 "Saudi bank stress builds as kingdom's cash injection falls short")
Saudi Arabia has work to do to ease pressure in the kingdom's banking system. The interest rate banks charge one another for loans rose by the most since August on Sunday, extending a trend that's slowing earnings and corporate borrowing in the world's biggest oil exporter. The increase is defying the central bank, which has sought to ease the cash crunch by relaxing lending limits, offering new borrowing facilities and injecting funds into the financial system, including 20 billion riyals ($5.3 billion) pledged September 25.
"Rates won't easily come down with one $5 billion injection," said John Sfakianakis, director of economic research at the Gulf Research Centre Foundation in Riyadh. "Bringing them down would require a significant liquidity injection effort. The $5 billion is a good step forward, but given the asset size of Saudi banks it would require several additional injections."
Financial institutions in the Arab world's largest economy are bearing the brunt of a halving of oil prices since 2014. Economic growth in the kingdom is slowing, curtailing bank deposits just as the government increases borrowing to help plug a budget deficit that last year was the widest since 1991. The three-month Saudi Interbank Offered Rate, or Saibor, used as a benchmark to price loans, has climbed 15 successive months to the highest in seven years, according to data compiled by Bloomberg. It gained 84 basis points this year to 2.385 per cent on Sunday, compared with a 27 basis-point advance in the London Interbank Offered Rate for dollars. Meanwhile, the loans-to-deposit ratio among Saudi banks, a key measure of liquidity, rose to 90.8 per cent in August, the worst since 2008.
The Saudi Arabian Monetary Agency, as the central bank is known, is said to have offered lenders about 15 billion riyals in short-term loans in late June after the drop in oil curbed bank cash holdings. In February, it allowed institutions to lend as much as 90 per cent of their deposits, up from 85 per cent. The regulator said last month that the latest cash injection will be in the form of time deposits by government entities. It also introduced seven-day and 28-day repurchase agreements, or repos, to give lenders greater access to cash. The $5.3 billion "is less than one per cent of system assets, so it isn't that significant," said Jaap Meijer, the Dubai-based head of research at investment bank Arqaam Capital. "More is needed by possibly allowing banks to lend a higher amount against their deposits and potentially reducing the amount of cash they are required to hold to mitigate the rise in interest rates."
"Rates won't easily come down with one $5 billion injection," said John Sfakianakis, director of economic research at the Gulf Research Centre Foundation in Riyadh. "Bringing them down would require a significant liquidity injection effort. The $5 billion is a good step forward, but given the asset size of Saudi banks it would require several additional injections."
Financial institutions in the Arab world's largest economy are bearing the brunt of a halving of oil prices since 2014. Economic growth in the kingdom is slowing, curtailing bank deposits just as the government increases borrowing to help plug a budget deficit that last year was the widest since 1991. The three-month Saudi Interbank Offered Rate, or Saibor, used as a benchmark to price loans, has climbed 15 successive months to the highest in seven years, according to data compiled by Bloomberg. It gained 84 basis points this year to 2.385 per cent on Sunday, compared with a 27 basis-point advance in the London Interbank Offered Rate for dollars. Meanwhile, the loans-to-deposit ratio among Saudi banks, a key measure of liquidity, rose to 90.8 per cent in August, the worst since 2008.
The Saudi Arabian Monetary Agency, as the central bank is known, is said to have offered lenders about 15 billion riyals in short-term loans in late June after the drop in oil curbed bank cash holdings. In February, it allowed institutions to lend as much as 90 per cent of their deposits, up from 85 per cent. The regulator said last month that the latest cash injection will be in the form of time deposits by government entities. It also introduced seven-day and 28-day repurchase agreements, or repos, to give lenders greater access to cash. The $5.3 billion "is less than one per cent of system assets, so it isn't that significant," said Jaap Meijer, the Dubai-based head of research at investment bank Arqaam Capital. "More is needed by possibly allowing banks to lend a higher amount against their deposits and potentially reducing the amount of cash they are required to hold to mitigate the rise in interest rates."
Bloomberg