Saudi Arabia’s are cutting their assets abroad to invest in new treasury bills at home and extend credit to the public and private sectors, the Gulf Kingdom’s largest bank said on Tuesday.
The country’s 12 commercial banks have also cut their deposits with the Saudi Arabian Monetary Agency (SAM), central bank, with their excess reserves falling by nearly SRnine billion in the third quarter of 2010 over the previous quarter, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.
The decline stifled growth in the Kingdom’s monetary aggregates, with the monetary base and money supply registering annual growth rates of 3.3 and 5.1 per cent compared to 7.3 and 3.4 per cent, respectively in the second quarter.
“Saudi banks had apparently shifted part of their international investments to the domestic market, with net foreign assets declining by two per cent in the third quarter over the previous quarter,” NCB said.
“This decrease was mainly driven by: (1) the plunge in assets due from branches abroad by SR10 billion, the reduction in investment abroad by SR5.0 billion and the shrinking liabilities due to branches abroad by SR10.7 billion.”
It noted that 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 SR2.9 billion in the third quarter, it said.
It attributed the increase to an upsurge in credit to public sector enterprises and treasury bills by SR2.7 billion and SR2.4 billion respectively.
“The continued increase in T-bills does reflect Sama’s proactive strategy of replacing matured government bonds, which amounted to SR2.1 billion in the third quarter to avoid an influx of liquidity, mitigate the impact on banks’ profitability and lower the debt service, especially that there is no need for high-cost long-term debt,” the report said.