I need to rework the analysis and findings of my research and do a regression and correlation analysis to find the relation between loans amount and the inflation in Saudi Arabia(loan amount impact on the inflation). also another regression and correlation analysis to find the relation between loans amount and the GDP growth in Saudi Arabia (loan amount impact on the inflation).

the data should be collected over last ten years from official sources (secondary data).

after the regression and correlation part is done. the findings should be written clearly and logically.

summary of the request:

1- the research data source must be mentioned clearly
2- the hypothesis should be two parts :
first: the statistical relationship between Banking loans and inflation in Saudi Arabia
second: the statistical relationship between Banking loans and gross domestic product (GDP) in Saudi Arabia
3- do the regression between Banking loans amount and inflation (Banking loans is the independent variable)

4- do the regression between Banking loans amount and GDP (Banking loans is the independent variable)
5- write the findings based on above
6- assess the regression with correlation between: A- Banking loans amount and inflation B- Banking loans amount and GDP
7- in all steps above mention the source of data
8- mention the used statistical program

 

very important: the attached file is not submitted yet to any academic institution so do not share it with any data base our other students.




The impact of Banking Loans on Inflation and GDP: Saudi Arabia case / Empirical Study
Name of the University:
Name of the Student:







Authors Note:
Abstract
The major aim of the research is to investigate the way in which the retail banking loans impact the inflation and actions economy. From the completion of the research, it was gathered that Investment loans are observed to be a vital factor in ensuring economic growth in Saudi Arabia. The financial sector in the Saudi Arabia has a vital role in mobilizing the foreign and domestic savings for investment through offering enough liquidity to the companies and making sure that the financial loans offerings is done effectively. In consideration to supply, the bank deposits of Saudi Arabia increased with the public sector income that further enhanced the lending capacity of the Saudi Arabian banks. Moreover, the literature review section has discussed various theoretical concepts is intended to be elaborated in the literature review section that includes concepts on inflation, economic growth, retail banking loans, investment loans and impact of such loans on the economic growth of Saudi Arabia. Based on the research it is recommended that the non-performing loan and the lending policies resent in Saudi Arabia must be related. Lending policies must be developed such that it can facilitate the banks lend efficiently and deceases the level of risk for the banks. Strict adherence to the lending regulations has resulted in decreasing the levels of the non-performing loans. It I also recommended that the level of lending to all these sectors must be enhanced and in consideration to the same the return with the growth of the sector. 



List of Tables
Table 4: Results of regression analysis……………………………………………………….….47
Table 4.1: Residual values of the fitted model ………………………………………………….49
Table 4.2: Correlation matrix ……………………………………………………………………52
Table 4.3: Correlation coefficient between Dollar rate and Inflation rate ………………………56
Table 4.4: Values of Retail loan as obtained from exponential smoothing ……………………..60
Table 4.5: Exponential smoothing values of corporate loan …………………………………….62
Table 4.6: Results of regression analysis ………………………………………………………..64
Table 4.7: Residual values of the regression analysis …………………………………………...65
Table 4.8: Regression analysis of the corporate loans…………………………………………...66
Table 4.9: Residual values of regression of corporate loans ……………………………………67


1. Introduction
1.1. Research Background
Inflation is termed as constant increase of the goods and service price level within an economy over a particular time. At the time price increases all the units of the currency purchases fewer of such goods and services. Inflation leads to decrease in the purchasing power for every unit of account in a particular economy (Klein 2013). It is also observed that increased inflation rates are resulted from high growth of money supply within the economy in comparison to the economic growth rate. A decreased rate of inflation is hence preferred for it decreases the severity of the economic recessions through enabling the labor market in operate easily in case of downturn. The major aspect to measure the price inflation is the inflation rate and the yearly percentage change within general price index with time. The consumer price index measures the price movements of the fixed amount of services and goods acquired by a particular customer (McLeay, Radia and Thomas, 2014).
Lending serves as most vital services that commercial banks do offer their consumers or the banks in grating loans and advances to the individuals, business and government organizations. Commercial banks serves to be most important savings, financial resource mobilizations and allocations and consequently such roles make them extremely important process in attaining economic growth and development (Grubel 2014). After participating in this role, it should be realized that banks have the scope, potential and shifting financial resources and allocating them to beneficial investments. At the time of investigating the factors that affect the interest rates, lending volume degree along with collateral setting in deciding loan for banks, under notes those banks need to care about their pricing decisions in consideration to the lending (Caglayan and Xu 2016). This is for the reason that the banks cannot charge rates of loan that is extremely low as the revenue from the interest income that will not adequate to cover deposit costs, general expenses and revenue loss from some borrowers that does not consider paying.
Inflation is vital for the banks as they deal in nominal financial instruments that are instruments denominated within a particular dollar amount. For instance, at the time bank makes a loan, it recognize nominal financial instruments notes, commercial paper, mortgages and other financial securities to serve as evidence of the bank’s debtors obligations (Dagher and Kazimov 2015). At the time the bank borrows, it supplies nominal financial instruments to the creditors’ acceptances, deposit liabilities as well as debentures to be an evidence of the obligations. Inflation can be termed as an increase in the basic price level and is generally indicated a yearly percentage change rate (Beck and Narayanamoorthy 2013). The banking sector is an indispensible financial service sector that support the development plans by means of fund channeling for an effective purpose, controlling and mobilizing fund flows from surplus to the deficit units and supporting the governments financial and economic policies (Adelino and Ferreira 2016).
Investment can be defined as something that is acquired with money that is anticipated to generate profit or income. Investments loans can be segmented into three major groups’ namely lending, ownership and cash equivalents. Investment can be defined as monetary resources allocation to the assets those are anticipated to generate some positive return or gain over the predefined time. Such assets remain within the range of safe to the risky investments. Investments in such form are also deemed as financial investments. For taking the investment loans, the investment market must have a favorable surrounding for being capable to function quite efficiently. Business activities are embarked by economic, social along with political considerations. For the investment loans, it is deemed necessary that the political and economic aspects are favorable. Four major considerations ensure growth and bring out newer opportunities for investment. Such considerations include legal safeguards, presence of financial institutions along with stable currency in order to support savings and several business organization forms. However, taking up investment loans, the investors attempts an adequate mix between the elevated rate of return and their stability to gain the benefits from both. Among the investment loan inurnments those are available includes equity bonds and shares, life insurance, provident fund, mutual funds schemes and the fixed deposits. Rea estate and gold has attained the advantage of decreasing the impacts of inflation, as the rises in the prices can be extremely high.
Investment loans are observed to be a vital factor in ensuring economic growth in Saudi Arabia. The financial sector in the Saudi Arabia has a vital role in mobilizing the foreign and domestic savings for investment through offering enough liquidity to the companies and making sure that the financial loans offerings is done effectively. In Saudi Arabia there are five sizable and specialized credit institutions having asset size close to half of the banking industry. These offers interest free investment loans for the purposes of public policy. Saudi Arabian banks credit to the private sectors has witnessed considerable growth that kept on increasing with years. In consideration to supply, the bank deposits of Saudi Arabia increased with the public sector income that further enhanced the lending capacity of the Saudi Arabian banks. The banking sector in Saudi Arabia experienced increased growth that is driven by the housing loans, investment loans and retail loans. There are numerous attractive loan investments with high-return investment opportunities within the banking sector of Saudi Arabia that encompass the housing loan industry and private and medium sized enterprises growth. Recently, it has been observed that a mere 30% of the population in Saudi Arabia have their individual houses that opens further investment opportunity for the investors and banks in the home loan sector. Despite of very subdued economic growth within Saudi Arabia, the banks in the nation are positioned for ensuing stable growth in the future years.
1.2. Research Aim and Objectives
The major aim of the research is to investigate the way in which the retail banking loans impact the inflation and actions economy. The objectives of the research are:
To determine the relationship between the annual inflation rate and retail bank’s lending rate
To determine the relationship between the yearly new lending volumes and the inflation rate and nation’s economy
To determine the relationship between the inflation rate and annual loan default volumes
To investigate the relationship between investment loans and Saudi Arabia’s economic growth
1.3. Significance of Research
Lending is among the major functions of the banks that generates a considerable amount of business revenues. In consideration to this, the research will facilitate in banks in understanding the way framework of inflation rate fluctuation is affecting the banks total lending volume and default loan rate (De Santis and Surico 2013). This prompt’s senior management too considers the ways of navigating it either by means of policy change for maximizing the earnings. The research findings intend to offer necessary information to some selected stakeholders. The research intends to contribute to the knowledge on the research topic. The research will investigate bank lending rates and annual lending volumes along with annual loan defaults rate from the commercial bank of Saudi Arabia (Amidu and Wolfe 2013).
1.4. Research Problem
Commercial banks in Saudi Arabia have been struggling with fluctuating borrowing by both corporate and retail consumers. The commercial banks within the nation is not that exceptional to such phenomenon and there are no empirical research for indicating whether certain fluctuations might be because of increased rates of lending or are impacted by inflationary forces (Bonciani and Van Roye 2015). Most of the commercial banks maintain the interest rates on lending similar to the rate of interest. The research revealed that inflation had an extended term relationship along with the interest rate. Previous studies made it evident that no other research explored the impacts of inflation on the commercial banks of the nation on the new lending volumes (Salazar, Barbosa and Rocha 2014). This research attempted addresses the research problem through determining the impact of lending from the commercial banks on inflation and on the economy by majorly focusing on the lending rates and volumes with increased focus on the early new loans for a specific time (Mulder 2015).
1.5. Research Questions
The research intends to investigate the effect of retail banking loans on economy and inflation. For this reason, the research will answer the following research questions:
What is the relationship between the annual inflation rate and retail bank’s lending rate?
What is the relationship between the yearly new lending volumes and the inflation rate and nation’s economy?
What is the relationship between the inflation rate and annual loan default volumes?
What is the relationship between investment loans and Saudi Arabia’s economic growth?
1.6. Research Structure
The first chapter of the dissertation provides a brief introduction on the research topic “The Effect of Retail Banking Loans on Economy and Inflation”. The aim and objectives of the research is also described in this section. Research problem and significance is explained in this section. The second chapter is the literature review in which previous researches are evaluated and certain important terms associate with this research is explained in details. The third chapter is the research methodology that explains all the methods employed in this research along with the data collection techniques. The fourth chapter conducts the analysis of collected data and the research findings are evaluated in this section. The fifth chapter of the dissertation offers detailed conclusion of the findings of the research. Moreover, appropriate recommendations will be offered based on the research findings. Limitations of the research along with the future research scope are described in this section.

