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Thu 7 Oct 2010 12:54 PM

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Saudi banks sit tight on lending despite liquidity

Banks parking excess cash abroad or with central bank – Banque Saudi Fransi

Saudi banks sit tight on lending despite liquidity
SAUDI BANKS: Lending remains tight among banks, despite ample liquidity

Despite abundant liquidity, Saudi Arabia’s banks are still keeping a tight rein on lending, according to the latest August data from Banque Saudi Fransi.

The Riyadh-based finance house said that growth in bank lending to the private sector had declined to its slowest in five months, while bank deposits dropped by two percent.

In an effort to kickstart lending the central bank has kept interest rates low, although that policy has so far not borne fruit.

Banque Saudi Fransi said that a prolonged decrease in foreign assets and central bank deposits over several months could signal that bank lending could gain momentum. However, it also added that over August, there had been a 27 percent increase in the amount of cash held in vault.

“While the central bank builds its foreign assets, banks drew theirs down by almost 13 percent from July,” said John Sfakianakis, chief economist at Banque Saudi Fransi.

“Commercial banks exhibit high levels of liquidity but have chosen to park their excess cash in investments abroad or with the central bank rather than lending it.”

The research note also stated that bank foreign assets are still more than double their level at the end of 2008.

However, consumer activity is returning, despite the lending hiatus, with Banque Saudi Fransi citing inflation in the “other goods and services” category hitting 8.5 percent in August.

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