Oil prices averaging $89 a barrel in December - the highest for any month in 2010 - enabled the Saudi Arabian Monetary Agency (SAMA) to add SR25 billion to its store of foreign assets during the month, taking them to SR1.65 trillion, up 8.7 percent from year-end 2009. Monetary indicators also looked positive: Money supply growth accelerated, deposits grew 4.7 percent and private bank credit growth hit 4.8 percent, the highest in 18 months.
The consistent rise in oil prices in recent months as well as evidence that energy demand growth is picking up in Asia have supported Saudi Arabia's economic outlook. The country has raised oil output to meet demand and progress continues on numerous strategic projects in infrastructure, energy and utilities. Political turmoil and uncertainty in Egypt, which threatens to spread into a number of Middle East countries, may lead to economic ripple effects across the region, although at this stage it appears unlikely developments will constrain the Kingdom's economic performance or adversely impact its banks.
Still, Saudi Arabia's economic recovery is moving at a slow but respectable pace. Total bank claims on the private sector fell slightly in December from November levels to SR775.76 billion, although this still indicates a 5.7 percent rise on the year, the best performance of 2010. The full-year result came in below our initial forecast for credit growth of 8 percent for 2010, although credit growth trends look healthy. Banks should begin to shrug off risk aversion and revive credit growth to 9.1 percent this year, with a return to double-digit growth in 2011, our forecasts show.
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