2. Literature Review
2.1. Introduction
The literature review section intends to explain the impact of the retail banking loans on the economy and inflation in Saudi Arabia. Various theoretical concepts is intended to be elaborated in the literature review section that includes concepts on inflation, economic growth, retail banking loans, investment loans and impact of such loans on the economic growth of Saudi Arabia. Critical evaluation of previous researches facilitated identification of the research gap and the research questions those are to be answered with the completion of this study.
2.2. Impact of Retail Banking Loans on Economy
Klein (2013) defined retail banking as the consumer banking because of the provision of services by the bank to all its consumers rather than to the organizations, banks and other corporations. Services offered encompass transactional and savings accounts, personal loans, mortgages, credit and debit cards.  Justiniano, Primiceri and Tambalotti (2014) stated that retail banking offers financial services for the small businesses and for small families. There are three most vital functions such as deposits, credits along with money management. The researchers stated that in the retail banking loans, the banks provide consumers with credit to the consumers. Researchers namely, Caglayan and Xu (2016) revealed that the resultant consumer spending has increased by 70% of the Saudi Arabian economy. In this manner, the retail banking loans is deemed to offer additional liquidity to the nation’s economy. Hasan, Schmiedel and Song, (2012) revealed that the credit facilitated people to spend future earnings and the retail banks offers loans for small business to the entrepreneurs. Moreover, the retail banks are observed to offer a safer place for the individuals in order to deposit their money. Adelino and Ferreira, (2016) stated that the savings accounts, deposit certificates along with other financial products that provided increased returns. These researchers also revealed that retail banking is generally the mass-market banking in which the consumers employ the local branches of the higher commercial banks. Services offered encompass checking, savings accounts, debit, and credit cards, personal loans and mortgages.
Owen and Temesvary, (2014) indicated that the retail-banking concept is not deemed new for the banks and is considered an attractive and vital market segment that provides increased opportunities for the profits and growth. Retail banking and lending are generally used as synonyms but revealed that retail lending is just an aspect of retail banking. In the retail banking loans all the requirements of the consumers are taken into great consideration in an integrate way. Damar et al. (2014) revealed that several products, consumer groups and channels characterize retail banking within the nation. Such multiplicity of the roles that is played by the retail bankers adds further to the excitement along with the challenges experienced by the bankers.
2.3. Trends in the Retail Banking
As per survey conducted by Klein (2013) and observe the consumer experience index that surveyed over 18,000 bank customers in around 35 markets in which a fraction of the retail banking consumers is deemed to leave the banks in the next few months. Such changes are starting to emerge within the landscape of retail banking. As per Damar et al. (2014) following are most vital changes those are taking place within the retail banking:
Disruption of payment: Innovations, technologies along with new players
Drive-to-Digital: This effects service usage, delivery and marketing
High competition: pressures from non-traditional players and neobanks
Differentiating Brands: Decreasing chances of commodisation within a digital surrounding
Optimization of Branch: Considering development of less branches
Engagement Simplification: Friction removal and steps to engage
International Innovating Perspective: Expanding observations of the future innovations
    According to Klein (2013) the economy of Saudi Arabia increased at a slower pace in 2013 with actual GDP indicating an annual growth rate of 3.8% that was affected by the weaknesses of the oil sector. Retail banking within which the banning institutions carry out transactions directly with the customers based products such as transactions and savings accounts long with personal loan and mortgages. Damar et al. (2014) stated that the retail banking loans in Saudi Arabia is not a new aspect and has always been present in the nation in numerous forms. Over the past few years, it is deemed synonymous with the mainstream banking of several banks. The retail banking loan products offered in the Saudi Arabia retail-banking segment are educational loans, credit cards, auto loans and consumption loans for durables purchase and housing loans. Justiniano, Primiceri and Tambalotti (2014) revealed that the retail banking loans are marketed within the attractive brand names in order to differentiate financial loans offered by several banks. In consideration to the report of trend and progress of Saudi Arabia it have been observed that the loan values of the retail lending specifically range between a specified amount. Justiniano, Primiceri and Tambalotti (2014) indicated that the retail banking loans are deemed to have duration of five to seven years along with the housing loans that is granted for over a longer duration. These researchers also stated that credit card is another speedily growing sub-segment of the specified product group.
According to Damar et al. (2014), the total impairment of the retail loan portfolio had a considerable impact on the Gross NPA for the overall loan portfolio. In the retail segment, the housing loans had very less gross asset impairment. Moreover, retailing makes a huge business sense within the banking sector in Saudi Arabia. At the time, the private sector banks of new generation have been able to generate a niche market within this regard, the public sector banks have been able to generate a niche in such situation and after leveraging their huge branch network and outreach, all the private sector banks are not lagging behind. Owen and Temesvary, (2014) revealed that the public sector banks have aggressively gained a larger size of retail segment. However, by the international standards there is still an increased scope for the retail banking in Saudi Arabia. Moreover, all the retail loans constitute less than a fraction of GDP in Saudi Arabia as considering that he retail banking in Saudi Arabia is still advancing from modest base and there is chance that the growth number indicates to be increased. Owen and Temesvary, (2014) indicated that the retail banking loans serves as the indicators of the superior economic development.
Credit Cards: Bonin and Louie, (2016) revealed that as the usage of credit cards by the consumers of the Saudi Arabian banks has been vogue of the past few years. It was also revealed that the total number of cards issued by most of the banks and outstanding loans. In consideration to the increasing role of credit cards, a working group was developed for the regulatory mechanism for the credit cards. At the time of building, a regulatory oversight in this regard for which the retail banks needs to makes sure it does not decrease the efficiency of the system nor does it affect the usage of the credit card.
Housing Credit: Housing credit has enhanced considerably over the past few years but from a lower base. Ryan and Keeley (2013) indicated that the share of the housing loans in overall non-food credit of rescheduled commercial banks has enhanced by a significant percentage over years. Ryan and Keeley, (2013) pointed out that the direct housing loans are to a limited amount despite of the location that qualifies as the priority sector lending and the housing loans are deemed to be understood as a form of huge aspect of this lending.
Economic Growth Engine: Retail banks provide distinct important services to their consumers. The retail-banking sector is understood as specialized mass-market banking, checking and savings accounts and all types of personal loans that includes student as well as auto loans. Retail banks also provides mortgage services, credit and debit card services along with the ATM services all of them are becoming vital to the consumers of recent years.
Housing Credit: Bonin and Louie, (2016) stated that the housing credit has substantially increased over the past few years and from a very less base. Recent data revealed that the non-priority sector housing sector loans outstanding Saudi Arabia was observed to be over a great amount. It is also revealed that direct housing loans of a significant amount avoid of the location now qualifies as a priority sector lending and the housing loans are deemed a major component of this type of lending.
2.3. Impact of Retail Banking Loans on Inflation
Albertazzi & Bottero (2014), indicated that inflation is deemed as the general price level and is generally expressed as a yearly increase in the percentage change rate. Inflation is deemed vital for the banks in Saudi Arabian they deal in nominal financial instruments that is instruments dominated within the fixed dollar amounts. Behr, Norden & Noth (2013) stated that the financial instruments notes, commercial paper, mortgages as evidence of the obligation of debtors to the bank. At the time a bank borrows, it issues nominal financial instruments to all its creditors to be an evidence of the obligations. These researchers also indicated that a boost in expected inflation increases the nominal rate of interest. Bonin and Louie, (2016) revealed that this increases the dollars numbers that debtors or creditors those are converting in nominal financial instruments anticipate to gain or pay at the time the loans mature. If such anticipations are realized every nominal value will be increased at maturity. These researchers have investigated the impact on the balance sheet of a Saudi Arabian hypothetical bank. Justiniano, Primiceri and Tambalotti (2014) indicated that this instance assumes that every Saudi Arabian bank’s borrowings and contracts of lending were negotiated with the anticipated that the inflation rate over the upcoming two years.
2.4. Relation between Investment Loans and Growth
The rise in savings and investment in the economy of a nation helps in ensuring the economic growth and advancement of the same. However, Albertazzi & Bottero (2014) argued that the growth of the economy would not be boosted without the rise of capital stock in a provided threshold. With the increase in capital, output and investment, the level of savings in the nation would tend to rise. After a provided level, the increase in both savings and capital would be sufficient to stimulate the self-sustaining growth. The main reason for choosing external finance could be explained with the dual gap theory. In the words of Behr, Norden & Noth (2013), this theory postulates that investment is a saving function and for emerging markets, the domestic saving level is not adequate to finance the required investment for ensuring economic development.
    Hence, it would be logical to seek the utilisation of complementary external products and services. The acquisition of external finances relies on the association amongst foreign finances, investment, domestic savings and growth. One guiding principle is to borrow funds from abroad as long as it generates a rate of return, which is greater than the cost of borrowings. In this context, Chen, Chen & Gerlach (2013) stated that following this principle would help the borrowing nation to increase its capacity and diversify output with the help of foreign savings.
    The retail banking loans do not convert into debt burden at time of the funds are used in an optimal way. Under such situations, the “marginal return on investment” is identical or higher to the borrowing cost. In the words of Coleman & Feler (2015), the major factors affecting the capacity of debt service are investment returns, borrowing cost and the savings rate. The vulnerability of debt service could be enumerated by using three different contexts. Firstly, the size of the retail banking loans has attained a level, which is much larger compared to equity financing. As a result, it creates an imbalance between equity and debt. Secondly, the debt proportion at floating rate of interest has increased substantially, which hits the borrowers directly due to increase in interest rate. Finally, the maturity times have been reduced significantly due to the falling official share flows. All these above-mentioned factors are inherent in Saudi Arabia. However, Gambacorta, Yang & Tsatsaronis (2014) argued that sufficient debt management is essential with the increase in complexity of the financial environment.
    The critical constituents of debt management comprise of policy coordination, accounting, regulatory environment and statistical analysis. Some of the other features of debt management comprise of transparency, creation of structures of debt management, policies related to anti-corruption and the decision-making procedures.
    Another significant issue in acquisition of debt and management is to determine the sustainable debt level. In this context, Hasan, Schmiedel & Song (2012) cited that effective foreign borrowings could be gauged by a number of ratios like debt service to export, debt to GDP and external debt to GNP. However, the ascertainment of the sustainable ratio levels could not determined and their merits are limited to a warning of growth in the foreign debt stock. For example, if the acquisition of retail banking loans increases the burden of debt servicing, it raises the capacity of the nation to bear the same. In addition, if the exports were not diversified, it would raise the necessity of borrowing for servicing debt. As a result, the retail banking loans would rise above the bearing capacity of the nation, which could be considered as the backbone of all the banking activities. The retail banks possess the relevant expertise to extend credit facilities to the small and medium-sized entities to dissect the related risks.
    Since the SMEs are the main engines of job formation and economic progress, they are significant drivers of innovation in the economy. Hence, effective and stable retail banking is required for the funding of SME activities and operations. Since these organisations do not have the authority to the international capital markets, they are heavily reliant on the banks for financing. This is especially inherent for the Arabian SMEs, as the market for venture capital has been limited in contrast to the US market (Justiniano, Primiceri & Tambalotti, 2014). The bank credit availability is essential for the sustained firm investment and thus, it plays a crucial role for economic growth.
    In order to increase the effectiveness of the retail-banking sector, the market integration of the sector is the key. Thus, it is essential to charge identical fees and costs in case of the borrowers and depositors for identical banking services across the region. However, many indicators of the integration of retail banking imply that there is significant scope for closer integration. For instance, the bank charges related to the lending rate dispersion to the households and non-financial entities have remained high across the nations. In addition, the quantity indicators of the banking integration have been booted through the introduction of new currencies at relatively lower levels.
    The low level of integration could be attributed generally to the variations in the national economies, financial structures and institutional factors (Langfield & Pagano, 2016). These factors include variations in credit risk and models of pricing along with taxation variations, regulations and high fragmentation level of retail infrastructures. Hence, more efforts relative to integration of the retail-banking sector are required in Saudi Arabia. Firstly, efficient and integrated retail-banking sector would lead to an efficient apportionment of credit to the rising and innovative organisations.  From the perspective of macroeconomics, this would contribute to boost the economic growth and strengthen the transmission of the modifications in the rates of interest of the economy. Therefore, it helps in increasing the effectiveness of the monetary policy. In the meanwhile, recent turbulences in the financial markets necessitate the need of the integration process. This needs to be guided with the introduction of relevant provisions for safeguarding the financial stability.
    Therefore, the Saudi retail-banking sector could think of minimising their costs; however, they might face intense competition, which would exert downward pressure on revenue and prices. On the other hand, the standardisation and harmonisation of retail payments processing across Saudi Arabia would develop the economies of scale in the payment service provisions. At the same time, it would help in increasing the efficiency and solidity of the retail-banking sector of Saudi Arabia. With the help of such improved efficiency, the retail-banking sector could be able to provide higher loans at lower rates of interest, which, in turn, would steer the economic progress of the nation.
2.5. Retail Banking Loans and Investment Loans Impacts on Saudi Arabian Economy
Saudi Arabia is the biggest economy in the MENA area, which has been housing some of the biggest banks in the region. The strengths of the local economy have increased the trading multiple in comparison to the regional peers. In 2014, the retail-banking sector has experienced a rise in its deposit book by 12.4% YoY, as the value stood at SAR 1,575 billion. However, the credit growth has decreased to 11.6YoY, which is an unhealthy sign. This is because of the absence of effective lending opportunities or bank conservatism. Along with this, the ADR ratio has declined to 79.4% in 2014, which was 79.9% in 2013. However, the GDP of the nation has grown by 1.5% YOY, as the value stood at SAR 2,795 billion (Aljaziracapital.com.sa, 2016).
    It is expected that the credit growth in the nation would be favourable, since the government has been aiming to control its fiscal expenditures. However, this might pose serious threat to the retail loans, as the fiscal expenditure would be financed through debt funding. In the current scenario, the reliance on corporate loans is comparatively higher and therefore, the sector has the opportunity to increase its penetration of retail loans. Therefore, a greater concentration of the retail loans could improve the “Net Interest Margins (NIMs)”. For instance, Mobily has a debt amount of SAR 14 billion to the banking sector of Saudi Arabia. The firm has broken many covenants, which has compelled the same to readjust its balance sheet through transfer of a certain portion of the long-term loans to short-term loans. Hence, the “Capital Market Authority” of Saudi Arabia is undertaking review of the firm.
    The Federal Reserve of the United States has provided early hint of rise in interest rates by highlighting its economic strengths. As a result, it has lead to greater discount rates in Saudi Arabia because of the currency peg. Due to the low interest bearing deposit share, rise in interest rates has resulted in greater NMIs. In addition, the CAR ratio of the sector is over 17.5%, which is more than 8% standard of SAMA. However, the infiltration for mortgage finance has been limited because of the requirement of down payment, which has been 30%. This is because the mortgage law has extended support to the demand side of the housing deficit, while the supply side is confronted with a number of challenges like limited development of real estate and labour dearth.
    However, the overall banking sector has restricted avenues to enhance its trajectory of growth. This is because of the weak market share of the retail loans. However, the investment loans have risen with fall in lending of the private sector, which has affected the NIMs of the sector.
 
