Saudi Arabia adopted a wise policy by saving a large portion of its petrodollars windfall during seven years of oil boom but it should now use these assets efficiently, a major Saudi bank said yesterday.

The National Commercial Bank (NCB), the largest bank in the Kingdom by assets, said a surge in credits by Saudi official lending establishments would help offset a downturn in the economy because of the global financial turbulence and the ensuing decline in oil prices and output.

"Bottom-line, although the accumulation of savings from the oil windfall was important, the utilisation of savings in the most efficient manner will be more important, and apparently the Kingdom is heading towards that direction," NCB said in its weekly bulletin, sent to Emirates Business.

It cited government data showing a sharp increase in lending activity by the Kingdom's Specialised Credit Institutions (SCIs) in the first half of 2008. It also expected those funds to maintain that trend to offset credit tightness by local and international banks and "protect the domestic economy from the depressed global economic activity".

Its figures showed the consolidated balance sheet for SCIs recorded a significant increase in the disbursements of new loans by SAR735 billion (Dh733bn) in the second quarter of 2008, the largest quarterly disbursement ever. It said the surge reflects a government drive to support domestic activity by using its massive assets accumulated during the oil boom.

The figures also showed an increase of 10 per cent in the total value of investments to a historical record of SAR78.3bn by the end of the second quarter. The largest increase was in the domestic portfolio which swelled from SAR65.7bn to SAR72.3bn.

"There was also a reduction in deposits with local banks by SAR2bn, indicating future plans to utilise excess funds to extend loans and invest in local companies," NCB said.

By the end of February, the Saudi Arabia Monetary Agency, the Kingdom's central bank, controlled nearly SAR1.7 trillion in foreign assets, more than eight times the assets at the end of 2001.

The surge was a result of massive fiscal surpluses created by a sharp growth in the country's crude export earnings and its production. In 2008, the earnings hit an all time high of nearly $290bn, while Riyadh pumped as high as 9.2 million bpd of crude, one of its highest levels in 20 years.

Higher earnings allowed Saudi Arabia to record its largest ever budget surplus of SAR590bn in 2009, bringing the total fiscal surplus to more than SAR1trn during 2005-2008.

Like other Gulf oil producers, Saudi Arabia is facing the spectre of a sharp slowdown in its economy this year as a result of the drop in oil prices and its production.

According to independent estimates, crude prices could average nearly half their 2008 peak of $95 while the Kingdom's oil output is expected to plummet by at least one million bpd.

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