Saudi banks’ deposits shrink

Deposits at Saudi Arabian banks have shrunk as the government withdraws emergency funds injected when oil prices slumped, although weak loan demand makes a liquidity crunch unlikely.

Eight of the top 12 Saudi banks reported lower deposits in their second-quarter earnings, released over the past couple of weeks.

Deposits at Alawaal Bank tumbled 19 percent from a year ago to 66.2 billion riyals ($18 billion), the bank said on Monday. Deposits at Bank Aljazira fell 3 percent to 47.8 billion riyals.

Bucking the trend was the country’s biggest lender, National Commercial Bank, with a 1 percent rise in deposits to 317.7 billion riyals, while major Islamic bank Alinma saw a 4 percent increase.

In 2016, the government placed deposits in the banking system to counter a shortage of funds due to low oil prices, which was pushing funding costs up sharply. Oil prices have now partially recovered, however, and the central bank wants to avoid capital outflows by having Saudi interest rates rise in line with US rates.

As a result, monetary authorities said early this year they would let the emergency deposits expire, pulling some money out of the system to prevent the money market from being too loose.