Bond revenues boost Saudi banking liquidity

29 November 2016

Government thought to be tackling late payments

Deposits in Saudi banks increased by SR27.2bn ($7.2bn), or 1.7 per cent, in October following Saudi Arabia’s $17.5bn sovereign bond issuance.

Deposits are now up 0.3 per cent since the beginning of 2016, according to he latest statistics from the Saudi Arabian Monetary Agency (Sama).

This pushes the Saudi banking system’s loan-to-deposit ratio to 89.3 per cent, just below the regulatory upper limit of 90 per cent. Credit growth has remained more robust at 5.3 per cent since the beginning of 2016.

The recovery in deposits also suggests that funds raised by the international bond issuance were immediately brought into the domestic market. The government paid Saudi contractors SR40bn in arrears in November, according to local press, with another SR100bn expected to be paid soon.

Riyadh also paused domestic bond issuance in October and November, according to local Maaal. Banks purchased SR123bn of government bonds between June 2015 and October 2016.

This has allowed the interest rates on one-year Sama bills to fall from 1.19 per cent in October to 1.13 per cent in November, indicating that liquidity conditions in the kingdom have eased slightly.

Sama’s foreign reserve assets continued their deterioration in October, falling SR41.1bn or 2 per cent month-on-month.

Saudi Arabia will run a fiscal deficit of SR311.5bn or 13 per cent of GDP in 2016, according to IMF estimates. So far it has run down its foreign assets by SR272.1bn in 2016, while the level of borrowing suggests the deficit could be higher than budgeted.

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