Dubai: Saudi Arabia’s central bank stepped up efforts to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices. Banks’ shares advanced.
The Saudi Arabian Monetary Agency, as the central bank is known, is giving banks about 20 billion riyals (Dh19.45 billion) of time deposits “on behalf of government entities.” It’s also introducing seven-day and 28-day repurchase agreements, as part of its “supportive monetary policy.” It didn’t provide further details.
The announcement, which comes as the kingdom prepares for its first international bond sale, is the latest step by the central bank to ease a cash crunch in the banking system. The Saudi Interbank Offered Rate, a key benchmark for pricing loans, has surged to the highest in seven years after the plunge in oil prices forced the government to withdraw money from the country’s banking system, squeezing liquidity. The central bank was said to have offered lenders 15 billion riyals in short-term loans in June to help ease liquidity constraints.
‘Next Step’
The move is “the next step in the continuing story we’ve been hearing since the start of the year on the tightening of liquidity among Saudi banks and a follow-on to the first injection provided to banks earlier this year,” said Murad Ansari, a Riyadh-based analyst at investment bank EFG-Hermes. “The liquidity situation remains challenging. However, it shows that the central bank will continue to support Saudi banks.”
Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG., said authorities probably wanted to address concerns among investors before the planned Eurobond sale, which people familiar with the matter said would be at least $10 billion.
The latest step “will show investors that the government is committed to support the banking system,” he said. The bond sale would help finance a budget deficit that the International Monetary Fund expects to reach about 13 per cent of economic output this year.
