World Economy

Saudi Injects $5.3b Into Banks 

The Saudi Arabian Monetary AgencyThe Saudi Arabian Monetary Agency

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. Banks’ shares advanced.

The Saudi Arabian Monetary Agency, as the central bank is known, 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.” It didn’t provide further details, Bloomberg reported.

The announcement, which comes as the country 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 Saudi index for banking shares climbed 1.3%, the biggest intra-day gain in three weeks, in Riyadh. The benchmark Tadawul All Share Index advanced 0.8%.

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.

  Financing Budget Deficit

The bond sale would help finance a budget deficit that the International Monetary Fund expects to reach about 13% of economic output this year.

The cash crunch risk undermining bank’s ability to lend to businesses, adding to the strain facing economic growth at a time when the government is cutting spending to shore up its public finances. The economy will likely expand 1.1% in 2016, according to a Bloomberg survey, the slowest pace since 2009.

The central bank has already raised the limit of how much banks can lend to 90% of deposits from 85%, people familiar with the matter told Bloomberg in February.

It also cracked down on currency traders amid speculation that the country won’t be able to maintain the riyal’s peg to the dollar, people with knowledge of the matter said. The central bank has repeatedly said it was committed to the peg.