Saudi banks cut lending to private sector

02 February 2010

Institutions place large amounts of cash on deposit with Sama after recession

The amount of credit offered by Saudi banks to the private sector decreased in 2009, the first annual fall since at least 2005, according to figures released on 2 February by the Saudi Arabian Monetary Agency (Sama), the country’s central bank.

The figures show that at the end of 2009, bank credit fell to SR736.9bn ($196.5bn), from SR744.8bn at the end of 2008. The figure fell by SR15.9bn in the last month of the year alone, from SR752.8bn at the end of November 2009.

Banks in Saudi Arabia have become increasingly risk averse as a result of the financial crisis and have placed large amounts on their cash on deposit with Sama, rather than lending it into the economy.

Sama figures show banks had placed SR149.3bn on deposit with the central bank at the end of 2009, up from SR86.2bn at the end of 2008.

This is despite Sama’s efforts to compel banks to put more money into the private sector by cutting the amount of profit banks can make on placing money with it.

In June 2009, Sama cut the reverse repurchase rate - known as the repo rate - from 0.5 per cent to 0.25 per cent. It hoped that by lowering the return banks made from depositing money with the central bank it would encourage more lending to the private sector.

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