Figure 2.1: Growth of retail loans in Saudi Arabia over the years 2000-2014
(Source: Aljaziracapital.com.sa, 2016)
 
Figure 2.2: Growth of investment loans in Saudi Arabia over the years 2000-2014
(Source: Aljaziracapital.com.sa, 2016)
 
Figure 2.3: Growth of GDP in Saudi Arabia over the years 2001-2014
(Source: Aljaziracapital.com.sa, 2016)
    According to the above figures, it is inherent that the retail banking loans in 2014 stood at SAR 358 billion, which signifies an increase of 7% YoY. Therefore, the market share of the retail loans in Saudi Arabia stood at 28.9%. However, there has been a significant fall of nearly 150 basis points in contrast to the market share of the previous year. In addition, the growth rate of the retail loans has been relatively slower than the investment loans, which has been 11.6% YoY.
The decline in market share for the retail loans has been negative in the banking sector, since it provides the highest NMIs. Furthermore, the retail loans could encounter additional pressure, if the government of Saudi Arabia plans to finance its deficit in budget through borrowings. As a result, it would shift the focus of some retail banks to the public sector lending that carries lesser amount of risk (Owen & Temesvary, 2014).
    The GDP of the nation has increased over the provided period; however, the rate of growth is stagnated. This shows that since the growth of the retail-banking loans is stagnated over the years, the overall GDP of the nation has not increased considerably. However, the contribution of investment loans to the economy of Saudi Arabia has helped in increasing the GDP of the nation. In addition, the stagnated growth of the retail banking loans has hindered the progress of many public projects in Saudi Arabia. In this context, Philippon & Reshef (2013) remarked that such limited growth might hinder the economic progress and development of the nation, since the government fails to realise sufficient returns from the suspended public projects.
     The following table depicts the data of some of the top investment and retail banks of Saudi Arabia.

Figure 2.4: Return margins of the retail and investment banks of Saudi Arabia for the year 2014
(Source: Bloomberg, 2016)
    Although the above-depicted banks have greater lending appetites, the approach has been highly conservative. After the end of 2013, the loan-to-deposit ratio has been 80%, which was below the prescribed level of 80%. However, the lower returns on assets of the above banks have limited their contribution to the Saudi economy, which has further slowed down its economic prosperity. In addition, such low return has hindered the growth potential of the sector in terms of public lending activities. Hence, based on the above evaluation, it could be inferred that the retail banking and investment banking have failed to fetch the desired effects with respect to increasing the GDP contribution of the nation.
Saudi Economic Activity Might Impact Credit Growth
According to De Santis and Surico (2013) credit growth, can slowdown because of the decrease in the fiscal spending. Banks are indicated to transfer their focus on the public loans for the government might consider financing its deficit by means of borrowing. These researchers also stated that the retail loans growth might be able to slow down. Behr, Norden & Noth (2013) indicated that the Saudi Arabia’s basisc strengths is susained to be intact along with the effective reserves, diversification with the non-economic resources, an efficient infrastructue and better growth within the privaate sector. Moreover, the economy is still increasingly dependent on oil as almost 90% of its export profits that is increasingly reliant o the oil. The oil prices has decreaed 50% from the previous results.
De Santis and Surico (2013) stated that the Saudi Arabia is intended to sustain the fiscal costs, which might potentially lead to deficit finaancing by means of reaserves. The nation has overall SAR 2.7 trillion within the deposists and reserves. Moreover, it can be believed that for a particulaar year or for severl yeaars there is no fault in the deficit financing by means of reserves. Additionaally, this can be increasingy difficult for maintaing for the government if such thing continues for over aa long time. It is believed that the government might also finance its deficit by means of debts in our views the government that has two options:
Issuing bonds and
Borrowing in a directway from the locaal baanks, that might potentially result in the “crowding-out” impact, that is making funds les assessible and affordable to all the private sector.
According to Behr, Norden & Noth (2013) a major factor thaat impacts the exerience of the global and Saudi banks at the time of tumultuous time that sresulted in sound performance of the Saudi Arabian baanking industry.

