Demand for letters of credit (L/Cs) in Saudi Arabia has started to slow down as the domestic economy responds to uncertainty in global financial markets.

Saudi appetite for both corporate credit and consumer loans has been dulled by the worldwide downturn, despite the availability of funds at the kingdom's dozen banks and a government decision to ease curbs on lending.

Loans decline

According to a report by the Riyadh-based Jadwa Investment Company (JIC), private sector uncertainty about the health of the economy is dampening demand for credit.

Commercial loans from Saudi banks declined by 1.1 per cent in December 2008, the first monthly decline for nearly two years according to JIC.

L/C performance

It said the total value of L/Cs opened in Saudi Arabia hit a near two-year low in December 2009 and credits for building materials and machinery slumped to a near three-year low in the same month.

The value of L/Cs for motor vehicles - which JIC says is the largest single category - plummeted to its lowest for more than a year and some vehicle retailers are reporting declining sales, according to the investment company.

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