Boston, MA -- (SBWIRE) -- 08/01/2012 -- BMI View: Saudi Arabia's commercial banks continue to benefit from the country's ongoing economic boom. Robust deposit inflows and strong domestic demand for credit have spurred lending, and we expect loose fiscal policy to keep the sector growing swiftly throughout 2012. The Saudi Arabian banking sector has long been among our regional favourites, and the sector is set to remain in good shape throughout 2012. Loose fiscal and monetary policy has cultivated demand for new credit, while strong aggregate balance sheet positions have left banks in a good position to ramp up lending. We see relatively few risks to the sector's outlook in 2012, and expect credit and asset growth to continue apace through the year. We forecast total assets to grow by 10.0% to SAR1.7trn (US$453.6bn) in 2012, compared with growth of 9.1% in 2011. Deposits Still Pouring In Since the beginning of 2011, the commercial banking sector in Saudi Arabia has been buoyed by strong economic growth and, in particular, by heavy government spending. Riyadh responded to the Arab Spring by ramping up public sector wages and making a series of one-off transfers to its citizens. The result was a sharp rise in bank deposits, and the sector's total stock of client deposits increased by 12.1% last year, standing at SAR1.1trn in January. Growth remains strong (coming in at 13.0% y-o-y in January), and while base effects coinciding with large bonuses granted to government workers early last year will kick in over the coming months, we nevertheless forecast total deposit growth of 9.0% in 2012. Robust deposit inflows have left the sector's aggregate balance sheet in good shape. Reliance on loan financing is low (accounting for just 14.3% of total liabilities) - indeed, 'other liabilities' fell by 0.7% y-oy in January - and the loans-to-deposits ratio stands at a healthy 0.82. With few concerns over asset quality (SAMA recorded a non-performing loans ratio of just 3.0% in 2010), banks would have little difficulty tapping credit markets even in the event of a slowdown in deposit inflows. This is particularly the case given the recent spike in oil prices, which will boost liquidity throughout the kingdom's financial system. No Let-Up In New Lending Abundant financing has allowed banks to rapidly expand their loan portfolios, with credit growth accelerating to 11.5% y-o-y to SAR903.5bn in January (compared with 5.9% in January 2011). There are several reasons to expect domestic demand for new loans to remain robust. Massive state spending on infrastructure projects will create investment opportunities for construction firms in the country, while interest rates are set to remain low in line with loose policy in the United States. Moreover, a strong economy will further spur demand, and the most recent Dun & Bradstreet business optimism survey records that 51% of non-hydrocarbon private sector companies planned to expand their businesses in the upcoming quarte

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