Global Research Event Update July 2011

SAUDI ARABIA ECONOMIC UPDATE

KSA Economic Update 2Q11

Money supply grows by 8.4% YTD till Jun11 Monthly inflation rises by 6bps, with full year inflation at 3.2% in Jun11 SAMAs net foreign assets exceeding SAR1.8trillion, rose by 11.7% in 1H11 Private sector credit increase by 5.6% & total banking assets by 6.5% in 1H11

Money supply growth slows down in the last two months

The money supply (M3) continued to rise during the first half of the year, and recorded at SAR1,171.0bn showed an increase of 8.4% YTD till Jun11. Amongst the money supply categories, M1 registered the highest growth of 14.6% YTD till Jun11. The M3 growth touched 23-months high of 17.2% YoY in Apr11. However, since then although still expanding, the growth rate registered slowdown to 16.0% & 13.1%, respectively, in May & Jun11. The jump in M3 growth rate from an average (Jan-Feb11) of 8.4% to 15.5% in (Mar-Apr11) could mainly be attributed to the announcement of massive social benefits of around USD100bn by the Kingdom of Saudi Arabia. The Kingdom having developed a stronger fiscal muscle from relatively higher oil prices over the recent years, banked on its reserves to fund various public initiatives and infrastructure development projects.
Money Supply growth & Inflation (YoY)
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

SAMA's Net Foreign Assets

6.5%
6.0%
(SAR bn) 1,900 1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 1,400
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

5.5%
5.0%

4.5%
4.0%

4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5%

Money supply -M3 (LHS)

Inflation (RHS)

SAMA's NFA

Growth (YoY)
[

Source: SAMA & Global Research

Inflation shows improvement till date

Saudi Arabias full year inflation at 3.2% till Jun11 indicated improved results as compared to 3.7% in Jun10. Although the inflation is expected to rise further in second half of the year (linked to Ramadan activity and higher consumer spending), Global Research projects the full year inflation to consolidate at no more than 5.0% in 2011 (as compared to 5.4% in 2010). In the absence of any major global shock, we do not expect any significant increase in commodity prices in coming months, which will support in curtailment of inflation levels. Saudi monthly inflation also registered better results as compared to the same period last year. The monthly inflation level at 4.7% YoY in Jun11 was relatively better than the past years inflation of 5.5% & 5.2%, respectively, in Jun10 and Jun09.

Mohammad Ali Shah Senior Financial Analyst mashah@globalinv.com.sa Tel: (966) 1 299 4106 Global Investment House Saudi Arabia www.globalinv.com.sa

Net foreign assets continue to rise

SAMAs net foreign assets continued to post increasing trend during the current year. The net foreign assets recorded an increase of 11.7% YTD (from SAR1,651.5bn in Dec10 to SAR1,844.3bn in Jun11), and CAGR (2005-10) of 24.0%. Global Research expectations of relatively higher OPEC oil prices in 2011 (in the range of USD95 to 105 per barrel) are projected to facilitate the buildup of Kingdoms reserves, thus, also improving the governments ability to better manage its enhanced public spending initiatives. As the total monetary survey assets grew by 10.5% YTD till Jun11 and recorded CAGR (2005-10) of 18.2%, SAMAs net foreign assets continue to dominant (60%) the total assets.

Global Research Saudi Arabia Enhancement of private sector credit & banking assets

KSA Economic Update

The government of Saudi Arabias public spending initiatives (through various projects) provided invaluable impetus in boosting economic activity and private sector confidence. The Saudi banks cautious approach in the recent past, due to global financial crisis and home grown & regional credit worries, seems to be easing during the current year. The private sector credit has recorded a consistent increase in every month during the current year, ranging between 0.7% to 1.2% during the 1H11. The loans to private sector grew by 5.6% YTD till Jun11.

Loans to Private Sector

(SAR bn) 830 820 810 800 790 780 770 760 750 740 730

Loans to Deposit
1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4%

84% 83% 82% 81%

80%
79%

78%
77%

76%
75%

Oct-10

Aug-10

Sep-10

Nov-10

Dec-10

Jun-10

Jan-11

Apr-11

May-11

Feb-11

Mar-11

Jun-11

Jul-10

74%
Nov-10 May-11 Oct-10 Aug-10 Sep-10 Dec-10 Jun-10 Jan-11 Apr-11 Feb-11 Mar-11 Jun-11 Jul-10

Loan pvt. sector

Source: SAMA & Global Research

Growth (YoY)

The rising loan growth pattern is an encouraging sign, indicating the increase in banks risk appetite in the wake of investors financing needs. With loan to deposit ratio well within the domestic regulatory limit of 85%, there is still ample growth opportunity for the banks. Overall we expect the lending activity to further pick up during the year and Saudi banks loan portfolios to grow by 11.9% YoY in 2011. KSAs aggressive public spending plans coupled with low credit penetration (loan to GDP of c.40%), provides attractive growth opportunities for the lending institutions in the Kingdom.
Banking Assets
(SAR bn) 1,550 1,500 1,450 1,400 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5%

1,350
1,300 1,250 1,200

Aug-10

Sep-10

Nov-10

Dec-10

Jun-10

Jan-11

Apr-11

Oct-10

Bank assets
Source: SAMA & Global Research

Growth (YoY)

Saudi banks assets at SAR1,506bn (USD401bn) as of Jun11, recorded an increase of 6.5% YTD. Having recorded an increase of 3.3% YoY in 2010, although uneven growth pattern appeared in 2011, the total banking assets rise of 4.6% YTD in 1Q11 improved further in 2Q11. The total asset to GDP2011e ratio is estimated to hover around 80%. We expect the total Saudi banking assets to increase by around 9.0% YoY in 2011 as the overall expanding economy is projected to be accompanied by improvement in business confidence.

July 2011

May-11

Feb-11

Mar-11

Jun-11

Jul-10

Global Investment House-Saudia Website: www.globalinv.com.sa

CEO Fahad Al-Hamidi (966) 1 299 4111 falhamidi@globalinv.com.sa Research-Kuwait Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw Wealth Management-International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw Research-Saudia Syed Taimure Akhtar (966) 1 299 4105 sakhtar@globalinv.com.sa Wealth Management - Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw

Mohammad Ali Shah (966) 1 299 4106 mashah@globalinv.com.sa

Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Heliopolis, Cairo

Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia

Global UAE Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan

Global Saudia Wealth Manager E-mail: ksa-wealthmgmt@globalinv.com.sa Tel: (966) 1 2994159

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