Saudi banks' lending to private sector slows

Lending by locals banks to the Saudi Arabian private sector recorded its lowest monthly rise in at least a year as the Gulf countries' vast oil wealth has not fully insulated them from the global financial crisis.

The Saudi Arabian Monetary Agency (Sama) underscored in its latest monthly report the Arab World's largest economy is starting to feel the pinch from the global liquidity crisis that has ravaged Wall Street, prompted the US Government to approve a massive $700 billion (Dh2.26trn) bailout of troubled institutions and pressured European nations to eye similar measures.

"Rapid money supply growth in Saudi Arabia has translated into rising inflation," Mary Nicola, a Mideast economist with Standard Chartered Bank's global research division in Dubai.

"We don't see inflation easing in Saudi Arabia. Last year it was 4.2 per cent. We're forecasting an average of 11 per cent for this year."

Similarly, bank claims on the private sector – essentially lending to private businesses – hit its lowest month increase in roughly a year, climbing by just 1 per cent.

The lending growth slowdown has come about as Sama raised bank-to-bank interest rates on lending several times over the past 10 months.

Nicola said credit growth in the region has strained liquidity, and banks "are now trying to attract deposits to relieve the market from the tight liquidity conditions".

The situation in Saudi Arabia has been playing out in a more pronounced manner elsewhere in the Gulf region.

Nicola said: "Given that Saudi's banking sector is not as leveraged as the UAE's and also the latest money supply data, Sama's response is fully justified."

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