Net foreign assets fall sharply for Saudi

ASSETS FALL: Saudi Arabia's decline in foreign assets may be the result of sales so riyals could be injected into the local banking system, say analysts. (Getty Images)

Saudi Arabia's net foreign assets made their sharpest fall in at least two years in February after the global crisis hit markets, but money supply growth picked up pace for the first time since October, official data has revealed.

The Saudi Arabian Monetary Agency's (SAMA) net foreign assets stood at SR1.585 trillion riyals ($422.67bn) in February, down two percent from January, according to data published on the central bank's website.

Although SAMA's foreign assets rose by about 28 percent in February from their level a year earlier, they were at their lowest level since August, 2008.

"A decline in foreign assets could be more due to some selling in order to inject riyal deposits into the local banking system and less due to market losses on their equity holdings," said John Sfakianakis, chief economist at HSBC's Saudi affiliate, SABB.

"The large losses seen in many other Gulf funds are not found in the case of SAMA."

The global financial crisis has battered global markets and oil prices have fallen around $100 from a record high near $150 in July, hitting both the revenues and the foreign holdings of many countries in the world's largest oil-exporting region.

Sfakianakis said last month's hammering of global markets may have encouraged SAMA to sell some assets since 20-25 percent of their holdings are in foreign equities.

But in a sign that appetite for credit could be recovering, annual growth in M3 money supply, the broadest measure of money in the Saudi economy, accelerated to 15.6 percent in February from 13.8 percent in January.

M3 also showed its strongest month-on-month rise in at least a year due mainly to a surge in quasi-monetary deposits, which comprise residents' foreign currency deposits and marginal deposits for letters of credit, and a drop in time and savings deposits.

The acceleration in money supply growth reflected on bank claims on the private sector, a key indicator of lenders' confidence in the economy's prospects.

In February, these posted their first month-on-month rise since November.

SAMA has more than halved the benchmark lending rate through successive cuts since October in a bid to both encourage banks to keep lending and make up for a possible decline in government financing due to lower revenues from oil exports.

But the cuts have failed to spur the sort of credit growth seen over the past few years.

SAMA data showed that long-term bank credit reached SR158.4bn in February, its lowest level in more than two years.

Saudi banks, which include 11 listed lenders, made profits of SR6.05bn in the January-February period, up from SR5.25bn a year earlier, it said. (Reuters)

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