Saudi Letters Of Credit Up 24% As Economic Growth Spurs Demand

The value of letters of credit signed by lenders in Saudi Arabia surged 24 percent in the first six months of 2012 to SR107 billion ($29 billion) against a growth of 10 per cent in the same period last year, the latest data from the Saudi Arabian Monetary Agency showed. That compares with growth of 10 percent in the same period last year.

Saudi import financing posted a record growth as demand for goods including building materials and cars swelled.

Saudi businesses are taking out bank loans at the fastest pace in three years and pursuing record bond sales as they take part in the government’s $514 billion plan to build housing, infrastructure and industry. This is stimulating the non-oil economy, which is poised to grow 6.5 percent this year, the second-fastest pace in the six-nation Gulf Cooperation Council (GCC) after Qatar, according to theInternational Monetary Fund.

Supported by oil prices that have averaged $96 a barrel so far this year in New York, state and private investors in Saudi Arabia are importing more. Saudi Arabia’s $597 billion economy, may grow five percent this year, including the oil industry, the second-fastest pace since 2005, according to the median forecast of 12 economists surveyed by Bloomberg in July.

The pickup has prompted banks to accelerate the pace of lending and spurred higher borrowing costs. Loans to private businesses expanded 13.9 per cent in June, the fastest pace since March 2009, central bank data showed.

The three-month Saudi interbank offered rate, known as Saibor and the benchmark used by banks to price loans, has added 17 basis points this year to 0.95 percent on August 17, the highest since April 2009, data compiled by Bloomberg show. That’s widened the spread with the equivalent US rate to 53 basis points on August 24 compared with 20 at the end of 2011.

The yield on Saudi Arabia’s one-year treasury bills is up eight basis points in 2012 to 0.59334 percent at the last auction. The Kingdom holds weekly T-bills sales on Mondays. The Saudi riyal weakened to 3.7499 a dollar in the 12-month forwards market Monday, hovering near the lowest level since April, the data show.

Letters of credit to finance building material imports gained 46 per cent in the first six months to SR13.4 billion, central bank data revealed.

The Jeddah Islamic Port (JIP) recorded 5.15 percent growth in imports and exports in 2012, the Saudi Port Authority said recently.

The number of passengers handled by the Red Sea port was up 4.57 percent in the same period.

JIP director general Sahir Mousa Tahlawi said the port received 419,200 containers with 980,000 tons of food items in July, adding that building materials handled by the port increased by 27 percent to 1.1 million tons. It also received 57,800 cars and 411,000 head of livestock.

Tahlawi said exports and imports rose to 3.6 million tons during the first six months of this year, adding that the number of containers rose by 21.21 percent to 2.7 million.

Saudi Arabia remains the largest export and re-export market for Dubai in the first half of the current year, capturing 27 percent of the market totaling AED36.3 billion, according to a report released by Dubai Chamber of Commerce and Industry (DCCI).

According to the DCCI, Iraq ranked second of DCCI member export and re-export goods at AED 19.4 billion, followed by Qatar at AED10.4 billion, Kuwait at AED 8.8 billion, Oman at AED5.1 billion, and India at AED 2.8 billion. During the six-month period, 109,315 certificates of origin (COs) were issued to export shipments destined for Saudi Arabia, equivalent to 30 percent of all COs issued during the period, the report stated.

COs covering export shipments of DCCI members to Qatar totaled 60,810 or 16 percent of the total, Kuwait received, 35,146 COs or 9 percent, Oman, 22,910 COs or 6 percent, Bahrain 17,629 COs or 5 percent, and the UAE17,000 COs or 5 percent of the total certificates issued during the six-month period.

During the same period, 3,540 DCCI members exported to Qatar, or 38 percent of the 9,194 exporters during the period. The number of exporters to Saudi Arabia equaled 3,410 or 37 percent of the total exporters.

Saudigazette