 
Figure 2.5. Saudi Crude Oil Production
(Source: McLeay, Radia and Thomas, 2014)
 
2.6. Saudi Crude Oil Production
(Source: Bloomberg 2016)
    These reaserchers also revealed that the rate of return on the average equity was 20% and for over nine years and such effective returns at the time of turbulance and volatility is deemed to be extemely satisfactory and positive. Bloomberg, (2016) stated that the banks of Saudi Arabia are observed to be effectively capaitalised by the globaal standards and indicated an averaage adequacy of the Basel capital with percentage of 6%. It is deemed that mosrt of the capiatl of all the banks in Saudi Arabia serves as the Tier 1 capital. Moreover, the quality of the assets of banks within Saud Arabia waas obsserved to stay strong along with the non-performing loans rsulting in 1.4% total loans along with aadvances at end of the year that indicated provisions coverage was at the percentage of 153%. NPLs as observed to eemain decresed at the end of the September. Banks sustained to be increasingly liquid wit the liquid assets that reprsents an average of 34% of the overal coonsumer deposits in the year 2008. According to Behr, Norden & Noth (2013) financing by the global banks of the non banking aand banking counterpaarties in the Saudi Arabia that increased by a great amount by 2007. Because of the deteroiting situations within the international markets that tapered of overf the past few years.  The counterparties of Saudi Arabia sustained to plae deposits ot invest in the global baanks. Moreover, te gradual incrse in the deposits indicates the situations of high liquidity within the local market that was being channeled within the global markets. Bloomberg, (2016) stated that as per the BIS statistics it is confirmed that the Saudi Arabian Monetary Agency (SAMA) statistics of banking system indicated a decraese in the funding offered by the global banks to the banks within Saudi Arabia. Such decline in the funding can result in the followed outcomes:
According to Philippon & Reshef (2013) witthin the supply side, after the Lehman Brothers collpase the banks of the world including those of the Saudi Arabia turned out to be reluctant to fund all the effective market banks becaause of their individual need for building up all the liquid assets. Philippon & Reshef (2013) revealed that all the global banks were replenishing their liquidity from the overseas that might encompass severaling developing markets. It was deemed difficult to reveaal the dollar liquidity within the internationaal and the interbaankk markets over the paast few years. The situation haas simplified and it is also deemed that at the time the cost of the liquidity of the dollar was high, it remainsed accesible for the shorter maturities along with sizeable risk premia.
Owen & Temesvary (2014) stated that, on the demand side, the requirementg for the global funding was in turn impacted by the fact that banks of Saudi Arabia and has increased liquidity. This is because of increased levels of the government expenditure along with slowing down the dvancement of the domestic credit extention and some opportunities for the banks in Saudi for investing in the turbulant global markets. Philippon & Reshef (2013) revealed that such factors resulted in a considerable incrase in the funds of the banks of Saudi Arabia placed with the SAMA. It was made sure that all the Saudi Arabian banks does not requite global liquidity that has turned out to be highly epensive.
De Santis and Surico (2013) stated that there is anecdotal instance that the funding from the global banks to the counterparties of Saudi Arabia that altered the maturities terms as well as the funds in USD enhanced by 150 to 300 basis points that requires reflecting further risk primea. There is no other instance of any other considerable changes in consieration demand for more collateral, margins of the dervaatives contracts and the gurantee.
 2.6 Challenges and opportunities of retail banking in Saudi Arabia:
     The retail banking in Saudi Arabia has a wide array of opportunities and challenges. The rise of the middle class individuals is a significant contributory factor in this context. The improved purchasing power of the consumers along with the greater liberal attitudes in favour of personal loans has been contributing to the retail banking segment of Saudi Arabia. The rise in purchasing power of the young individuals would provide a vast opportunity to the retail banking sector of the nation. This is because the current generation is highly comfortable in taking debt from the retail banks in contrast to the previous generation (Philippon & Reshef, 2013). Thus, it reflects the enhanced buying power and liberal attitude towards private debt, which contributes to the retail banking sector of the nation.
    The special economic zones would provide higher opportunity for the retail banking sector of the nation. As a result, the combination of these influential dynamics warrants faster growth in the sector, which is currently in the rascent stage. Although phenomenal opportunities are inherent in retail banking sector of Saudi Arabia, the challenges are identically daunting. The marketing techniques related to the products of retail banking need to be aggressive (Albertazzi & Bottero, 2014). The major challenge confronting the sector is the designing and innovation of the financial services, which cater to the needs of the segment. It is anticipated that the retail banking sector of Saudi Arabia would encounter a large product proliferation.
    Therefore, in order to ensure such success, the product devising is needed, which would be easy to understand as well as ensuring the financial objectives of the customers. The entry of the new private sector retail banks has revised the current scenario. It has been observed that the Saudi retail banking segment that was previously ignored, is now playing a significant role to contibute to the economy of the nation. This is because a number of retail banks has been competing with each other to provide retail loans to the customers. The supply has been much higher compared to demand, which has caused the retail banks of Saudi Arabia to undercut each other. The small scale private sector banks are compelled to lose business to the private sector banks of the retail segment. As a result, the public sector banks need to find out the ways for generating profitable businesses from this sector (Coleman & Feler, 2015). One of the major challenges confronting the retail banking sector of Saudi Arabia is the customer attraction coupled with retention. The lattetr problem is more inherent for the retail banking sector of the nation. This is because customer retention has positive impact on the profitability of the retail banks. For instance, an increase of 5% in customer retention level could enhance 35% profitability in the banking sector, 50% in the insurance sector and 125% in the market of consumer credit. Therefore, it is of crucial importance for the retail banks of Saudi Arabia to concentrate on their customer retention policies.
    Another issue in the retail banking sector of Saudi Arabia is the issue associated with sustainability, which has been risingly crucial to ensure the growth and advancement of the sector. Due to over-concentration on the top-line without reference to the growth quality of the top-line, the market share could be increased by rising risk appetite and entering the regions, in which a bank might not enjoy competitive supremacy (Gambacorta, Yang & Tsatsaronis, 2014). The advent of technology has made it possible to provide services throughout all the networks of the branch bank. This is because technology provides instantaneous updates to check accounts and quick monetary movements. However, this network dependency has resulted in increased responsibilities of the IT department pertaining to challenges in handling, optimising and maintaining the retail banking network performances.
    The challenges of network include effective functioning of the networks distrubuted to support the business objectives. The particular challenges comprise of assuring that the applications of account transactions run effectively between the data centres and branch offices. The other area of concern includes the increasing ineptness, which could influence the future progress of the retail banking segement in Saudi Arabia. Therefore, the banks are required to shore up their brand images (Adelino & Ferreira, 2016). The brand image could be developed by effective communication regarding its standing to assure that the same is constantly conveyed to the customers. As a result, it would lead to efficient integration of various channels for assuring greater customer satisfaction irrespective of the channel being utilised. It has been observed that a large number of the retail banks in Saudi Arabia have experienced a massive increase in their customer base.
    On the other hand, there have been increasing instances of menace like phasing, hacking and framing through cyber crimes have increased considerably. In a service industry, the delivery of value could be ensured by interacting with the customers. In order to ensure the rapid diversification of customer base, the banks are required to hire additional staffs. These staffs need to be well-informed about the existing productsv and services coupled with the requitred soft skills for dealing and sarisfying the customers. Hence, the manpower issue could be considered as one of the major challenges confronting the retail banking segment of Saudi Arabia. The banks are needed to upgrade their existing manpower and focus on retaining or locking in the effective talents (Owen & Temesvary, 2014). This would help them in gaining competitive edge in relation to human resources.
Another significant issue relating to acquisition of debt management is to determine the sustainable level of debt. In this regard, Klein (2013) remarked that efficient cross-border borrowings could be measured with several ratios like debt service to export. However, the determination of the sustainable ratio levels could not made and their benefits are restricted to a warning of growth in the foreign debt stock. For example, if the acquisition of retail banking loans increases the burden of debt servicing, it raises the capacity of the nation to bear the same.



2.7. Conceptual Framework

2.7. Conceptual Framework
(Source: Authors Creation)
2.8. Summary of Literature
From the literature review, section it was gathered that retail banking as the consumer banking because of the provision of services by the bank to all its consumers rather than to the organizations, banks and other corporations. Services offered encompass transactional and savings accounts, personal loans, mortgages, credit and debit cards. Moreover, the savings accounts, deposit certificates along with other financial products that provided increased returns. These researchers also revealed that retail banking is generally the mass-market banking in which the consumers employ the local branches of the higher commercial banks. It was also gathered that the financial instruments notes, commercial paper, mortgages as evidence of the obligation of debtors to the bank. At the time a bank borrows, it issues nominal financial instruments to all its creditors to be an evidence of the obligations. These researchers also indicated that a boost in expected inflation increases the nominal rate of interest. The rise in savings and investment in the economy of a nation helps in ensuring the economic growth and advancement of the same. The acquisition of external finances relies on the association amongst foreign finances, investment, domestic savings and growth. One guiding principle is to borrow funds from abroad as long as it generates a rate of return, which is greater than the cost of borrowings.

