‘Black Monday’ for global stock markets

Jeddah - Yasmine El Tohamy - RIYADH: Saudi Arabia’s banking sector loans increased to SR2.75 trillion ($733.82 billion) in June, marking an annual 11.35 percent rise, official data showed.

An analysis released by the Saudi Central Bank, also known as SAMA, revealed that corporate credit accounted for 53 percent of the total lending in the month, while personal loans made up the remaining 47 percent.

Fitch projects that financing growth in the Kingdom will reach around 10 percent in 2024, driven by sustained demand for corporate and wholesale credit, offsetting a slowdown in the retail mortgage market. 

Additionally, 2024 could see banks capitalizing on direct lending opportunities to the country’s giga-projects.

Personal loans, encompassing all types of credit extended to individuals, totaled SR1.29 trillion, marking a 7 percent growth year on year, the SAMA report noted. 

Among corporate financing exchanges, those granted for real estate activities comprised the majority, and experienced 26 percent growth during this period to reach SR286.29 billion in June.

Closely following were loans extended for wholesale and retail trade, comprising 13 percent of corporate holdings and totaling SR195.87 billion. This category of claims saw an 8 percent rise during this period.

Lending for manufacturing activities constituted a 12 percent share totaling SR175.24 billion, reflecting a 1 percent increase compared to the same month last year. 

Meanwhile, the electricity, gas, and water supply sectors accounted for 11 percent of corporate lending, growing by 28 percent during this period. 

In terms of growth rates, lending for professional, scientific, and technical activities saw the highest annual increase, rising by 66 percent. Despite this significant growth, it comprised a relatively small share of total corporate loans, accounting for only 1 percent at SR8.52 billion.

According to Fitch, Saudi banks are projected to grow at about double the Gulf Cooperation Council average, with financing growth forecasted at approximately 12 percent for 2024.

The sector is expected to focus more on corporate financing, which is anticipated to account for about 60 percent of new originations.

Elias Abou Samra, CEO of RAFAL Real Estate Development Co., noted to Arab News in July that despite higher interest rates, the housing market in Saudi Arabia is regaining momentum.

In the US, central bankers decided to keep the policy rate in the 5.25 percent to 5.50 percent range at the latest Fed meeting on July 31. Fed Chair Jerome Powell noted that the labor market is gradually normalizing, which permits a cautious approach to interest rate cuts.

However, labor market data on August 2 showed a rise in unemployment to 4.3 percent, marking an unexpected deterioration in the job market. This led traders to expect a rate cut slightly higher than 25 basis points at the Fed’s September meeting according to analysts.

Yen interest levels have significantly impacted the stock market, primarily because of its historically low rates, which prompted investors to borrow in this currency and invest in higher-yielding equity markets.

This strategy, known as the carry trade, became less attractive when the Bank of Japan raised interest rates, leading to increased borrowing costs and a subsequent negative impact on the stock markets.

If the US Federal Reserve decides to lower interest rates in September, the spread between the US and yen will narrow further, putting additional pressure on the stock market.

This creates a dilemma for the Fed, as it must balance the need to lower inflation and address a weakening job market with the potential pressure on equities from higher yen rates.

Lowering US levels could ease domestic economic slowdown but might exacerbate market pressures due to the narrowing interest rate differential, possibly forcing the Fed to keep rates unchanged to avoid further market instability.