Saudi credit falls further in May, M3 slows growth

MOUNTING CONCERNS: There are concerns over the soundness of some family-owned firms.(Getty Images)

Saudi banks' lending to the private sector fell for a third straight month in May, official data showed, amid growing concerns over the solvency of some family-owned firms and the local lenders' exposure to bad debts. Bank claims on the private sector, a key indicator of lenders' confidence, stood at 724.87 billion riyals ($193.3bn) in May, their lowest level since August, showed the data published on the Saudi Arabian Monetary Agency's website. Compared to April, bank claims on the private sector made in May their sharpest month-on-month drop since January. At 7.6 percent, their annual growth was the lowest in at least one year.

May's annual growth of money supply -- as measured by the broadest M3 measure of money circulating the economy -- also fell for the first time since January. It was 16.9 percent in May down from 18.3 percent in April. On June 16, SAMA sought to boost lending by halving the reverse repo rate -- what it pays to commercial banks for deposits -- after concerns mounted about their exposure to two troubled Saudi conglomerates.

Saudi Arabia, which pegs its currency to the U.S. dollar, kept its benchmark repo rate unchanged at 2 percent after SAMA had reduced it by more than half through successive cuts since October. But the cuts have failed to spur credit growth comparable to that of the past few years.

An economist at a Saudi bank said: "Banks have not been lending since November because of the slowdown in the economy and concerns about the health of some of the family businesses". "SAMA cannot change the repo rate because banks cannot go out and lend when you don't know what is happening in the market," he said on condition of anonymity because he is not authorised to speak to the media.

After the reverse repo rate cut, M3 grew by just 0.42 percent in the week to June 18, central bank data showed, compared with 1.43 percent growth in the week to June 11. Privately held investment company Saad Group is seeking to restructure its $6 billion debts after running into difficulties earlier in June, prompting the Saudi central bank to freeze the accounts of its billionaire chairman, Maan al-Sanea.

Another private group, Ahmad Hamad Algosaibi & Brothers Company, is also restructuring its debt. While several banks in the region began to reveal the degree of their exposure to the debts of the two firms, Saudi banks and SAMA have opted for silence.

"The issue is not about liquidity ... Any repo rate cut will prove useless," said Abdullah Dubiany, managing editor of business daily Al Eqtisadiah. "There is the issue of disclosure and transparency .... (And) Saudi banks are not adequately capitalised to engage in long-term financing," he added.

Problems at the two firms highlight growing risks for the Gulf region, which has been battered by the financial crisis despite its energy exports and its savings stored in sovereign funds. SAMA's net foreign assets slid 1.1 percent in May vs April, their sixth monthly decline in a row, to 1.483 trillion riyals, their lowest level since June, 2008.  (Reuters)

Print | Email | Discuss this article

| Share |

MORE FROM ARABIANBUSINESS.COM