3. Research Methodology
3.1. Introduction
The research methodology serves as the third chapter of this research. Considering the same, the researcher indicates several types of research designs, approaches, and strategies that require being selected for gaining suitable results for the research. Additionally, the efficiency of the responses those are gained through the research heavily depends on the research methodology that is selected by the researcher for gaining suitable research results (Aljaziracapital.com.sa, 2016). Moreover, recognizing the suitable research approaches does not attempt to offer any research results. In contrast to that, it is deemed that if such identifications facilitate the researcher to attain a particular path that facilitates the researcher in gaining high authenticity along with the research actuality. In addition to this, research methodology facilitates the research in attaining efficient chances that intends to enhance the results actuality gained by the researcher.
3.2. Research Philosophy
    Research philosophy enables the researcher in this study through employing efficient research paradigm. The research philosophy includes four distinct types an approach that includes interprets, positivism, and pragmatism. Research philosophy serves as a collection of characteristics that encompass axiology, ontology, and epistemology. Positivism philosophy is relied on the presence of the reality through employing several proven techniques (Albertazzi & Bottero 2014). In the other hand, iterpretivism philosophy is relied on the knowledge on the experiences and the understanding of the hum beings. In contrast to that, it was gathered that positivism philosophy facilitates the researcher for evaluating the collected data through using both the qualitative and quantitative approach.
The recent research intends to investigate the way in which the retail banking loans affect the inflation and actions economy and to determine the relationship between the annual inflation rate and retail bank’s lending rate. In addition to that, in the resent research the researcher has attempted to evaluate the relationship between the annual inflation rate and retail bank’s lending rate and the relationship between the yearly new lending volumes and the inflation rate and nation’s economy. Considering the same, the researcher has decided to make sure that the researcher has implemented the positivism philosophy by means of linking all the associated concepts and theories explained in the literature review section along with consideration to the recent scenario (Justiniano, Primiceri and Tambalotti 2014). The recent research centers on analyzing the way in which the retail banking loans impact the inflation. It also evaluates actions economy and to determine the relationship between the annual inflation rate and retail bank is lending rate. Positivism is deemed most important research philosophy in order to gain suitable responses from the research respondents. Positivism serves as the most important philosophy and for this reason, other research philosophies as the other two philosophies are not that relied on the scientifically proven concepts and theories.
3.3. Research Approach
Research approach serves as the most efficient step in carrying out a research work in order to attain real and desired research results. Considering the same, the research approach offers support to the research for recognizing every step in order to carry out the anticipated reassert conducts. Research approach is observed to be of two major types, such as deductive and inductive reassert approach. It is determined that inductive research approach facilities the researcher of this study to develop very new set of concepts and theories after determining the after gaining the research outcomes (Behr, Norden & Noth 2013). In contrast to that, the deductive approach centers on the evaluating the available concepts and theories associated with the research through gaining help from the data collected.
As per the recent research, it is observed that the research focuses on the analysis of the way in which the retail banking loans impact the inflation along with the actions economy. This will also determine the relationship between the annual inflation rate and retail bank’s lending rate. This is for the research that the researcher in this study has employed qualitative evaluation for attaining the adequate research results. As the research topic is vast and evolving with the modern economy, the thematic analysis is considered to be perfect for qualitative research (Caglayan and Xu 2016). This chapter aims at identifying, analyzing and reporting themes of different perspectives of the research topic. Justification behind such research approach is that thematic analysis is simple to adopt for those who are novice in the literature field and also unfamiliar with more complex types of qualitative form of analysis. This is common and popular because thematic analysis allows for giving flexibility of the researchers choice of theoretical framework. On the contrary, others methods of analysis are closely tied to particular theories. However, analyzing data with the help of thematic does not concentrate any specific theory of discussion. Thus, it allows for detailed, rich and critical description of the collected data.
 According to Justiniano, Primiceri and Tambalotti (2014),  the positivism philosophy is deemed to be directly associated with the qualitative data evaluation within which the relevant data is collected along with the analysis of the past few tends along with the proven theories and facts. For this reason, deductive research approach is deemed to be among the most suitable approach for the current research in order to gain desired research findings.
Reason behind the rejection of inductive research is that such approach does not take into consideration the data evaluation that is quantitative as well as qualitative. Here the researcher does not have the tendency to develop a new concept after attaining the desired research results. More specifically, the deductive research approach is beneficial for solidify its place in quantitative research. For this reason, inducible research approach cannot be implemented for carrying out the research results as the human responses has been deemed increasingly important.
3.4. Research Design
Research design offers the researcher of this research to attain an opportunity of guiding the research in order to attain a particular research objective based on the goal of the research. Research design facilitates the researcher to offer with the reference by decreasing the targeted outcomes within which the existing elements of the overall research is conducted on the mentioned research objectives. Research design can be deemed to be of three types such as exploratory, explanatory, as well as descriptive research design (Caglayan and Xu 2016). Explanatory research design facilitates in analyzing the cause-impact association through forecasting on the possible upcoming research results. Exploratory research design is conducted for revealing the reasons behind the research issues. It greatly concentrates on the backgrounds of the research concerns that address the research issues. In contrast, descriptive research design facilitates in identifying and revealing the concerns addressed.

3.1. Research Approach
(Source: Klein 2013)
To analysis the content of the research topic, the explanatory research in the dissertation has been considered. Defining the attempt to connected ideas for understanding cause and effect of the retail banking loans on economy and inflation, the researcher has been investigated what is going on in the recent times (Klein 2013). Data has been gathered for conducting the thematic analysis and thus, the explanatory research design is suitable for understanding to begin to predict the future growth of the retail banking loans in the rapid changing economic business field.
3.5 Research Strategy:
According to Albertazzi & Bottero (2014), the strategy of the research helps to conduct such research methodically. There are certain strategies are common which have been followed by many researchers for the purpose of collecting data in the systematic manner. There are several methods include “focus group”, “interview” and “survey”. Collection of information related to the loan facilities in the retail banking of Saudi Arabia can be collected by exploring the secondary data analysis. In this connection, the secondary data collection can be analyzed by “focus group” and “case study”. However, focus group is not being considered in this case, because it is apt for developing the confined opinions of the respondents. On the other hand, the related case studies of the research topic shall only being considered valuable, if recent case scenarios discuss the causes and impacts on the retail banking loans (Albertazzi & Bottero (2014). However, the retail banking sector of Saudi Arabia is evolving, thus, thematic discussion of the research is considered the most suitable method of the research strategy under the secondary data collection. While discussing the theme of the data, information of academic journals, online libraries, websites, and new articles have been included for in-depth analysis of the research.
3.6 Data Collection and analysis:
    The collection of data helps the researcher to collect data for conducting this research in the methodical manner. Generally, the secondary data are collected from several resources such as websites, journals, academic article, direct questionnaires and many others. As it is observed that thematic discussion of the research topic is ideal for this dissertation, the different thematic synthesis has been evaluated and observed in three stages of analysis in an effective and efficient manner (Hasan, Schmiedel and Song 2012). It is indeed important to gather data, selecting the suitable piece of literature. It generally helps to develop the specific dimension of the observation of researchers and findings of the primary studies. It is further helpful for developing the “descriptive themes” Thus the secondary data collection method has been taken into consideration for descriptive themes. However, such observations related to the retail banking loan and its future has been discussed for developing the analytical themes. This is necessary for understanding the effectives of retail banking loans at the situation of inflation and the growth of the modern economy. In this way, different thematic viewpoints have been discussed and analyzed within gathered data.
As thematic discussion is perfect for situation analysis of the research topic, no statistical tools have been taken to practice during the research work (Hasan, Schmiedel and Song 2012). Here the secondary data have been investigated by assessing the importance of the case scenarios in the perspective of the modern economy. Justification of the rejection of the primary research is that the topic of the discussion is not specific to the company. The discussion related to the effects of the retail banking loan on economy and inflation is controversial topic because several economic analysts indicates different viewpoints which helps in flowing the concerned literature a particular direction. Searching the most popular themes and in-depth analytical analysis has been practiced throughout the research.
3.7 Expected Research Outcomes:
By choosing, pinpointing and observing the collected secondary data of the research, this dissertation is looking for a detailed thematic discussion related to the retail banking loan sector considering volatile market condition of Saudi Arabia (Albertazzi & Bottero 2014). By following the positivism philosophy and deductive research approach, the research upholds the qualitative aspects of the research topic and later this will linked with the corresponding chapters of the data research and research outcomes.
3.8 Ethical Considerations:
To discuss the thematic details related to the effects of loan sector of the retail banking, the research needs to evaluate several market consequences which may be incurred at the time of inflation of the economy. All details related to this topic are highly sensitive and confidential in terms of the national security considering the fact of the world of economy. Thus, collected information for the purpose of this research needs to be maintained several ethical considerations (Damar et al. 2014). For instance, data collected for thematic analysis shall be unfolded the approximate data (Albertazzi & Bottero 2014). Though the research is conducted for academic purpose, all the collected secondary information shall be destroyed after completion of the research. The researcher shall maintain the Data Protection Act, 1998 for conducting this research in an authenticated and ethical manner.

4.0 Data Findings:
Growth continuous with effective diversification of revenues of major retail banks of Saudi Arabia and enters into the technological field:
The retail banking sector is directly responsible for robust economic growth of Saudi Arabia. However, the significant challenges has been observed because the modern banking sector is evolving from the simple banking industry of the 20th century, confined their operation as the local money exchangers and a handful of foreign banks that furnished to a relatively small community of business. The fast expansion in the area of the production of oil in years, have been transformed the national as the regional economic powerhouse that is recognized in the world of business as well. Since1952, the Saudi Arabian Monetary Agency (SAMA) continuously overseas the banking industry and successfully has guided the sector through numerous phases of growth. During the intervening years, this institution has played a responsible role in establishing local and foreign institutions which brought new services and products to both commercial and retail customers. Despite the presence of other institutions like Riyad Bank and Al Ahli Bank, SAMA is still holding the key position. Interestingly, the regulator has also been induced previously for addressing remarkable challenges to sector development. Much of the current solidity in the banking sector is now become quite efficient rigorous liquidity, research ratios and capacity adequacy. By the immense stability of the banking sector with the conservative regulations, the economic developments of the nation have ensured continuous growth. With the establishment of Saudi Investment Bank in 1984 and the Al Rajhi Baking and investment Corporation in 1988, the banking sector is effectively diversifying their revenues. However, investing banking loan sector have faced challenges in the recent past because declining oil prices during the 1980s. For this effect, the non-performing loans rise to 20 percent of all extended credit.
New efforts has also made by this banking sector. For instance, SAMA required that banks must train customers on how to frequently use banking services and invest in technology for supporting growth. Furthermore, the credit lending process has also been improved by introducing the five credit lending institutions, including SIDF, SREF, PIF, SCSB, and SAB. All these institutions are the main source of the finance for short-term and long-term loans as well as funding provided by the banks. Needless to say, SAMA plays a vital role in the stabilizing the prices by controlling and monitoring of the strength of the Saudi Arabian currency, Riyal. On the positive note, the Riyal has fluctuated marginally over the last six decades and remained steady at an average. Interestingly, the rate of interest and inflation has moved towards the close pattern of the macroeconomic trend of US. During the stable period of high oil prices, SAMA has built foreign reserves strongly for sustaining the spent of government during the low phase of the revenue.
 
