The credit downgrading of the United States has triggered concerns about Saudi Arabia’s swelling foreign assets as the bulk of them are held in T-bills abroad, the Gulf Kingdom’s largest bank said on Tuesday.
The crisis should prompt the largest Arab economy to diversify its portfolio of foreign currencies and consider steps to face challenges of a possible fresh global economic distress, National Commercial Bank (NCB) said.
In a study sent to Emirates 24/7, NCB said such developments followed an upsurge in Saudi Arabia’s monetary aggregates as banks opt to utilize liquidity, adding that banks are already cutting assets abroad to invest at home.
Its figures showed the country’s monetary base and money supply surged by 15.7 and 13.1 percent in the second quarter of 2011 compared with around 7.3 and 3.4 per cent respectively in the second quarter of 2010.
But on a quarterly basis, monetary base receded by 3.7 per cent mainly due to the hefty decline of SR21.8 billion in deposits held by the Saudi Arabian Monetary Agency (SAMA), central bank.
NCB said Saudi banks have opted to utilize idle liquidity and expand their loans portfolio, with its figures showing that claims on the private sector gained a moderate 7.8 per cent annually. Claims on government and quasi-government soared by an impressive 26.5 per cent in the second quarter.
However, total deposits expanded by 11.8 percent this past quarter, in order to keep the loans-to-deposits ratio suppressed at 74.5 per cent, it said.
Additionally, the study said, Saudi banks had apparently shifted part of their international investments to the domestic market, with net foreign assets (NFA) declining by SR14.2 billion Q/Q in the second quarter to reach SR112.9 billion.
“Meanwhile, SAMA’s NFA continues to grow and has reached SR1.844 trillion, thereby gaining 18.1 per cent on an annual basis,” NCB said.
“The downgrade of US’s credit rating has raised concerns over SAMA’s foreign assets as the majority of assets are held as T-bills. SAMA should begin to diversify its portfolio in other currencies to mitigate risks. It seems officials have more challenges ahead in 2011 as the global economy takes another hit.”