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Saudis Spending to Drive Loans from Five-Year Low

Saudi Arabia is driving the demand for Islamic loans.

The Saudi Gazette
February 6, 2011
Jeddah, Saudi Arabia

Saudi Arabia will lead a rebound in Islamic loans from a five-year low in 2011 as accelerating economic growth and development spending boost financing needs, Banque Saudi Fransi and Standard Chartered said.

Demand for Islamic loans and Sukuk will climb this year, with borrowers tapping the financial markets to fund expansion, said John Sfakianakis, chief economist at Banque Saudi Fransi.

A new report on said Saudi Arabia’s nominal GDP in 2011 is predicted to be $474.6 billion, with growth of 2.5 percent expected in 2011.

Average annual GDP growth of 3.2 percent is forecast between 2011 and 2015. With the population increasing from 26.5 million in 2011 to an estimated 28.6 million by 2015, GDP per capita is predicted to rise to $22,320 by the end of the forecast period.

Increasing urbanization is also driving retail sales. In 2005, nearly 89 percent of the population was classified by the UN as urban, rising to an estimated 90 percent by 2010. The UN also described more than 57 percent of the population as economically active in 2005, with this proportion forecast to exceed 59 percent in 2010 and 66 percent by 2015. About 38 percent of the population was in the 20-44 age range in 2005, and the UN forecast that this will rise to about 45 percent by 2015, another barometer for retail sales.

Moreover, retail sub-sectors that are predicted to show strong growth over the forecast period include over-the- counter (OTC) pharmaceuticals, with sales expected to increase by more than 47 percent, from an expected $0.39 billion in 2011 to $0.57 billion by 2014.

Retail sales in the Kingdom in 2011 is estimated to rise 13.5 percent and then decrease slightly to 13.4 percent by 2014, the report said.

"Given that the economy and private sector are returning back to the fold, and growth is picking up, certainly I think appetite for Sukuk and loans will be there much more than the last two years when it was very modest," Sfakianakis said.

Syndicated loans that comply with Shariah declined 23 percent to $6.2 billion in 2010 for Europe, the Middle East and Africa, compared with a 59 percent increase in total lending to $916 billion, Bloomberg data showed.

Borrowers from the Gulf dominated the market last year while HSBC Holdings Plc and Standard Chartered were among the top 36 arrangers, the data show.

Syndicated loan growth in the $1 trillion Islamic finance industry has slowed every year since reaching a record high of $23.7 billion in 2007, Bloomberg added. Banks lent $8 billion in 2009 and $14.8 billion in 2008.


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