Prices in some cases have risen to around 250 basis points (bp) over the London interbank offered rate (Libor), as banks seek to attract cash to their balance sheets ahead of the end-of-year reporting season. Previously, interest rates would have been around 100-120bp over Libor.

“We recently lost out on a large deposit, despite offering to pay 220bp over Libor, which indicates how keen some banks have become to shore up their books,” says one banker in the kingdom.

Although a similar process happens each quarter ahead of banks submitting reports of their exposures to the kingdom’s central bank, the Saudi Arabian Monetary Agency (Sama), banks are now reaching their lending limits following a period of rapid credit expansion and slower deposit growth. This is making the scramble for deposits even more competitive.

“Raising deposits, both from corporate and retail customers, is one of the biggest issues for banks at the moment,” says the head of one local bank.

Sama is one of the strictest regulators in the region, demanding that banks only loan 90 per cent of the amount they have on deposit. The UAE is trying to get banks to lower their lending ratio so that loans match deposits rather than outweigh them (MEED 21:11:08).ankers in Saudi Arabia are concerned that, as prices for deposits rise, it will mean their cost of funding is higher. “While in the short term this sounds like good news for depositors, ultimately the banks will have to pass these costs on as higher lending rates,” says the head of corporate banking at another local bank.

The fluctuations in deposit rates also give banks less certainty on their own funding costs. As well as a shortage of liquidity, the inability to gauge their own borrowing costs has been a significant problem for banks internationally, as they try to calculate a profitable rate to charge borrowers.