Saudi Arabia's banks have arranged the most loan syndications on record this year as they support the government's $514bn spending plans and offset a decline in funding from Europe. Banks in the largest Arab economy were lead arrangers for $4.19bn of syndicated loans so far in 2012, 43% of the Middle East and North Africa total, data compiled by Bloomberg show. Regional syndicated lending has fallen 28% this year to $9.86bn, compared with drops of 39% in Western Europe and 47% in Asia. Loan growth has accelerated in the world's top oil exporter as state and private investors pursue projects to build infrastructure and industry, and create jobs. Saudi banks, which benefit from the lowest loan-to-deposit ratio in the six-nation Gulf Cooperation Council, accounted for four of the top-five lead arrangers this year, positions held by European and US banks in the five years to 2011. “Project finance activity has picked up very strongly over the past year," Murad Ansari, a Riyadh-based analyst at investment bank EFG-Hermes Holding, said by phone on Sunday. “International banks' participation has been relatively low, so the room for Saudi banks to lend has increased significantly." Loans to private businesses in the kingdom grew 13.4% in the year to April, the fastest pace in three years, central bank data shows. Improved lending appetite in the nation of 28mn people has driven the three-month Saudi interbank offered rate, known as Saibor, up 14 basis points, or 0.14 percentage point, this year to 0.915% yesterday, just below a three-year high. The spread of Saibor, the rate at which banks in the kingdom lend to each other, over the equivalent London Interbank Offered Rate has more than doubled in 2012 to 45 basis points. The yield on six-month Saudi treasury bills declined one basis point to 0.44975% at a sale yesterday, the lowest since March. Saudi Arabia sells treasury bills at weekly auctions on Mondays. Saudi banks have so far in 2012 arranged the most loans since Bloomberg began tracking the data in 1999 and more than double the amount they arranged by this time last year, when they accounted for 13% of regional loan deals. The kingdom's loan-to-deposit ratio is below 80%, compared with more than 100% in Qatar and Oman and 94% in the UAE, central bank data show. “Saudi banks were very liquid and lowly levered at the end of 2011," Khalid Howladar, senior credit officer at Moody's Investors Service in Dubai, said by e-mail on Sunday. “This is in contrast to the international banks that are retrenching back to core markets given the problems at home in Europe." Saudi Arabian Mining Co, the state-run producer known as Maaden, said on Sunday it received commitment letters for a 7bn-riyal ($1.9bn) revolver loan from banks including Saudi Arabia's National Commercial Bank, Samba Financial Group and Al Rajhi Bank. The kingdom's share of total regional syndications rises when figures of HSBC Holding's 40%-owned affiliate Saudi British Bank are included. HSBC is the region's top loan arranger this year at $1.82bn of loans, including $1.4bn in Saudi Arabia. Raising funds via bond sales is gaining appeal among Saudi companies, which have the lowest average borrowing costs in the in the GCC. The average yield on Saudi debt was 2.48% on June 1, JPMorgan Chase & Co's CEMBI Broad Saudi Arabia Blended Yield shows. The yield is 3.99% in Qatar and 4.8% in the UAE, according to JPMorgan indexes. Saudi bond sales have already set an annual record of $7.8bn, data compiled by Bloomberg show. Banque Saudi Fransi, 31%-owned by Credit Agricole SA, last month sold $750mn of five-year Islamic bonds, partly to help it expand project-finance lending, Chief Financial Officer Philippe Touchard said on May 15. “Ultimately sukuk and bonds are much more liquid than loans," said Moody's Howladar. “A lot of lenders are still keen on maintaining high liquidity levels in the face of many global uncertainties and possible stresses." Bank loans still form a sizable component of company project financing. State-run Saudi Arabian Oil Co and Dow Chemical Co will seek to raise $2.66bn in bank loans as part of a $12.4bn financing for their Sadara Chemical Co joint venture to build a chemical complex, two bankers with knowledge of the situation said May 30. The Saudi economy is set to expand 4.8% this year, the second-fastest pace of growth in the GCC after Qatar, an April survey of 12 economists compiled by Bloomberg shows. That surpasses expected average growth of 1.4% for G10 nations. “The appetite is still there and the local economic picture is strong," Paul Gamble, head of research at Riyadh- based Jadwa Investment Co, said by phone on June 2. “Government spending, which is driving a lot of these projects is definitely affordable. Even at current oil prices, though below $100 a barrel, we still see a large government budget surplus," according to Bloomberg.
