Saudi Arabia’s banks are showing continued reluctance to lend to the private sector despite money supply increasing and deposits making their biggest monthly gains since early 2009.

Claims on the private sector in September grew only 3.6 per cent year-on-year to SR773.17m ($206m) and just 0.8 per cent compared to the month of August. Growth in claims on the private sector had fallen from 4.9 per cent in July to 3.3 per cent in August, according to a report published by Banque Saudi Fransi on 11 November.

Meanwhile, growth in broad money supply (M3) made a good comeback in September, rising 2.7 per cent from the month earlier and 5.1 per cent year-on-year, the fastest growth since February. Overall deposit growth of 3.2 per cent from August was the fastest month-on-month increase since February 2009.

“Without a big turnaround in the fourth quarter, growth in private sector claims may fall slightly short of our 8 per cent forecast for the year,” the report says.

Stripping out investments in private securities, outstanding bank credit to the private sector grew 2.6 per cent in September, from 1.7 per cent in August – reflecting the hesitation among the kingdom’s banks.

By contrast, credit to public sector enterprises jumped nearly 18 per cent in September, including a 9.6 per cent gain from August, to SR33.94bn.

“Government agencies are bearing the brunt of the financing burden for strategic projects in infrastructure, energy and utilities, so the rise in lending by more than 20 per cent in the first nine months of the year is not surprising,” says the report.

The government awarded 3,184 contracts worth SR101.2bn for construction and education projects alone in the first three quarters, according to Ministry of Finance data.

While the monetary situation struggles to improve, net foreign assets held by the kingdom’s central bank, the Saudi Arabian Monetary Agency (Sama), gained 10.9 per cent in September to SR1.58 trillion – the highest level since February 2009.

“Sama continues to build a cushion of foreign assets that will enable the state to shoulder the economic recovery effort until a good revival takes place in the private sector,” concludes the report.