Banks' net foreign assets picked up slightly after a sharp deceleration during the previous quarter. Assets due from banks abroad surged by 31.5 percent Q/Q, reaching SR48.4 billion. While due from branches abroad plunged by 22.9 percent over the previous quarter, limiting total assets' growth to 1.6 percent. Total foreign liabilities grew by a mere 1.3 percent, which brought net foreign assets to SR115 billion, expanding 1.8 percent on a quarterly basis. Banks' foreign liabilities have declined back to normal levels after peaking at SR142.1 billion during the financial crisis, reflecting the cautious attitude of banks in limiting their foreign exposure amid global uncertainty and elevated credit risk, the NCB report said.

Bank claims on the public sector dropped, from its record high last quarter, to SR207 billion, yet growing by 23.9 percent on an annual basis. Maturing government bonds fell lower to SR48.2 billion while treasury bill levels dropped by SR12 billion to SR158.8 billion. Nevertheless, the government will continue their issuances to replace maturing government bonds and to absorb ample liquidity from the financial system, the NCB said.

On the financing front, private sector credit continued its upward trajectory, posting a 9 percent growth rate, which marks the highest growth since Q1, 2009. The upward trajectory was underpinned by the manufacturing sector that grew by 39.1 percent. Additionally, the building & construction sector rebounded back to expansion as it reached SR54.2 billion during 3Q, 2011.

Consumer loans grew by 0.8 percent Q/Q in 3Q, 2011, the slowest pace since Q4, 2010, yet in absolute value it registered around SR227 billion, a historical-high. On an annual basis, consumer loans remained around 10 percent growth rate, largely driven by a 26.6 percent growth in real estate finance. However, credit cards maintained the negative trajectory since Q4, 2008, contracting 6.9 percent.

Money creation marginally decelerated as broad money (M3) grew by 11.9 percent, driven by 10.8 percent increase in total deposits. The growth in total deposits was mainly attributed to demand deposits, which went up by 22.2 percent, thus, maintaining three years of double-digit growth rates. Accordingly, the share of demand deposits continued its rise, reaching 57.4 percent of total deposits, the highest level on record. On the other hand, time/saving deposits declined by 2.9 percent, the eighth consecutive quarterly drop. Quasi-monetary deposits decreased by 1.0 percent, driven by SR7.3 billion drop in marginal deposits for letters of credit, the NCB report said.

Concerning private sector activity, newly opened letters of credits surged at 27.8 percent compared to 4.7 percent and 15.7 percent in the previous two quarters, respectively. The major contributors to this growth were building materials and other goods that gained 43.4 percent and 52.6 percent, respectively. Notably, the newly opened LCs accumulated to SR129.9 billion in the first three quarters of 2011, representing a 15.5 percent increase over the corresponding period of 2009.

According to the NCB report, LCs for North American, Western European and Chinese goods have increased by 48 percent, 23.5 percent and 28.3 percent, respectively. On the retail side, points of sale transactions soared by 37.1. percent, thus, achieving the eighth consecutive quarter of double-digit growth, indicating an expansion in consumption in Q3, 2011.

The report said annual inflation continued to be range-bound, reaching 5.0 percent by the end of Q3, 2011. Rental pressure has reversed the downtrend in growth rates that had been witnessed since Q3, 2008, registering an annual increase of 7.8 percent, yet it remains subdued relative to the heydays of 2008. The item comprising other goods and services was the second contributor to recent inflationary pressures, rising by 5.8 percent Q/Q and 9.3 percent Y/Y, respectively. On the positive side, inflationary pressure emanating from food items resumed the downtrend, with growth rate falling to 5.4 percent, the lowest since Q2, 2010, as agriculture commodities fell deeper into the red, reflected in the S&P Goldman Sachs Agriculture Index that had posted a staggering 20.3 percent decline in 2011 so far this year, the NCB report pointed out..