Saudi Arabia’s foreign assets surged to a record high of SR2.56 trillion ($682 billion) in July as a result of robust oil revenues and possibly a higher return on Saudi Arabian Monetary Agency's investments, according to a report.

The oil prices (Brent) averaged $108.6 per barrel in July compared to $103.2 per barrel in June while the Kingdom oil output rose from 9.6 million barrel per day (mbpd) in June to 9.7 mbpd in July, said Jadwa Investments, a Saudi-based investment bank, in its report.

Within foreign assets, Sama’s deposits with foreign banks contracted 9 per cent year-on-year in July, investments in foreign securities accelerated by 21.4 per cent and foreign currency assets (excluding gold reserves) rose by 13.4 per cent, it stated.

The notable decline in deposits with bank aboard reflects in part the recent announcement by the government to support Egypt by $5 billion including $1 billion in cash, the report added.

According to Jadwa, the pace of foreign assets accumulation is likely to pick-up over the next few months as oil prices and production trend upward, but it will remain shy of its levels last year.

"The year-to-July, foreign assets have increased by SR120 billion compared with SR239 billion for the same period last year. These levels of reserve accumulation will support the government budget and are consistent with our view for a budget surplus of 6.3 per cent of GDP despite the current expansionary fiscal policy," it said.
 
Jadwa said the net foreign assets of the commercial banks slightly declined for the second consecutive month in July to SR138.3 billion or 0.1 per cent lower than its level in June.

This was mainly due to a 0.8 per cent month-on-month decrease in gross foreign assets to SR212 billion while foreign liabilities fell by two percent, it stated.

Despite the decline in net foreign assets, the foreign assets-foreign liability ratio rose to 2.9 in July compared with 2.8 in June and 2.7 at the end of last year, said Jadwa in its study.

On the domestic front, bank liquidity position has started to shrink, though it remains adequate. "At SR45 billion, bank excess deposits with Sama fell to their lowest level since December 2008. This mainly due to additional funds being deployed into the economy in the form of claims on the private sector as well as treasury bills and credit to quasi-government entities while growth of deposits slow," it stated..
 
The growth of credit to the private sector (excluding investments in securities) slowed to 15.3 per cent year-on-year in July from 15.9 per cent year-on-year  in June.

The pace of month-on-month expansion in private credit also slowed in July to 1 per cent, the lowest rate since November last year. This appears related to seasonal factors during Ramadan rather than a change in risk appetite.

In absolute terms, banks increased their credit portfolio by SR10.9 billion in July pushing the year-to-date credit expansion to SR86.6 billion, 4.4 per cent higher than in the same period last year. Overall claims on private sector, which include investment in private securities, advanced 15.6 per cent year-on-year in July to SR1.09 trillion.
 
According to Jadwa, the banks across Saudi Arabia have maintained a strong retail banking portfolios to meet a growing demand for consumer lending.

The pace of this type of lending growth picked up in the fourth quarter of 2010, recording quarterly double digit growth rates since then. The pace of growth has accelerated recently, recording 24.5 per cent in the first quarter this year, the highest growth rate for which data is available.

Consumer lending accounts for 31 per cent of total bank lending at the end of March compared with 27 per cent at the end of 2010.

This rapid growth reflects the strong domestic demand in the Kingdom which is boosted by two-year of labor market reforms, increasing employment in the public sector and five years of strong growth in the private non-oil GDP.

In the three months to March 31, real estate finance surged 23 per cent from the year earlier while auto finance was up 15 per cent, said the Saudi lender.

Looking forward, consumer lending is likely to remain a key part of maintaining a double digit bank credit to the private sector over the next two years supported by both strong domestic demand particularly for housing as well as rising national disposable income, it stated.
 
Jadwa pointed out that credit to private sector will most likely remain strong for the rest of the year. "Thus we retain our forecast of year-on-year growth of 16 percent. On this basis, we expect banks to grow their credit portfolio by SR67 billion for the period between August and December this year," the bank said in its report

"While both supply and demand of credit is likely to remain strong for this period owing to strong domestic economic fundamentals, the regional political turmoil presents a downside risk on general market sentiment, hence on credit growth," it added.-TradeArabia News Service