JEDDAH: Saudi Arabia's liquidity conditions improved as advance in deposits gave a boost to broad money supply (M3), which grew almost 2 percent in November to SR1.06 trillion, Banque Saudi Fransi (BSF) said Tuesday in its Monetary Watch for January. Dr. John Sfakianakis, chief economist, BSF said in the report that M2 money supply better reflected growth in demand and time and savings deposits, growing 6 percent year-on-year. M2 growth rates fell in October and November after reaching a 10-month high in September of 8 percent. The monetary base also rose 8.5 percent from October, although the money multiplier fell for the fourth straight month to 4.24. The money multiplier is an important measure of the extent to which the banking system causes the growth in money supply. High oil prices have enabled the kingdom to continue accumulating foreign assets despite the hefty spending bill it is taking on to finance strategic projects. In November, oil prices averaged more than $84 a barrel, making it possible for the central bank to take net foreign assets back to pre-2009 levels. At SR1.63 trillion ($434.7 billion), net foreign assets were up 11.5 percent to the highest level since December 2008. The government has a comfortable cushion of funds with which it can finance a record budget of SR580 billion this year. Commercial bank foreign assets were also14.5 percent higher on the year in November, while their holdings in the central bank's reverse repo window jumped almost 28 percent from October. This once again highlights the abundance of liquidity in the banking system. Bank lending growth is likely to continue progressing this year, although a return to doubled-digit rates of private sector loan growth is unlikely before 2012. “Our forecast for growth in claims on the private sector in 2011 is 9.3 percent, with long-term lending toward expansion projects likely steering the growth,” Sfakianakis said. In November, as outstanding loans of short- and medium-term maturities fell, those carrying long-term maturities climbed, taking their 2010 advance to 8.8 percent, higher than overall loan growth. Outstanding short- and medium-term loans expanded 3.7 percent and 5.3 percent, respectively, over the same period. Improving lending is the key to building the banking sector's profitability in the coming years. Up to November, cumulative bank profits reached SR24.22 billion, down 10.8 percent from SR27.15 billion in November of 2009. Since 2006, commercial bank cumulative profits have declined year on year. Moreover, Saudi Arabia's current account surplus more than tripled in 2010, according to government estimates, both due to stronger oil export revenues and a slower-than-expected pickup in imports. Saudi Arabia's oil exports increased by 24.6 percent to SR762.1 billion ($203.2 billion) in 2010, from SR611.5 billion in the year earlier, data from the Central Department of Statistics & Information (CDSI) showed. The kingdom's nonoil exports saw a 13.7 percent increase last year to SR124.7 billion from 2009. Imports rose just 0.7 percent last year, exemplifying the cautious pace of the economic recovery as well as companies' reticence about building inventories too quickly.
