Saudi Mortgages Send Credit Growth Soaring

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 pandemic takes a toll. In July, bank claims on the private sector expanded by an annual 13.5%.

New residential mortgages provided by banks were equivalent to 85% of July’s credit growth, according to Bloomberg calculations based on the latest official data.

Saudi Mortgages Send Credit Growth Soaring

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.

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 programs 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.

Saudi Mortgages Send Credit Growth Soaring

Beyond mortgages, the outlook is bleak for the world’s largest crude exporter, which is facing a double crisis from the coronavirus pandemic and depressed oil prices. The International Monetary Fund expects the economy to shrink 6.8% 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 neighboring United Arab Emirates, providing a “safety net at what will continue to be very difficult times,” said Simon Williams, HSBC Holdings Plc’s chief economist for central and eastern Europe, the Middle East and North Africa.

The relief helped Saudi cafe owner Mohammed AlShareef stay afloat, allowing him to delay the last few payments on a loan of around 500,000 riyals ($133,300) loan 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.

©2020 Bloomberg L.P.

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