Bank lending to the private sector in Saudi Arabia rose by 8.7 per cent in July, the fastest growth rate in 27 months, according to the latest data from the Saudi Arabian Monetary Agency (Sama).

The pick up in credit growth to the private sector shows that banks are getting more comfortable with making new loans after a long period of weak loans. Throughout 2010, credit growth was under 5 per cent, while in 2009 it actually shrank. Bank lending to individuals has been growing at its fastest rate since mid-2006, while lending to companies is growing at a two-year high.

“Confidence is really picking up in the banks now, although they are still very selective about what deals they will do,” says one banker in Riyadh.

The latest figures also show that Saudi Arabia’s foreign reserves are more than $500bn, giving the country a considerable cash cushion. Sama’s foreign assets totalled SR1.88 trillion ($500.4bn) at the end of July.

The broadest measure of money supply in Saudi Arabia, M3, was flat in July, growing at 13.1 per cent year-on-year, the same as in June.