A drop in Saudi banks’ claims on the government expanded their credit to the private sector and boosted their net foreign assets to an all-time high at the end of the second quarter of 2010, the Gulf kingdom’s largest bank has said.

National Commercial Bank (NCB) said the combined claims by the country’s 12 banks on the public sector plunged by nearly SR14.6 billion (Dh14.4bn) in the second quarter compared with the first quarter of 2010.

In a study sent to Emirates 24|7, NCB attributed the decline to a fall in the volume of government treasury bills by around SR11.4bn and the maturity of government bonds worth SR4.6bn.

“That left banks with extra liquidity, which was utilised through three different channels, mainly an increase in excess reserves with Sama by around SR4.7bn, a rise in private sector credit by SR11.3bn, and a surge in banks' net foreign assets by SR14.9 to reach an all-time high of SR116.5bn."

Figures by the Saudi Arabian Monetary Agency (Sama), the kingdom’s central bank, showed the surge in net foreign assets was a result of a decline in the banks’ foreign liabilities and an increase in their foreign funds.

From about SR102.9bn at the start of 2010, the banks’ consolidated foreign liabilities jumped to one of their highest levels of nearly SR115.2bn at the end of April before diving to around SR96.1bn at end-June.

The decline was mainly due to a fall by around SR6bn in the banks’ dues to foreign banks as they slumped to nearly SR46.4bn from SR52.2bn, according to Sama.

In contrast, the banks’ foreign assets leaped to SR212.6bn at end-June from SR187.9bn at the start of January.

A breakdown showed the banks’ investments abroad grew by nearly SR3bn to R111bn while due from branches abroad rocketed to SR41.7bn from SR26.5bn.

Slackening domestic credit in the aftermath of the 2008 global fiscal crisis and regional default problems had prompted Saudi banks to turn abroad for an alternative source of income, with their foreign assets gaining a record high of nearly SR48bn  through 2009.

The investment drive abroad has sharply waned over the past few months as banks appear to be gradually easing their curbs on lending.

“On the financing front, private sector credit had continued its upward trajectory, posting a three per cent year-on-year growth rate,” NCB said.

It said the strong escalation of 8.4 per cent quarter-on-quarter in credit to the construction sector had been a major factor in that increase.

“It was consistent with the stellar growth of newly opened letters of credit for imports of building materials. Additionally, credit to the government and quasi-government sector and the manufacturing sector rose by 4.6 per cent Q/Q and 3.7 per cent Q/Q, respectively. Notably, the growth in commerce sector has decelerated to reach around 1.1 per cent Q/Q, yet totaling about SR184 billion, the  highest level recorded,” the study said.

“On a quarterly basis, banks' net foreign assets rose by 14.7 per cent Q/Q in the second quarter of 2010. This growth was mainly driven by the increasing assets due from banks abroad, the escalation in assets due from branches abroad, the shrinking liabilities due to foreign banks, and the reduction in other liabilities.”