Saudi cen­tral bank raises loan-to-de­posit ra­tio

The Pak Banker - - COMPANIES/BOSS -

Seek­ing to ease tight­en­ing liq­uid­ity in the bank­ing sys­tem, Saudi Ara­bia's cen­tral bank has raised the ra­tio of de­posits which com­mer­cial banks can lend out to 90 per­cent from 85 per­cent, in­dus­try sources said on Mon­day.

No com­ment was avail­able from the cen­tral bank out­side of­fice hours. Liq­uid­ity has tight­ened over the past year as low oil prices have re­duced in­flows of new state rev­enues and prompted the govern­ment to is­sue bonds to banks to cover a bud­get deficit that to­talled nearly $100 bil­lion last year. That threat­ens to slow eco­nomic growth; the three-month Saudi in­ter­bank of­fered rate has jumped to 1.73 per­cent, the high­est level in seven years, from below 0.80 per­cent in mid-2015.

By mak­ing more money avail­able for lend­ing, the rise in the loan-to-de­posit ra­tio could at least tem­po­rar­ily pre­vent cor­po­rate loan rates from ris­ing fur­ther, ben­e­fit­ing Saudi com­pa­nies.

The loan-to-de­posit ra­tio is de­signed to limit risk in the bank­ing sys­tem by pre­vent­ing banks from lend­ing too gen­er­ously. How­ever, rais­ing it by 5 per­cent­age points is un­likely to prove dan­ger­ous, an­a­lysts said. "In fact 85 per­cent is a con­ser­va­tive level com­pared to re­gional banks in the United Arab Emi­rates and Qatar, which al­low the level to reach more than 100 per­cent," said Said alShaikh, chief econ­o­mist at Na­tional Com­mer­cial Bank.

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