Saudi banks accelerate investments abroad in Q1

Saudi Arabia's banks continued to shun the local market in the first quarter of 2010 and kept their financial canons trained abroad to offset a sharp slowdown in domestic credit, according to official Saudi data.

After pouring a record SR48 billion (Dh47bn) into foreign markets through 2009, the kingdom's 12 commercial banks slightly cut investments abroad in January before they rebounded in the following two months, showed the figures by the Saudi Arabian Monetary Agency (Sama).

From about SR112bn at the end of 2009, the banks' combined investments abroad gained nearly SR6bn to climb to an all time high of about SR118.3bn at the end of March.

The investments stood at only about SR38bn at the end of 2005 before they began their steady climb to reach SR81bn at the end of 2007. They dipped to SR64bn at the end of 2008 after the kingdom's banks were forced by the global fiscal crisis to partially pull out of the world markets.

The assets shot up by nearly 75 per cent at the end of 2009 as most banks were discouraged to lavish domestic loans following a severe local debt default problem and local demand for credit largely waned.

The overseas investments at the end of 2009 were the highest in more than 10 years and at one of their highest levels in the Saudi banking history. The figures showed they were almost six times their level at the end of 2003.

Despite the surge in such investments, the banks' total foreign assets slipped to about SR206.9bn at the end of March from nearly SR210bn at the end of 2009. The decline was caused by a fall in the banks' dues from banks abroad and foreign branches.

The banks' foreign liabilities grew to SR105.4bn from SR99.4bn at the end of 2009. Sama's figures showed the drop in foreign assets and the increase in foreign liabilities depressed the banks' net foreign assets to about SR101.5bn from about SR111.2bn.

According to a new Saudi bank study released yesterday, the credit slowdown by local banks has given rise to project finance by specialised credit institutions in the world's dominant oil power and the largest Arab economy.

"The role of specialised credit institutions going forward in supporting major projects during the past couple of years had been on the rise, and will accentuate in 2010 with banks opting to hoard excess reserves at Sama instead of extending credit facilities," said National Commercial Bank, the largest Saudi bank.

But the bank noted that latest figures released by Sama by the end of the second quarter of 2009 showed assets of specialised credit institutions had decreased by about 0.3 per cent year on year and 5.1 per cent year to date.

"This could be a reflection of two aspects, mainly: (1) the bureaucracy involved with the disbursement of funds, (2) concerns about delinquency especially institutions such as the Real Estate Development Fund, relies on the regular repayment of loan instalments to extend facilities to new applicants," NCB said in the study sent to Emirates Business.

It said an announcement in early 2009 by the General Auditing Bureau of accumulated unpaid loans worth SR44bn by the end of 2006 is a "stark reminder of the dilemma" facing Real Estate Development Fund and Saudi Industrial Development Fund to whom most of the funds are owed.

"It had to be noted, however, that despite some hurdles the government support is unwavering, which is clear from the budget appropriations of 2010 as well as the capital injections that had been approved of late, notable of which the approval by the Shura Council in June 2009 that saw the capital of Real Estate Development Fund increasing to SR200bn from SR91bn," NCB said. "To conclude, we do believe that the recent project financing deals that involved multi-billion riyal and dollar contributions by the Public Investment Fund and Saudi Industrial Development Fund will overturn the broader picture for 2010 and beyond."

In an earlier study, another major Saudi bank said the surge in the banks' foreign assets was a result of a drive by banks to invest in high-return United States securities and their tightening local credit policy.

"Many banks have opted to channel surpluses towards higher-yielding foreign securities. The continued weakness in lending growth comes despite fresh measures by the authorities to stimulate lending," the Saudi American Bank Group (Samba) said in the study issued last month.

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