Risk-averse banks in Saudi Arabia boosted credit to the government by nearly SR32 billion ($8.6 billion) through 2010 but their lending to the private sector remained sluggish despite a slight recovery, the Gulf Kingdom’s largest bank said on Tuesday.
Monetary aggregates in the world’s oil superpower also recorded slow growth last year mainly due to a decline in the banks’ excess reserves with the Saudi Arabian Monetary Agency (SAMA), the country’s central bank, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.
The study showed there was also a decline in the banks’ net foreign assets during 2010 after climbing to their highest level in June.
“The decline in both excess reserves and net foreign assets was directed to the public and private sectors. Banks’ claims on the public sector increased by SR32 billion in 2010,“ NDB said.
It attributed the increase to upsurges in credit to public sector enterprises and treasury bills by SR4.2 billion and SR41.6 billion, respectively. The surging volume of T-bills was partially undertaken to replace matured government bonds, which amounted to SR13.8 billion in 2010, according to the report.
Additionally, private sector credit had gained traction, posting a 4.8 per cent year-on-year growth rate, an improvement compared to a 0.6 per cent contraction registered in 2009, it said, adding that the credit growth last year is dwarfed by that during 2007-2008.
The report showed the monetary base and the money supply registered annual growth rates of 2.5 per cent and five per cent compared to 37.9 and 10.7 per cent, respectively in 2009.
It said the abating growth in the monetary base was driven by the decline in excess reserves with SAMA by around SR9.7 billion, a 9.8 per cent drop compared to a staggering 136.3 per cent rise in 2009.
Net foreign assets held by domestic banks plunged by 11.5 per cent in 2010, albeit reaching a historical high of SR116.5 billion at the end of the first half of last year, the report said.
“Nevertheless, the level of assets at SR98.4 billion, is still relatively high compared to pre-crisis levels at SR70 billion, SR42 billion, SR41 billion at the end of 2006, 2007, 2008, respectively,” it said.
“Last year’s shortfall was attributed to the plunge in assets due from branches abroad by SR11.2 billion and the substantial rise in liabilities due to foreign banks by SR12.1 billion.”
The report attributed the slowdown in the money creation process, namely broad money (M3), to the slowing growth in total deposits that slumped from 11.2 per cent to 4.7 per cent in 2010, a record low.
It showed growth in total deposits was driven by an upsurge in demand deposits, which went up by 22.4 per cent.
On the other hand, time/saving deposits acted as a drag, shrinking by 7.8 per cent, the first ever back-to-back annual declines after posting a drop of nearly 12 per cent in 2009.
“The rising share of demand deposits at the expense of the time/savings deposits underscores the preference for liquidity, given the depressed interest rate environment that had ensued over the last two years following the global fiscal crisis,” NCB said.
“Concerning private sector activity, newly opened letters of credits rebounded by 28.1 per cent in 2010 compared to 2009’s slump of 30.5 per cent. The major contributors to this growth were building materials, motor vehicles and machinery that gained 52.6, 44.2 and 23.2 per cent respectively.”
It said the improved level of activity “mimics” private sector credit whereby construction and manufacturing sectors topped the list of loan recipients. “On the retail side, points of sale transactions maintained its upward trend, with a 27.0 per cent year-on-year growth, indicating an expansion in consumption.”
Follow Emirates 24|7 on Google News.
