 1.1 trillion is expected to positively impact credit to the private sector and bank deposits as well,” the investment bank added.

Meanwhile, several elements are likely to weigh on credit to the private sector.

Labor market reforms and the value-added tax (VAT) will continue impacting the wholesale and retail sector activities, which represents the largest share of credit to the private sector, and likely to weigh on its financial activities.

Expat departures are forecast to affect consumer spending, as the total number of foreigners in the Saudi labor market has declined by nearly 1.1 million since early of 2017 until the end of Q2 2018.

“In 2019, the wholesale and retail sector is also likely to be affected by the reduction in VAT threshold starting Q1 2019, from a turnover of SAR 1 million in 2018, down to SAR 375 thousand in January 2019,” Jadwa said.

“This step should have added additional 300 thousand small and medium enterprises, with many of them in the wholesale and retail sector,” it added.

In addition, Saudi Arabia is projected to see the repo rate at 3.5 percent, and the reverse repo at 3 percent, by the end of this year, if the US Federal reserve proceeds with its plan of two interest hikes in 2019, the report concluded.