RIYADH,(Reuters)- Saudi banks raised their investment in securities to support a cash-hungry private sector in April, according to a fresh set of official data that also showed a continued decline in money supply.
M3 growth, one factor that can influence inflation, slowed for a seventh straight month in April to 2.6 percent — the lowest in at least 7 years — against 4.6 percent in March as customers cut rewarded deposits faster than in the previous month, central bank data showed on Sunday.
Time and savings deposits — M3’s second biggest component — fell by almost 41 billion riyals or an annual 11.7 percent against a 10 percent drop in March. Demand deposits — M3’s biggest component — meanwhile added 71.5 billion riyals or 18.5 percent in the 12 months to April.
Bank claims on the private sector added just 23.2 billion riyals — or 3.2 percent — in the 12 months to April to a total of 750.6 billion riyals, which is the highest since the 748.8 billion riyals of November, 2009, the previous record.
A breakdown of these claims, however, shows that much of their growth came from investment in private securities which grew 41.4 percent — or by 8.8 billion riyals — to a record 29.9 billion riyals in the 12 months to end-April.
The data does not provide a more detailed breakdown on investment in securities Saudi banks make. The local stock market gained less than one percent in April against a 5.6 percent rise in March.
John Sfakianakis, chief economist at Banque Saudi Fransi, said private securities investment included Musharakah, an Islamic financing under which a bank provides capital to a joint-venture and gets a share of profit.
Outright bank credit to the private sector meanwhile totalled 720.7 billion riyals — an increase of 2 percent in the year to end April — and still below the 723.4 billion riyals record of November, 2009.
Bank claims on the private sector — which gauges lenders confidence in private sector growth — have been slow since early 2009 due to concerns over global economic conditions and concerns by local banks over the soundness of private local firms.
Saudi bank credit growth was flat throughout much of 2009 due to the global slump and after defaults by local family firms.
Muhammad al-Jasser of the Saudi Arabian Monetary Agency said banks in the kingdom would return to “normal business” this year and that economic conditions did not yet warrant a change in monetary policy.
The Saudi central bank increased to 3.5 percent the annual growth in its net foreign assets from a 1.1 percent annual rise in March and a drop of 2 percent in February. They rose by 52.4 billion riyals in the 12 months to end-April and shed some 7 billion riyals compared to March.
SAMA has said it started drawing on reserves accumulated during years of high oil prices as it spends $400 billion in the five years to 2013 mainly to boost infrastructure.