Figure 4.1: Inflation and Foreign Reserves (2009-15)
(Source: Justiniano, Primiceri and Tambalotti 2014)
By the above discussion, it can be understood that a strong comeback has been made by the banking sector of the Saudi Arabia and now effectively diversified their revenues under the strong banking supervision provided by SAMA. Now the nation’s retail banking sector has achieved a new heights by claiming non-single bank default sector.
Impact of rise in the rates of interest on treasury income, services of brokerage and income generated from investment banking
Since 2014, the banking sector of the Saudi Arabia has produced about 73 percent of its income from retail consumers along with the form of loans. However, the remaining part is coming from the treasury operations, services related to brokerage and related investment banking services of the nation. As per the data of the nation’s banks of the year of 2014, this sector generated SAR 75.7bn in the form of revenue. The total of 4.9 percent was generated by brokerage services and investment banking.
    In most of the cases, it has been observed that a rise in interest rate of Saudi Arabia would negatively impacts on the nation’s GDP. Higher interest would deject consumption and investments. In this situation, this also could reduce the demand for credit locally and ultimately decreases the demand for local credit. It simultaneously effects on non-oil sector because it reduce the substantial growth of those sector as well.  By this fact, this sector seems to be felt pressurized because it proportionately decreases the supply of credit to the private sector of the nation.
 
Figure 4.2: Domestic credit to the sector (private)
(Source: Justiniano, Primiceri and Tambalotti 2014)
On the contrary, the higher interest rate has the capability to attract the foreign investments into the nation. Though the country has an oil based economy and most of the profits are coming from the oil exports, these revenues are in USD. Thus, the higher interest rates would mean higher value for the USD earned. Hence the entire impact helps in maintaining the balance of the trade of the nation.
4.1. Data Analysis:
    The relationship between the inflation rate and the loan is studied with the help of regression analysis. A linear model has been constructed taking the loan as the dependent variable and the inflation rate and GDP as the independent variable. A significant value of the regression co efficient explains that the variable has a significant effect on the loan of the country. The results of the regression analysis are given below:
 
SUMMARY OUTPUT                                      
                                      
Regression Statistics                                  
Multiple R    0.55271                                  
R Square    0.305488                                  
Adjusted R Square    0.166586                                  
Standard Error    2.188502                                  
Observations    7                                  
                                      
ANOVA                                      
     df    SS    MS    F    Significance F                  
Regression    1    10.53364    10.53364    2.1993    0.198181                  
Residual    5    23.9477    4.78954                          
Total    6    34.48133                                 
                                      
     Coefficients    Standard Error    t Stat    P-value    Lower 95%    Upper 95%    Lower 95.0%    Upper 95.0%      
Intercept    7.877678    2.123871    3.709112    0.013868    2.418092    13.33726    2.418092    13.33726      
Corporate Loans    -6.9E-05    4.63E-05    -1.483    0.198181    -0.00019    5.04E-05    -0.00019    5.04E-05     
Table 4: Results of regression analysis
(Source: Created by author)
    The result of the regression analysis between the corporate loan of the country and gdp is weakly correlated with each other. The value of multiple r was found to be 0.305488. The regression equation is given below:
y = 7.877678 - 6.9E-05 * x + e.
In the above equation, y is the dependent variable that is the gdp and x is the independent variable that is the corporate loan of the country. It is seen that with the change in one unit of corporate loan of the country, the gdp of the country would change by 6.9E-05 units. The change is found to be small in amount. Also, the correlation coefficient shows that there is a weak correlation between these two variables. The change in the corporate loan of the country would weakly influence the change in gdp of the country.
 The following graph gives the fitted and the residual values of the inflation rate.
                      

Figure 4.3: Observed and predicted Y for gdp
(Source: Created by author)
The graph shows the observed and the predicted values of the y variable that is the gdp. The observed values almost coincide with the fitted values. Therefore, the model could be thought as a good fitted model.
The residual values obtained from the regression equation are given as follows:
 
RESIDUAL OUTPUT              
              
Observation    Predicted GDP    Residuals      
1    6.102729628    -1.126062961      
2    6.079872167    -1.319872167      
3    5.937060266    4.022939734      
4    5.560659201    -0.180659201      
5    4.697433728    -2.027433728      
6    3.777949022    -0.137949022      
7    2.680962654    0.769037346     
Table 4.1: Residual values of the fitted model
(Source: Created by author)
The residual plot of the corporate loans when the dependent variable is gdp, is given below:

Figure 4.4: Residual plot of fitted model of corporate loans when dependent variable is GDP
(Source: Created by author)
    The residual pot shows that the residual values are more or less scattered over the horizontal axis. The regression equation has been obtained using the Gauss Markov linear model. The errors are assumed to be normally distributed with mean value 0 and an unknown variance of σ2. It is seen that except one residual, the other residuals are around the horizontal line of zero.
    The hypothesis of the test is given below:
H0: The corporate loans of a country do not influence the gdp of the country.
H1: The corporate loans of a country influence the gdp of the country
    The p value of the ANOVA test was found to be 0.198, which is greater than 0.05. At 95% confidence interval, it is seen that the test is insignificant and the null hypothesis is accepted in this case. Thus, the corporate loans of a country do not influence the gdp of the country.
    The output of the regression between corporate loans of the country and inflation is given below:
 
SUMMARY OUTPUT                                      
                                      
Regression Statistics                                  
Multiple R    0.884375                                  
R Square    0.782119                                  
Adjusted R Square    0.738543                                  
Standard Error    0.670892                                  
Observations    7                                  
                                      
ANOVA                                      
     df    SS    MS    F    Significance F                  
Regression    1    8.078465    8.078465    17.94834    0.008197                  
Residual    5    2.250477    0.450095                          
Total    6    10.32894                                 
                                      
     Coefficients    Standard Error    t Stat    P-value    Lower 95%    Upper 95%    Lower 95.0%    Upper 95.0%      
Intercept    6.393389    0.651079    9.819683    0.000187    4.719737    8.067041    4.719737    8.067041      
Corporate Loans    -6E-05    1.42E-05    -4.23655    0.008197    -9.7E-05    -2.4E-05    -9.7E-05    -2.4E-05     
Table 5: table of regression analysis of corporate loans and inflation
(Source: created by author)
    The result of the regression analysis between the corporate loan of the country and inflation is strongly correlated with each other. The value of multiple r was found to be 0.782119. The regression equation is given below:
y = 6.393389- 6E-05 * x + e.
In the above equation, y is the dependent variable that is the inflation and x is the independent variable that is the corporate loan of the country. It is seen that with the change in one unit of corporate loan of the country, the inflation of the country would change by 6E-05 units. The change is found to be small in amount. Also, the correlation coefficient shows that there is a strong correlation between these two variables. The change in the corporate loan of the country would strongly influence the change in inflation of the country.
 The following graph gives the fitted and the residual values of the inflation rate.

Figure 4.5: observed and expected line fit plot of corporate loans when dependent variable is inflation
(Source: created by author)
    The lint fit plot shows that the observed and the predicted values lie close to each other. It can be interpreted that the model is a good one and the mean of the model is zero while its variance is σ2.
    The residual values obtained from the regression equation are given as follows:
 
RESIDUAL OUTPUT              
              
Observation    Predicted Inflation    Residuals      
1    4.838996    -0.609      
2    4.818979    0.921021      
3    4.693912    0.506088      
4    4.364283    -0.46428      
5    3.608322    -0.50832      
6    2.803092    -0.30309      
7    1.842417    0.457583     
Table 5.1: residual output of inflation when the independent variable is corporate loans
(Source: created by author)
The residual plot of the corporate loans when the dependent variable is inflation is given below:
   
Figure 4.6: residual plot of corporate loans
(Source: Created by author)
The residual pot shows that the residual values are more or less scattered over the horizontal axis. The regression equation has been obtained using the Gauss Markov linear model. The errors are assumed to be normally distributed with mean value 0 and an unknown variance of σ2.
    The hypothesis of the test is given below:
H0: The corporate loans of a country do not influence the inflation of the country.
H1: The corporate loans of a country influence the inflation of the country
    The p value of the ANOVA test was found to be 0.008, which is smaller than 0.05. At 95% confidence interval, it is seen that the test is significant and the null hypothesis is rejected in this case. Thus, the corporate loans of a country influence the inflation of the country.
        The GDP of the country is also influenced by the inflation rate and the loan intake of the country. The correlation between the three factors has been given below:
 
     Total    GDP    Inflation      
Total    1              
GDP    -0.54123    1          
Inflation    -0.89421    0.648524    1     

Table 4.2: Correlation matrix
(Source: Created by author)
    The correlation between the GDP and the loan intake is being studied with the help of correlation. The above correlation matrix shows that the GDP has a negative correlation with the loan intake. The GDP also has a negative correlation with the Inflation of the country. The negative correlation indicates that as the value of one variable decreases, the value of the other variable increases and vice versa. The loan intake decreases as the inflation rate increases. The loan intake also decreases as the GDP increases. The GDP and the inflation rate however a positive correlation among them has. Therefore, the result of correlation indicates that as the inflation rate is increasing, the GDP is increasing and the inflation rate is decreasing.
    The trend analysis has been done to know about the increasing or decreasing trend of inflation, GDP and the loan intake over the years. The following figure gives the trend of the loan intake over the five year period from 2010 to 2015.
                   
Figure 4.7: Trend line of loan intake
(Source: Created by author)
    The loan intake values are increasing over the years as indicated by the graph. There has been no increase in the values from the year 2011 to the year 2013. The values have increased considerably after the year 2013.
 
Figure 4.8: GDP over the year
(Source: Created by author)
    The above figure shows the GDP of the country from the year 2011 to the year 2015. The GDP of the country has decreased from the year 2011 to the year 2015.
                       
