Large Saudi bank cuts money quote; rates may fall back below repo
DUBAI: Saudi Arabia’s biggest commercial bank cut its quote for three-month money in the interbank market yesterday in a signal that rates could fall further as a liquidity crunch in the banking system eases.
Saudi interbank offered rates soared this year, pressuring companies and banks seeking to raise funds, as low oil prices slashed flows of petrodollars into banks and forced the government to issue bonds domestically to fund a big budget deficit.
Three-month SAIBOR hit a seven-year high of 2.386 percent last month, from below 0.80 percent in August 2015. In a sign of unusual stress on the system, it rose above the central bank’s repurchase rate of 2.00 percent, which the central bank uses to supply funds overnight to banks caught short of money. In the past four weeks, however, rates have been falling by around 1 or 2 basis points each day, with threemonth SAIBOR dropping back to 2.134 percent yesterday from 2.148 percent at the end of last week.
In a signal that rates could drop further, National Commercial Bank, the biggest bank, quoted three-month SAIBOR at 2.10 percent yesterday, down from the 2.15 percent which it had quoted throughout this month. The government is the biggest shareholder in the bank. An international banker familiar with the Saudi money market said rates appeared to be returning to more normal levels, though liquidity would not become loose again as long as oil prices stayed low. He suggested three-month SAIBOR might drop in coming weeks below the repo rate.
“For many years, SAIBOR has rarely if ever been above the repo rate for a significant amount of time. This was an extraordinary situation,” he said. “Now to some extent the situation is normalizing.” Several factors are fuelling the downtrend in rates. In September and October, the central bank launched seven-, 28- and 90day repurchase agreements that it could use to supply banks with funds; previously it had typically only used one-day repos.
PERU: (left to right), South Korea’s Prime Minister Hwang Kyo-ahn Indonesia’s Vice President Jusuf Kalla, China’s President Xi Jinping, Canada’s Minister for International Trade Chrystia Freeland, Australia’s Prime Minister Malcolm Turnbull, Peru’s President Pedro Kuczynski, Brunei’s Sultan Hassanal Bolkiah, Chile’s President Michelle Bachelet, Hong Kong’s Chief Executive Leung Chun-ying, Japan’s Prime Minister Shinzo Abe and Malaysia’s Prime Minister Najib Razak, attend a meeting with business leaders during the annual Asia Pacific Economic Cooperation forum in Lima yesterday.