Kingdom cuts deposits with international banks

A sharp decline in global interest rates has prompted Saudi Arabia to reduce its deposits with international banks since the start of 2008 and switch to the more profitable foreign securities, according to official figures.

After an increase of more than 100 per cent through 2007, the world's oil powerhouse trimmed its deposits with international banks by SAR50 billion (Dh50bn), while its investment in securities leaped by around SR17bn at the end of April, showed the figures by the Saudi Arabian Monetary Agency (Sama).

From SAR298.6bn at the end of 2007, Sama's deposits with foreign banks dived to nearly SAR246bn at the end of April.

In contrast, its investments in foreign securities rocketed to a record SAR982.8bn from SAR806.7bn in the same period.

The surge in securities investments boosted Sama's total assets to their highest ever level of SAR1.37 trillion at the end of April compared with around SAR1.26trn at the end of 2007.

Bankers said Sama, Saudi Arabia's Central Bank, was shifting away from investing in bank deposits following a series of rate cuts by the US Fed in a drive to stimulate the dormant economy.

Other countries, mainly in the Gulf, have followed suit although regional economies are passing through a boom period because of the surge in crude prices.

The cut in deposits followed a steady growth in such investments as they more than doubled to SAR246.7bn at the end of 2007 from around SAR116.6bn at the beginning of 2007.

The deposits stood at SAR123bn at the end of 2006, nearly SAR113bn at the end of 2005 and only SAR48.39bn at the end of 2004. Investments in securities have jumped by nearly five times since the end of 2004, when they stood at SAR197bn.

Sama's total assets have also more than quadrupled from SAR374bn at the end of 2004 and experts attributed the growth to a sharp rise in the Gulf Kingdom's petrodollar income due to high crude prices.

Saudi Arabia, which controls a quarter of the global extractable oil resources, depends heavily on volatile oil sales and the recent price surge sharply boosted its revenues and turned painful budget deficits into massive surpluses.

The surplus hit a record SAR280bn in 2006 and receded to nearly SAR179bn in 2007. Despite an expected rise in actual spending, the budget will likely record another mammoth surplus of around SAR260bn this year as oil prices are heading for their highest average of more than $100 a barrel, according to the Saudi Jadwa Investment.

Pumping an average nine million barrels per day, Saudi Arabia earned a record SAR622bn from crude and non-oil exports last year and the income is projected to jump to nearly SAR792bn this year.

Besides the sharp increase in Sama's assets, soaring oil revenues enabled Saudi Arabia to slash its public debt to below 20 per cent of the gross domestic product at the end of 2007 after exceeding the GDP in 1999.

Jadwa forecasts showed the debt could plunge to as low as 14.6 per cent at the end of 2008.

Saudi Arabia is reeping the profits of high oil prices.

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