Saudi gov't steps up loan support for struggling companies

SAUDI FUNDS: The Kingdom's finance minister has said the government will use state funds to assist companies struggling to repay loans. (Getty Images)

Saudi Arabia will use state investment funds to extend credit to companies as a means of making up for banks’ reluctance to lend, it was reported on Sunday.

The pledge was made by Saudi finance minister Ibrahim Al Assaf in an interview with the UK daily The Financial Times ahead of the G20 finance ministers meeting in London on Saturday.

Al Assaf said that the Public Investment Fund (PIF) was stepping up its level of lending by extending the maturing of loans on offer to companies, and providing them with a five-year repayment grace period.

Although the PIF can only lend only to companies in which it owns shares, the Industrial Development Fund, and a government-owned credit savings bank, were also increasing their funding to small and medium-sized companies, he said.

Saudi Arabia, the world’s biggest exporter of oil, had not been as affected by the global financial crisis as other countries, and was still growing, despite drops in oil prices, Al Assaf added.

“A stimulus for us is different from other countries. Others are stimulating an economy that is going backwards,” he said.

The Saudi government has already injected $3b into the Kingdom’s banking system, lowered reserve requirements on demand deposits, and cut benchmark lending rates to two percent.

However, lending to the private sector declined by one percent in the second half of last year, according to the Saudi monetary authority.

Yet, Saudi had a sufficient cushion of savings, due to years of high oil prices, to be able to push ahead with its $400b five-year investment programme in infrastructure and the oil industry, Al Assaf said.

The country’s biggest ever budget announced for 2009 represented the “largest” stimulus package among G20 countries, he added

“In Saudi Arabia the non-oil sector is still growing but we are spending more to substitute for the slowdown coming from the rest of the world, and now we can get goods and services at reasonable prices.”

Al-Assaf said Saudi Arabia was ready to “play its role” in the G20 but he would not say whether the Kingdom would be increasing its contributions to the International Monetary Fund (IMF).

The US has called for the IMF to be given up to $500b more to help it assist countries hit by the crisis.

However, increasing its IMF contributions would be politically sensitive for Saudi Arabia as public opinion is for the state’s resources to be fully targeted towards domestic spending, according to analysts.

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