(June 227): The Saudi central bank has pledged nearly 50 billion riyals ($13 billion) to commercial lenders in a bid to ease the worst liquidity crisis in more than a decade, according to people familiar with the matter. Made
The intervention began just before the US Federal Reserve’s rate hike this month and included funds made available to banks at a discount to the three-month Saudi interbank offered rate, or Cybor, which could be used to repay a loan for value. It was used as a benchmark, the people said, asking not to be identified because the information is private.
The central bank, also known as SAMA, did not respond to a request for comment.
The liquidity situation measured by Cybor is the tightest since late 2008, when crude oil prices fell below $40 a barrel. The magnitude of funding tensions between Saudi banks is much lower during external times when oil prices have plummeted or global crises such as the 2008-2009 credit crunch.
In contrast, Saudi Arabia is on track to record its first budget surplus in almost a decade this year as oil prices soar above $100 and revenues are boosted by rising production.
The central bank funds have come in at least three distinct phases so far, including three-month deposits in the first and second injections totaling about 15 billion riyals, the people said. He said there had been at least one other short-dated and long-dated placement in the recent past.
In a sign that the central bank’s latest injections are already having an effect, the cyber interest rate fell nearly 17 basis points from Friday to 3.13% on Sunday, according to the compiled data. BloombergBiggest drop in a month.
The action reflects growing concerns about costly liquidity for banks in Saudi Arabia and its impact on the economy as officials raise capital to fuel the kingdom’s mega-projects. In order to alleviate the immediate funding bottlenecks, the central bank recently increased the term of its repo facility from four to a maximum of 13 weeks.
“The Saudi central bank’s new cheap cash injection and a 13-week repo will improve funding costs,” said Edmund Christo, senior analyst at Bloomberg Intelligence. “Banks still need to diversify funding and raise 160 billion riyals to pay off 14% loan growth as SAMA aid simply delays a resolution.”
This was announced by the finance minister of Saudi Arabia Bloomberg Last month the government said it would hold excess oil earnings in its checking account until at least early next year as it seeks to break an oil-related boom-bust cycle that has typified the economy in the past.
Bankers expected higher oil prices to feed through to government deposits more quickly and ease the liquidity crisis.
Bank deposit growth lagged behind Saudi credit expansion, which was largely driven by a mortgage boom. It has squeezed money markets while the government is curbing its oil flows as part of a more conservative approach to fiscal spending.
Saudi Arabia is set for another year of double-digit consumer credit growth, while deposits are down 4% so far in 2022. In 2020, the central bank provided local banks with more than 100 billion riyals in the form of liquidity injections and deferred small loans to companies hit by the pandemic to help defray costs.
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