Mortgage cravings keep Saudi credit humming

Riyadh

SAUDI Arabia's mortgage market is almost single-handedly keeping credit flowing to the private sector at the fastest since the kingdom was coming off an oil boom in 2014.

Home loans are a major impetus at a time when the economy is down in the dumps as the global Covid-19 pandemic takes a toll.

In July, bank claims on the private sector expanded by an annual 13.5 per cent.

New residential mortgages provided by banks were equivalent to 85 per cent of July's credit growth, showed Bloomberg calculations based on the latest official data.

Although demand for credit has been on the rise from 2018, lending growth spiked into double digits at the start of the pandemic, when businesses borrowed to weather the crisis.

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But even as momentum has flagged since April, the increase in mortgages was more than sufficient to make up the difference, helped by government efforts to expand home lending from a low base.

"All the different subsidy programmes have been significantly supporting growth in mortgages, and this has been one of the key drivers in private-sector credit growth," said Mohamed Abu Basha, head of macroeconomic analysis at Cairo-based EFG Hermes.

Beyond mortgages, the outlook is bleak for the world's largest crude exporter, which is facing a double crisis from the novel coronavirus pandemic and depressed oil prices.

The International Monetary Fund (IMF) expects the economy to shrink 6.8 per cent this year - the most in three decades.

Officials have tripled value-added tax to raise revenue, hitting consumers' wallets.

But government measures to aid businesses had a broader reach than in the neighbouring United Arab Emirates, providing a "safety net at what will continue to be very difficult times", said Simon Williams, HSBC's chief economist for central and eastern Europe, the Middle East and North Africa.

The relief helped Saudi café owner Mohammed Al Shareef stay afloat, allowing him to delay the last few payments on a loan of around 500,000 riyals (S$182,386) he took in 2018 to open a new branch.

"Now we are thinking actually to take another loan, but I'm really hesitating at this stage," he said.

Without a broader uptick, home credit might not provide as much of a buoy for bank lending in the coming months.

"Mortgages may continue to grow this year, but the pace of expansion will slow," Bloomberg Intelligence analyst Edmond Christou said in a recent report. BLOOMBERG