Egypt turmoil spurs Saudi outflows

08/02/2011 00:00 AST

Foreigners withdrew more than 1 billion riyals ($267 million) from Saudi Arabia's markets as unrest in Egypt fuelled concern about the region, a top executive at Jadwa Investment Bank said.

Turmoil in Egypt, which sparked a region-wide slump in stock markets, has raised risk premiums and will likely delay planned bond and equities issuances from Middle East borrowers.

"We think over 1 billion riyals was withdrawn through the swap agreement in the last three days of January, which reflects an increase in the risk premium foreign investors attach to this region," Paul Gamble, head of research at Riyadh-based Jadwa Investment, said in an interview.

Saudi Arabia, the largest market in the region and the world's top oil exporter, does not allow direct foreign ownership, and investors generally participate through swap instruments such as participatory notes.

As the unrest in Egypt threatens to engulf neighbouring states, there are big question marks on how investor friendly future government policy will be.

The executive, however, does not see similar events unfolding in the top oil producing Gulf state.

"There are big differences in the economy of Egypt and Saudi Arabia. GDP per capita is a lot higher, unemployment is a lot lower, and subsidies are generous on many food products," Gamble said.

"We don't see the economic similarities between the two."

IMPROVED LENDING

Bank lending in Saudi Arabia is expected to improve in 2011 as provisions for potential loan losses peak, Gamble said.

The Saudi banking sector had been hit by debt restructuring in family-owned businesses, but the kingdom's central bank governor said in January that Saudi banks had taken adequate measures against bad loans and lending would accelerate this year.

"The banks have done the bulk of their provisioning, they are sitting on a lot of money, with large excess reserves at central bank, and demand for funds is rising from the private sector," Gamble said.

Most Saudi banks exceeded analysts average forecast for net profit in the fourth quarter, among them HSBC affiliate SABB and Banque Saudi Fransi, part-owned by France's Calyon.

Gamble said there were promising drivers for higher lending.

"You have the longer-term dynamics of an increasingly wealthy, young population and the short-term dynamic that consumer spending is going up pretty quickly," he said.

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