Figure 4.9: Inflation over the years
(Source: Created by author)
    The inflation rate however has shown a decreasing slope over the years. The inflation has decreased starting from the year 2011. The year 2015 has the least inflation  rate.
    Therefore, it can be said that the inflation rate has decreased over the year; the GDP has also decreased over the year starting from the year 2011. The loan intake has increased rapidly from the year 2013 onwards.
The retail and corporate real estate loans figures has been obtained for almost 7 years starting from the year 2009.The figures of the loans are obtained along with the time period. The fluctuations of these figures are seen across different period. The loan figures are dependent on a number of factors like inflation rate, the GDP of the country and others. The GDP and the rate of inflation have a negative relationship among themselves as has been pointed out by the five years dataset. The GDP of the country is dependent on a number of factors like the production of goods, the export trade, import and others. The GDP is given by the following formula:
GDP = C + I +G + (X – M).
In the above equation, C represents the consumption component, I is the investment, X is the export and I represent the import values and G is the government expenditure. The GDP is defined as the final value of all finished goods and products produced by the country. The GDP is one of the most important macroeconomic factors that determine the current economic status of the country. A sharp decrease in the GDP values indicates that the poor economic condition of the country. There are a lot of factors that determines the economic growth of the country other than the GDP. The inflation is one of such factor. Due to inflation, the ratio of the currency fluctuates. These fluctuations in the currency rate affect the export and import of the country and a lot of other factors. In other words, the inflation, change in currency ratio, the GDP of the country are related to one another. The extent of relationship between all these factors is obtainable from the values of the correlation coefficient. The correlation between the inflation rate and currency ratio is given in the following table:


 
     Inflation Rate    Dollar Rate      
Inflation Rate    1          
Dollar Rate    0.472055    1     

Table 4.3: Correlation coefficient between Dollar rate and Inflation rate
(Source: Created by author)
The above table shows the result of correlation between the inflation rate and dollar exchange rate. The value of the correlation coefficient is 0.472055. Therefore, there is a positive correlation between the two variables. The correlation between the two variables is however not so strong. As the value of inflation rate increases, the value of the rupee dollar ratio also increases and vice versa. However, the exchange rate of dollar remains constant over the years. Only the inflation rate changes over the year. The following figure has been obtained by plotting the two variables simultaneously.

Figure 4.10: Scatter plot of the inflation and exchange rate
(Source: Created by author)
The scatter plot between inflation rate and dollar exchange rate has been plotted by taking the dollar exchange value along the x axis or horizontal axis and the inflation rate along the y axis or the vertical axis. The figure shows that the values of x and y are more or less scattered. No such linear trend or pattern could be obtained from the data. Therefore, it can be argued that there is a very weak correlation among the two variables. The correlation is positive as is visible from the dataset.
The quarterly figures are obtained for the retail loans and the corporate loans. The data is basically a time series data. A time series data generally shows fluctuations along with the times. These fluctuations are generally visible along the dataset. The greater the fluctuations the more is the variation of the values with time. A time series in general has four different components – trend, seasonal components, cyclical fluctuations and the irregular components. The trend is defined as the smooth long term movement over the time series. The trend analysis of a time series helps to understand whether the values are increasing or decreasing over the years. The next component in a time series model is the seasonal components. The seasonal components reveal the fluctuations of the values according to the seasons. The seasonal components may have a time period of three months, six months up to one and half year. The cyclical patterns that are seen in the time series are the cyclical patterns. The cyclical fluctuations generally have a time period of one and a half year or more. The fourth component in any time series is the irregular components. The irregular components are the random pattern seen along the time series which cannot be controlled. When a time series equation is modeled, the error in time series are not independent but are correlated over the years. The auto correlated error functions may be stationery or non-stationary. The stationary of the data needs to be analyzed over the years. The forecasting in a time series can be done with the help of exponential smoothing method or any other methods.

Figure 4.11: Time series plot of retail loans
(Source: Created by author)
The above time series plot of retail loans has been obtained by plotting the years along the x axis and the values of the data along the y axis. The x axis records the years starting from the year 2009. The data are obtained for each of the quarter starting from the year 2009 up to the year 2015. The time series plot shows an increasing trend. This implies that the retail loan is increasing over the years. There are no seasonal or cyclical fluctuations seen in the time series data. The data has been modeled using exponential smoothing method to get an idea about the trend of the data. The values obtained from exponential smoothing are given below:
 
Year    Retail loan      
2009    #N/A      
2009    18,167       
2009    22599.8      
2009    24792.76      
2010    27527.35      
2010    26667.07      
2010    28316.61      
2010    30596.12      
2011    32501.62      
2011    33751.52      
2011    36758.3      
2011    39510.86      
2012    41753.37      
2012    44811.47      
2012    47157.49      
2012    48588.3      
2013    52578.46      
2013    56835.69      
2013    62333.54      
2013    65447.51      
2014    69356.7      
2014    75272.94      
2014    82536.99      
2014    87265.8      
2015    92845.96      
2015    95017.19      
2015    97512.24      
2015    99693.65      
2016    101704.3      
2016    105374.5      
2016    107670.1     
Table 4.4: Values of Retail loan as obtained from exponential smoothing
(Source: Created by author)
    The graph obtained for the corporate loans are given in the following table:

Figure 4.12: Time series plot of corporate loans
(Source: Created by author)
The time series plot of corporate loans has been obtained by plotting the year along the x axis and the values of loans along the y axis. The x axis gives the year starting from the year 2009. The data points are obtained for each quarter. The figure shows that the values are increasing over the years. There is an increasing trend observed in the values. The increasing trend has been observed more over the later period of time that is during the year 2015, 2016. There is no seasonality component observed in the dataset. The data has not shown any variation over the season. The data has also not shown any cyclical fluctuations in the values over the years. There is only a non decreasing linear trend observed in the dataset. The following table gives the values obtained from the exponential soothing method with a dumping factor of 0.02.
 
YEAR    CORPORATE LOAN     EXPONENTIAL SMOOTHING VALUES      
2009    25,694     #N/A      
2009    26,076     25,694       
2009    26,052     25999.6      
2009    25,534     26041.52      
2010    25,408     25635.5      
2010    26,431     25453.5      
2010    25,858     26235.5      
2010    26,990     25933.5      
2011    27,176     26778.7      
2011    28,725     27096.54      
2011    29,205     28399.31      
2011    27,897     29043.86      
2012    31,632     28126.37      
2012    32,678     30930.87      
2012    36,163     32328.57      
2012    34,448     35396.11      
2013    40,625     34637.62      
2013    48,500     39427.52      
2013    46,643     46685.5      
2013    49,419     46651.5      
2014    53,241     48865.5      
2014    57,742     52365.9      
2014    63,003     56666.78      
2014    64,743     61735.76      
2015    69,575     64141.55      
2015    73,044     68488.31      
2015    75,731     72132.86      
2015    84,257     75011.37      
2016    87,401     82407.87      
2016    83,574     86402.37      
2016    92,840     84139.67     
Table 4.5: Exponential smoothing values of corporate loan
(Source: Created by author)
The relationship between the retail loan and GDP and the inflation rate is studied with the help of regression analysis. A regression line has been fitted using the inflation rate and the GDP as the dependent variable and the retail loans as the dependent variable. A significant value of the regression co efficient explains that the variable will have some significance influence on the retail loans. The macro economic factors like inflation and GDP are known to influence the loan intake of any country. When the inflation rate increases, the loan intake decreases and vice versa. The value of the factor GDP is not obtained for the year 2009. However, the analysis requires the data in order to perform the analysis. The analysis could be done with the help of imputation of the data. The data has been imputed with the help of mean imputation. The mean value of all the years has been given in the place, where the data has been missing. The mean values that has to be imputed in the missing place is 5. The results obtained from regression analysis are given below:
 
SUMMARY OUTPUT (DV - Retail Loan IV- GDP and Inflation)      
Regression Statistics      
Multiple R    0.899841      
R Square    0.809713      
Adjusted R Square    0.71457      
Standard Error    15657.35      
Observations    7     
 
ANOVA      
     df    SS    MS    F    Significance F      
Regression    2    4.17E+09    2.09E+09    8.510449    0.036209      
Residual    4    9.81E+08    2.45E+08              
Total    6    5.15E+09                    
 
     Coefficients    Standard Error    t Stat    P-value    Lower 95%    Upper 95%    Lower 95.0%    Upper 95.0%      
Intercept    137138.1    19733.87    6.949377    0.002253    82348.08    191928.1    82348.08    191928.1      
GDP    1305.217    3502.925    0.372608    0.728343    -8420.46    11030.9    -8420.46    11030.9      
Inflation    -21563.8    6400.22    -3.36922    0.028064    -39333.6    -3793.91    -39333.6    -3793.91     

Table 4.6: Results of regression analysis
(Source: Created by author)
The regression analysis results are given in the above table. The regression analysis results show that the GDP has a positive correlation with the retail loans while the Inflation has a negative association with the retail loan. The association between the dependent variable and independent variables are also significant. The value of retail loans increases as the value of the inflation rate decreases and vice versa. The value of the F statistic for the regression co efficient for the GDP is significant. This indicates that the GDP has a significant effect on the retail loans intake of the country. The inflation rate however does not has any significant value of the F statistic. This implies that the value of the regression co efficient for the inflation rate is not significantly different from zero. Therefore, it can be said that the retail loans is influenced by the inflation rate and the GDP factors.
The residual values obtained from the regression equation are shown in the following table:
 
RESIDUAL OUTPUT      
Observation    Predicted Retail    Residuals      
1    52418.95    -24207.9      
2    19574.85    13403.15      
3    38006.42    4307.58      
4    60061.43    -6485.43      
5    73775.31    -3441.31      
6    87979.64    6261.364      
7    92044.4    10162.6     

Table 4.7: Residual values of the regression analysis
(Source: Created by author)
 The above table gives the predicted values of the retail loans from the regression equation. The predicted values are obtained for a time period of seven years starting from 2009. The residual values are also given in this table.
The regression analysis has also been performed for the corporate loans as well. The results obtained from the regression analysis of retail loans are given in the following table.
 
