Oil prices push Saudi foreign assets to all-time high in January

Private sector lending climbs, indicating Saudi’s economic recovery is picking up pace
Oil prices push Saudi foreign assets to all-time high in January
offshore oil rig
By Karen Leigh
Tue 01 Mar 2011 12:54 PM

Saudi Arabia’s foreign assets hit a record high and private bank lending expanded at its fastest rate in 19 months in January as political and economic instability shook parts of the Arab world, including neighbouring ally Bahrain.

In addition, strong oil prices, bolstered by the political crisis in Libya, which produces millions of barrels per day, lifted the Kingdom’s foreign assets to a record level for the month, at SR1.67 trillion.

But a SR135bn welfare benefits scheme for citizens, unveiled last week by King Abdullah, could slow the growth pace as the year progresses.

Banque Saudi Fransi (BSF) said private sector loan growth hit a 19-month high, above five percent.

The gain, it said, supports the theory that Saudi’s financial recovery is accelerating even as other MENA countries – and Gulf neighbours Bahrain, Oman and Yemen – fave violent protests that have threatened everything from everyday bank function to, in Bahrain’s case, sovereign credit ratings.

“[It’s] backing evidence that Saudi Arabia’s economic recovery is picking up pace as private sector firms take on a larger role,” BSF’s chief economist John Sfakianakis said in a note.

Money supply growth also accelerated quickly – for the fourth straight month – up 8.1 percent for broad money (M3). It was the fastest advance in a year.

But BSF said political turmoil throughout MENA could complicate Saudi’s economic recovery, which is dependent on the private sector.

The Saudi Arabian Monetary Agency said private bank credit, excluding investments in securities, rose to 748.2bn SR in January, up 5.4 percent from January 2010, and the highest rate of growth since June 2009.

Overall claims on the private sector advanced 6.3% in January to 781.6bn SR.

“Bank credit in Saudi Arabia has struggled to recuperate following a downturn subsequent to the onset of the global financial crisis, which slashed loan growth rates to a fifth of what they were,” Sfakianakis said.

“The recovery continues at a moderate pace as banks vet loan requests rigorously, and private sector investment appetite remains moderate.”

This is evidenced in the middling loan-to-deposit ratio, which held at 78.6 percent in January. At the height of the credit boom in 2008, it surpassed 90 percent for a number of months. 

“This shows that while banks are liquid– deposits continue to grow, their foreign asset holdings are climbing– they are still exceptionally hesitant to agree to new loans,” the note said.

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