Saudi Arabia Weighs Easing Reserve Rules for Deposits, IIF Saysby
Move aimed at easing domestic financing as liquidity tightens
Kingdom increased banks' loans-to-deposits ratio in February.
Saudi Arabia may reduce the reserves banks are required to hold against customer deposits to release more funds for lending as the country grapples with a budget deficit near a two decade high, according to the Institute of International Finance.
The biggest Arab economy is weighing a reduction in the money lenders need to set aside from the current 7 percent on demand deposits and 4 percent on time and savings deposits, the IIF said in a report on Wednesday. The move would aim to "free up domestic financing," it said.
Bank liquidity is tightening in the world’s biggest crude exporter as a more than halving of oil prices in the past year results in the country posting a budget deficit of about 13.5 percent of economic output this year, according to International Monetary Fund estimates. The deficit is expected to push the government to borrow an estimated 120 billion riyals ($32 billion) this year, which together with slowing deposit growth at the nation’s lenders has contributed to boosting the Saudi Interbank Offered Rate to the highest in seven years.
Saudi Arabia in February eased rules on bank lending after a request from the country’s committee of treasurers to ease liquidity constraints. Banks were allowed to lend the equivalent of 90 percent of their deposits by the Saudi Arabian Monetary Agency, up from an earlier limit of 85 percent.
“While official reserves are still large and sufficient to finance the deficits at least for the next few years, the kingdom is increasingly turning to international debt markets to limit crowding out of local business financing,” according to the IIF report.
Saudi Arabia is raising a $10 billion syndicated loan from international banks.
The Institute of International Finance is a global association of the financial industry, counting about 500 members from about 70 countries. It acts as a lobby group for the industry on global regulatory issues, focusing on issues such as capital and liquidity standards for banks.