Saudi Arabia's banks boosted their investments abroad by more than SR45 billion (Dh45bn) through most of 2009 to offset waning domestic credit and the absence of government bonds, official figures showed yesterday.
In contrast, their foreign liabilities dipped by nearly SR4bn in the same period and most of the decline was in dues to foreign banks and to other parties, showed the figures by the Saudi Arabian Monetary Agency (Sama).
From around SR64.8bn at the end of 2008, the combined investments abroad by the kingdom's 12 commercial banks surged to one of their highest levels of SR110.4bn at the end of November.
The investments at the end of November 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 SR203.7bn.
The increase coincided with a mild decline in the banks' foreign liabilities to around SR108.4bn from nearly SR112.4bn in the same period, according to Sama's December statistical bulletin.
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 SR95.3bn at the end of November from SR41.5bn at the end of 2008. The net foreign assets had tumbled to their lowest level of around SR45bn at the end of September.
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. It 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 SR734bn at the end of 2008, the banks' claims on the private sector grew by only around 1.9 per cent to SR748bn at the end of November.
After surging by nearly 33 per cent through 2008, the banks' claims on the public sector dipped by around 25.3 per cent from about SR241.9bn at the end of 2008 to SR180.3bn at the end of November.
The figures showed the banks were doing better in terms of deposits, which swelled by around 9.8 per cent to SR929.9bn at the end of November from SR846bn at the end of 2008.
Most of the increase was in demand deposits, which jumped to around SR412.9bn from SR342.4bn, and in business and individuals deposits, soaring to about SR395bn from nearly SR327bn, said Sama.
Samba expected Saudi banks, which control the second-largest assets in the Arab World after the UAE banks, would remain tight in the first half of this year despite monetary easing measures by Sama, the kingdom's central bank.
"The uptick in private sector credit growth noted for last August, proved to be something of a false dawn, and growth softened again in the following two months, recording a new low of one per cent for the 12 months to October.
"Deposit growth has also trended down, but was still firm at 12 per cent in October... private sector credit growth was growing at a double-digit rate as recently as April, but has been on a sharp downward path," Sama said.
The report listed several reasons for the slowdown, including the retreat of many international banks from emerging markets, including Saudi Arabia.
Another factor is that banks are taking a harder look at industrial projects given feedstock constraints and a still-poor export environment, Samba said.
Banks are also more cautious about projects and firms that depend on domestic retail demand, which remain brittle, it said.
A third factor is that the fallout from the debt default problems afflicting the Saudi Saad and Algosaibi businesses "continues to reverberate".
"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, before beginning to firm in the second half of 2010. Lending will be considerably stronger if the mortgage law is finally passed, though this is not built into our assumptions," it said.
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