SUMMARY OUTPUT (DV - Corporate Loan IV- GDP and Inflation)      
Regression Statistics      
Multiple R    0.87718      
R Square    0.769445      
Adjusted R Square    0.654167      
Standard Error    13274.42      
Observations    7     
 
ANOVA      
     df    SS    MS    F    Significance F      
Regression    2    2.35E+09    1.18E+09    6.674716    0.053156      
Residual    4    7.05E+08    1.76E+08              
Total    6    3.06E+09                    
 
     Coefficients    Standard Error    t Stat    P-value    Lower 95%    Upper 95%    Lower 95.0%    Upper 95.0%      
Intercept    102841.6    16730.52    6.146947    0.003552    56390.27    149293    56390.27    149293      
GDP    129.4858    2969.807    0.043601    0.967312    -8116.02    8374.991    -8116.02    8374.991      
Inflation    -15243.4    5426.156    -2.80924    0.048354    -30308.8    -177.973    -30308.8    -177.973     

Table 4.8: Regression analysis of the corporate loans
(Source: Created by author)
The above table gives the regression analysis of the corporate loans. A multiple linear regression has been fitted by taking the corporate loan as the dependent variable and the inflation rate and the GDP as the independent variables. The GDP has a positive correlation with the variables while the inflation rate has a negative correlation with the corporate loans. This indicates that as the value of the inflation increases, the value of corporate loan decreases and vice versa.
The following table gives the value of the predicted values of the regression equation:
 
RESIDUAL OUTPUT      
Observation    Predicted Y    Residuals      
1    39006.49    -13472.5      
2    15960.91    11029.09      
3    24865.67    3031.333      
4    44089.04    -9641.04      
5    55932.85    -6513.85      
6    65204.49    -461.486      
7    68228.56    16028.44     

Table 4.9: Residual values of regression of corporate loans
(Source: Created by author)
    The above table gives the predicted values of the corporate loans as obtained from the regression equation. The residual values obtained from the regression equation are also given in this dataset.
5. Conclusion and Recommendations
The major objective of the research was to investigate the way in which the retail banking loans impact the inflation and actions economy. From the completion of the research, it was gathered that Investment loans are observed to be a vital factor in ensuring economic growth in Saudi Arabia. The financial sector in the Saudi Arabia has a vital role in mobilizing the foreign and domestic savings for investment through offering enough liquidity to the companies and making sure that the financial loans offerings is done effectively. In Saudi Arabia there are five sizable and specialized credit institutions having asset size close to half of the banking industry. These offers interest free investment loans for the purposes of public policy. Saudi Arabian banks credit to the private sectors has witnessed considerable growth that kept on increasing with years. In consideration to supply, the bank deposits of Saudi Arabia increased with the public sector income that further enhanced the lending capacity of the Saudi Arabian banks. Moreover, the literature review section has discussed various theoretical concepts is intended to be elaborated in the literature review section that includes concepts on inflation, economic growth, retail banking loans, investment loans and impact of such loans on the economic growth of Saudi Arabia. Critical evaluation of previous researches facilitated identification of the research gap and the research questions those are to be answered with the completion of this study.
The research revealed that the retail banking loans do not convert into debt burden at time of the funds is used in an optimal way. Under such situations, the “marginal return on investment” is identical or higher to the borrowing cost. The vulnerability of debt service could be enumerated by using three different contexts. Firstly, the size of the retail banking loans has attained a level, which is much larger compared to equity financing. As a result, it creates an imbalance between equity and debt. Secondly, the debt proportion at floating rate of interest has increased substantially, which hits the borrowers directly due to increase in interest rate. Finally, the maturity times have been reduced significantly due to the falling official share flows. All these above-mentioned factors are inherent in Saudi Arabia. The retail banking in Saudi Arabia has a wide array of opportunities and challenges. The rise of the middle class individuals is a significant contributory factor in this context. The improved purchasing power of the consumers along with the greater liberal attitudes in favour of personal loans has been contributing to the retail banking segment of Saudi Arabia. The rise in purchasing power of the young individuals would provide a vast opportunity to the retail banking sector of the nation. This is because the current generation is highly comfortable in taking debt from the retail banks in contrast to the previous generation.The special economic zones would provide higher opportunity for the retail banking sector of the nation. As a result, the combination of these influential dynamics warrants faster growth in the sector, which is currently in the rascent stage. Although phenomenal opportunities are inherent in retail banking sector of Saudi Arabia, the challenges are identically daunting. The marketing techniques related to the products of retail banking need to be aggressive.
The retail-banking sector is directly responsible for robust economic growth of Saudi Arabia. However, the significant challenges has been observed because the modern banking sector is evolving from the simple banking industry of the 20th century, confined their operation as the local money exchangers and a handful of foreign banks that furnished to a relatively small community of business. During the intervening years, this institution has played a responsible role in establishing local and foreign institutions, which brought new services and products to both commercial and retail customers. New efforts has also made by this banking sector. For instance, SAMA required that banks must train customers on how to frequently use banking services and invest in technology for supporting growth. Furthermore, the credit lending process has also been improved by introducing the five credit lending institutions, including SIDF, SREF, PIF, SCSB, and SAB. All these institutions are the main source of the finance for short-term and long-term loans as well as funding provided by the banks.
The result of the regression analysis signifies that the loan of the country is inversely dependent on the inflation rate. The GDP of the country is also influenced by the inflation rate and the loan intake of the country. The correlation between the GDP and the loan intake is being studied with the help of correlation. The above correlation matrix shows that the GDP has a negative correlation with the loan intake. The GDP also has a negative correlation with the Inflation of the country. The negative correlation indicates that as the value of one variable decreases, the value of the other variable increases and vice versa. The loan intake decreases as the inflation rate increases. The loan intake also decreases as the GDP increases. The GDP and the inflation rate however, a positive correlation among them has. Therefore, the result of correlation indicates that as the inflation rate is increasing, the GDP is increasing and the inflation rate is decreasing. The analysis could be done with the help of imputation of the data. The data has been imputed with the help of mean imputation.
 The mean value of all the years has been given in the place, where the data has been missing. A multiple linear regression has been fitted by taking the retail loan as the dependent variable and the inflation rate and the GDP as the dependent variables. The GDP has a positive correlation with the variables while the inflation rate has a negative correlation with the corporate loans. This indicates that as the value of the inflation increases, the value of corporate loan decreases and vice versa. The value of the F statistic for the regression co efficient for the GDP is significant. This indicates that the GDP has a significant effect on the retail loans intake of the country. The inflation rate however does not have any significant value of the F statistic. This implies that the value of the regression co efficient for the inflation rate is not significantly different from zero. Therefore, it can be said that the retail loans is influenced by the inflation rate and the GDP factors. If such anticipations are realized every nominal value will be increased at maturity. These researchers have investigated the impact on the balance sheet of a Saudi Arabian hypothetical bank.
With the increase in capital, output and investment, the level of savings in the nation would tend to rise. After a provided level, the increase in both savings and capital would be sufficient to stimulate the self-sustaining growth. The main reason for choosing external finance could be explained with the dual gap theory. The acquisition of external finances relies on the association amongst foreign finances, investment, domestic savings and growth. One guiding principle is to borrow funds from abroad as long as it generates a rate of return, which is greater than the cost of borrowings. The retail banking loans do not convert into debt burden at time of the funds is used in an optimal way. Under such situations, the “marginal return on investment” is identical or higher to the borrowing cost.
5.1. Recommendations and Future Research Suggestions
Based on the research it is recommended that the non-performing loan and the lending policies resent in Saudi Arabia must be related. Lending policies must be developed such that it can facilitate the banks lend efficiently and deceases the level of risk for the banks. Strict adherence to the lending regulations has resulted in decreasing the levels of the non-performing loans. It I also recommended that the level of lending to all these sectors must be enhanced and in consideration to the same the return with the growth of the sector. This study also offered certain recommendations that the appropriate evaluation of the credit worthiness of the borrower, listing some of the risky industries along with the insurance services can be considered as some of the measures being implemented for decreasing the non-performing loans of the levels.
The research also recommended that considering the major factors that could result in the bad loans along the commercial banks within Saudi Arabia, lending the borrowers with the questionable characters, serial loan defaulters and increased rate of interest that can make it quite complex for someone to pay and diversion of the funds by the borrowers. Such causes make several borrowers not for honoring their obligations as and when they remain due that leads to enhanced non-performing loans level. Most of the several factors are because of the information asymmetry within the banking sector. The banking sector in the Saudi Arabia is recommended to consider the emergence of several competitors like micro finances and transforming consumer profiles are treating the upcoming advancement of the lending of the commercial banks. The banking industry in the nation is for the reason experienced several challenges of not dealing with the tradition methods of embracing and lending the advanced technology along with innovations such as intent lending to encompass several borrowers. The banking sector is therefore dealt with the challenges of dealing with the traditional technologies of lending and including the modern technology and the innovations like internet lending including several borrowers.
The research also recommendations also consider that as the commercial banks have plans for entering in several other markets for exploiting the global markets. The lending policies of the banks in Saudi Arabia must be modified to address the requirements of the global markets. The implemented strategy must be considered to be carried out that must have effective knowledge on the cultural and the economic actors of the society. The research recommends that the Central Bank must offer strict policies on lending relied on the existent economic environment for this will make sure the uniformity of the administration of the credit facilities. Banks in the Saudi Arabia must make sure of low PAR by means of efficient lending and highly effective loan recoveries. The capability along with the qualifications of the credit officer is of great importance in evaluating the borrower’s credit worthiness. For this reason, the staff of the banks in the nation must be offered with the occasional training in order to equip them with certain important skills as this might continue to flow over a long way in decreasing the non-performing loans levels between the commercial banks.
It is also recommended  by the research that the banks must represent several loan differentiation approaches by means of segmented the consumers relied on their requirements, type of business, size along with designating products that addresses the exceptional requirements of certain consumer segments along with generating a pricing strategy for all the segments. The banks in Saudi Arabia must consider several services and products that can help in serving as appealing to all the consumers those are residing within the nation itself.
The youth consists of over 42% of the overall population in Saudi Arabia and have distinct tastes in comparison to the rest of the population. There must be a group of young generation, those are economically strong and needs a financial institution that can address their needs efficiently. Targeting such niche is recommended that will be capable to facilitate the banks in increasing its base of consumers and the loan book consequently. The recent research also recommends that the E-banking techniques must be offered with increased advertising, as it is an aspect with increased potential of growth. E-banking technology is deemed to facilitate the commercial banks of Saudi Arabia to get unbanked in the remote regions to save and gain loans devoid of visiting a branch. This is intended to enhance loan book of the banks and along with that, the diversification also helps in decreasing the loan risks.
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