Saudi net foreign assets fall to 1.65 trillion riyals

Saudi Arabia's net foreign assets plunged by around SR59 billion riyals in the first two months of this year to reverse a rapid growth during the oil boom of the last seven years, official figures showed on Saturday.

Although, the world's oil powerhouse recorded its highest budget surplus in 2008, the foreign assets of its central bank plunged to nearly 1,650.58 billion riyals at the end of February from 1,709.99 billion riyals at the end of December, showed the figures by the Saudi Arabian Monetary Agency (SAMA).

SAMA's foreign assets rose by about 28 per cent in February from their level a year earlier; however, they were at their lowest level since August, 2008.

The global financial crisis has battered global markets and oil prices have fallen around $100 from a record high near $150 in July 2008, hitting both the revenues and the foreign holdings of many countries in the world's largest oil-exporting region.

But in a sign that appetite for credit could be recovering, annual growth in M3 money supply, the broadest measure of money in the Saudi economy, accelerated to 15.6 per cent in February from 13.8 per cent in January.

The acceleration in money supply growth reflected on bank claims on the private sector, a key indicator of lenders' confidence in the economy's prospects. In February, these posted their first month-on-month rise since November.

SAMA has more than halved the benchmark lending rate through successive cuts since October in a bid to both encourage banks to keep lending and make up for a possible decline in government financing due to lower revenues from oil exports. But the cuts have failed to spur the sort of credit growth seen over the past few years.

Meanwhile, inflation in Saudi Arabia fell to its lowest in more than 14 months, down to 6.9 per cent in February.

This is the first time inflation has fallen below seven per cent since January 2008 in the kingdom.

Despite the fall, there was a slight increase in the cost of living index which rose to 120.6 points in February - the highest in years - compared to January's 120.5 points, according to the latest figures released by the Saudi General Statistics Bureau.

Banks' net up
Saudi banking performance was improving gradually after a weak last quarter of 2008.

According to SAMA, the aggregate profits of the 12 commercial banks and the branches of foreign banks increased 12 per cent to 2.91 billion riyals in February compared with the same month in 2008.

Saudi banks managed to achieve a strong recovery in January to achieve their highest net income in 13 months despite poor performances throughout 2008.

After a loss of around 95 million riyals in December, the net profits of the banks shot up to 3.15 billion riyals in January.

However, February profits dipped by eight per cent from the previous month. The combined profits earned in January and February amounted to over 6 billion riyals.

They also posted a growth of over 15 per cent in January and February compared to the same months of the previous year. The surge followed one of the most difficult periods for Saudi banks during the past few months of last year because of the global financial turmoil.

Most of the banks suffered a steep decline in profits in the fourth quarter while some reported losses on their foreign assets. Banking experts expected that there would be an increase in the net profits in the first quarter compared with the same quarter of the previous year.

SAMA said, strong crude prices through most of 2008 allowed the Kingdom, the world's top oil exporter, to record its highest ever budget surplus last year of nearly 590 billion riyals. This has enabled it to sharply boost its foreign assets and slash its public debt to less than 15 per cent of the gross domestic product (GDP) after surpassing the GDP in late 1999.

SAMA's figures showed deposits with banks abroad slumped from 379.4 billion riyals at the end of December to 352.5 billion riyals at the end of February. Investment in foreign securities remained unchanged at around 1,154 billion riyals at the end of January but dived to 1,122.2 billion riyals at the end of February.

Bankers said the Kingdom's strong financial position and the sharp drop in its debt would enable it to face the fallout from the current global financial crisis.

In a study last week, the Saudi American Bank (Samba) said the global crisis has inflicted a loss of nearly $350 billion on the foreign assets of Saudi Arabia and its partners in the six-nation Gulf Cooperation Council (GCC).

''Drawing from various sources, the overall level of GCC foreign assets (including official reserves), is thought to have been around $1.28 trillion at end-2007, with the majority accounted for by SAMA and the large sovereign wealth funds of Abu Dhabi, Kuwait and Qatar,'' it said.