Saudi banks' overseas investments soar by 75%

Saudi Arabia's banks boosted their investments abroad by a record high of nearly 75 per cent through 2009 to counter slackening credit demand at home and the absence of government bonds, official figures showed.

The combined foreign assets of the 12 commercial banks in the world's oil powerhouse swelled by nearly SR47.45 billion (Dh46.5bn) at the end of 2009 to boost their overseas investments to one of their highest levels, showed the figures by the Saudi Arabian Monetary Agency (Sama) yesterday.

But their foreign liabilities dipped by about SR13bn and the decline was mainly in due to foreign banks and branches abroad.

From about SR64.8bn at the end of 2008, the banks' total investments abroad leaped to SR112.3bn at the end of 2009, Sama said in its January banking bulletin.

The overseas investments at the end of 2009 were the highest in more than 10 years and 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.

The surge in such investments boosted the banks' collective foreign assets to one of their highest levels of around SR210.9bn.

The increase coincided with a decline in the banks' foreign liabilities to around SR99.6bn from SR112.4bn.

The figures showed the sharp growth in foreign assets and the drop in liabilities largely widened Saudi banks' net foreign assets, which swelled to about SR11.2bn at the end of last year from SR41.5bn at the end of 2008.

The net foreign assets had tumbled to their lowest level of around SR45 million at the end of September 2009.

According to the Saudi American Bank Group (Samba), the surge in foreign investments was a result of a drive by Saudi banks to invest in high-return US securities and their tightening local credit policy.

Samba said such a trend has been strengthened by weakening investors' confidence in the world's oil superpower and the default problem of the Saudi Saad and Algosaibi groups.

"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," Samba said. "Aside from the good returns on foreign assets, there are a number of reasons why banks have been more selective about private sector lending."

Bankers also attributed the slackening domestic credit to waning local demand and the fact that most Saudi banks have become more selective in lending.

Sama's figures showed total credits provided by Saudi banks to the private sector had jumped by nearly SR144bn through 2008 before they started to slow down in 2009.

From around SR712.7bn at the end of 2008, the banks' claims on the private sector recorded a negative growth to dip to SR708.7bn at the end of 2009.

After surging by nearly 33 per cent through 2008, the banks' claims on the public sector dipped by 25.3 per cent from SR241.9bn at the end of 2008 to SR182.3bn at the end of 2009.

Analysts said the decline was due to the fact that the Saudi Government was no longer resorting to domestic borrowing to finance its budget deficit because of the fragile liquidity system in the kingdom. Instead, it has used its massive overseas assets to bridge the gap and at the same time cut its domestic debt.

Samba and other financial institutions in Saudi Arabia expected the banks in the kingdom, which control the second largest banking assets in the Arab world after the UAE, would remain tight in the first half of this year despite monetary easing measures by Sama, the kingdom's central bank.

"Looking ahead, we expect this caution to remain in place at least until the second half of 2010. There is no sign yet of foreign banks returning in great numbers to the Saudi corporate debt scene. International lenders await resolution of the two Saudi debt situation... for these reasons we think lending growth will remain flat at least for the next six months," Samba said.

Heavy investments abroad allowed Saudi banks to offset low lending activity at home and record good performance during 2009. But their net income was dampened by heavy provisions, slumping by 0.3 per cent to SR26.8bn.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.