RIYADH: The Saudi central bank reiterated on Monday its commitment to peg the riyal to the US dollar, saying it brings stability, as business leaders hit out at the bank for not doing more to spur anemic lending growth.
The Saudi Arabian Monetary Agency’s (SAMA) Governor Muhammad Al-Jasser sought to inject a dose of realism at a rare meeting with leaders of the private sector, which has endured a particularly tough 2009 as growth shrank to 2.5 percent from some 4.5 percent in 2008.
The Saudi government pins high hopes on the growth of the private sector, which accounts for nearly represents some 48 percent of the country’s GDP.
As the Kingdom seeks to reduce its heavy reliance on oil receipts, the government wants the private sector to create much-needed jobs for a rapidly-growing population instead of relying on cheaper imported labor and alleviate the growing burden of the public wage bill.
Fahad Al-Sultan, secretary-general of the Council of Saudi Chambers — which hosted the event — did not beat around the bush and kicked off the meeting with a series of grievances, chief of which was what he called unjustified conservatism by banks in lending.
He also asked Jasser to grant licenses to foreign banks to spur competition among lenders and to issue inflation forecasts to help businesses plan better amid fears that the indicator would again spiral out of control after a relative lull this year.
He also asked how SAMA planned to deal with the weakening dollar which raises local input costs.
“There is also the issue of the availability of information and transparency on the repercussions of crises that happen around us ... The picture has not been clear for the private sector during the credit crunch and the Dubai troubles”.
Jasser said the peg to the US dollar was purely for economic reasons and added that it would be difficult to set an inflation target.
The greenback, to which the Kingdom has been linking its riyal since 1986, had been under pressure in recent months, reviving expectations it could help boost inflation in the biggest Arab economy, a major importer of food products.
The world’s biggest oil exporter saw annual inflation climbing to 4.0 percent in November, from October’s 28-month low on rising home rents and import costs. The government sees the full year inflation rate at 4.4 percent.
“Businessmen understand better than anyone else the benefits of pegging the riyal to the dollar,” said Jasser who mentioned that most of Saudi foreign trade, oil revenues and commodities trade are in dollars as well as 60 percent of global reserves.
“(The peg to the dollar) has brought stability and investment,” he added.
Jasser did not say if SAMA would resume the policy of granting licenses to foreign banks which it halted in 2007 but he defended local banks’ lending record saying they were extending more than 100 percent of their deposits in loans.
“It is impossible to imagine how banks refrain from lending, one of the main sources of their profits ... Saudi banks get mostly short-term deposits and grant long-term loans which forces cautious risk management.”
Growth in lending to the Saudi private sector was reduced to almost nil in 2009 after double-digit growth rates seen over the previous six years.
This slowdown has affected mainly the construction and the industrial sector.
Hamad Al-Shuweyar, who heads the chambers council real estate committee, told Jasser that banks have reduced lending to real estate developers while they have engaged themselves in investment in property in a market that suffers a chronic housing shortage.
Abdullah Bakr Redwan, who owns a contracting company, said contractors still face the same difficulties in getting loans as in 2009. “Banks in Saudi Arabia did not evolve and did not develop a know-how in project finance,” he said.
Another businessman, who requested not to be named asked: “How can we employ Saudis who ask for 10 times the salary of some expatriates and refuse to turn up on time for work when I can’t get a loan?”
Abdul-Rahman Al-Zamil, who chairs a large family-run industrial group, defended the central bank’s policies.
“The fact that this meeting was held and allowed the private sector to float its concerns is a good thing in itself ... Everybody suffers now from the slowdown in lending because the financial system has its limitations,” he said.
