Saudi Arabia’s central bank stepped up efforts to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices.
The Saudi Arabian Monetary Agency is giving banks about 20 billion riyals ($5.3 billion) of time deposits “on behalf of government entities.” It’s also introducing seven-day and 28-day repurchase agreements, as part of its “supportive monetary policy.”
The announcement, which comes as the kingdom prepares for its first international bond sale, is the latest step by the central bank to ease a cash crunch in the banking system. The Saudi Interbank Offered Rate, a key benchmark for pricing loans, has surged to the highest in seven years after the plunge in oil prices forced the government to withdraw money from the country’s banking system, squeezing liquidity. The central bank was said to have offered lenders 15 billion riyals in short-term loans in June to help ease liquidity constraints.
The move according to Murad Ansari, a Riyadh-based analyst at investment bank EFG-Hermes is:
“The next step in the continuing story we’ve been hearing since the start of the year on the tightening of liquidity among Saudi banks and a follow-on to the first injection provided to banks earlier this year. The liquidity situation remains challenging. However, it shows that the central bank will continue to support Saudi banks.”
The Saudi index for banking shares climbed 1.3 percent, the biggest intra-day gain in three weeks, at 10:53 a.m. in Riyadh. The benchmark Tadawul All Share Index advanced 0.8 percent. Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG., said authorities probably wanted to address concerns among investors before the planned Eurobond sale, which people familiar with the matter said would be at least $10 billion.