Saudi debt moves paying off
dubai — Saudi Arabia’s repeat visits to international bond markets and a partial recovery in the price of oil, its biggest export, is easing a liquidity squeeze that was hampering its financial system.
As the country finalised its first issue of dollar-denominated Islamic notes, six months after selling the biggest ever bond by an emerging market country, an interest rate used by Saudi banks to price loans stood at its lowest level in almost 14 months. That rate, known as Saibor, will probably fall further after the latest sukuk issue, according to Anita Yadav, head of fixedincome research at Emirates NBD, Dubai’s biggest bank.
Saibor has been falling since reaching a seven-year peak of 2.386 per cent on October 17, immediately before the country’s debut dollar-bond sale, as oil export revenue dwindled, sending the state budget into deficit.
Cost-cutting by a government usually associated with vast reserves of petrodollars, and a drawing down of its bank deposits to prop up spending, prompted a cash squeeze in the economy, helping drive Saibor higher.
“Saudi Arabia is doing these jumbo bond deals, like the sukuk, that will bring money into the country and ease bank liquidity further,” Yadav said. The Saudi financial
90.8 % loans-to-deposit ratio, a key measure of liquidity, in Saudi banks, up from 88.1%
system is also benefiting from a doubling in oil prices since they hit a 12-year low in January 2016. Saudi banks’ combined loans-to-deposit ratio, a key measure of liquidity, improved to 88.1 per cent in February from 90.8 per cent in August, according to central bank data. Bank lending grew 2.8 per cent in 2016, the slowest pace since 2009, according to central bank data.
With oil firmly above $50 a barrel and the Saudi government proving it can tap international investors for enough liquidity to pay its bills, the economy is improving.
There has been a “significant improvement in liquidity in the kingdom over the past three or four months”, James Reeve, the Londonbased senior economist at Samba Financial Group said in an e-mail. This has been due to “waning demand for private credit and the fulfillment of outstanding invoices by the government”. — Bloomberg