Liquidity influx gives breathing room to Saudi banks

Borrowing costs have fallen for Saudi Arabian banks following the country’s landmark bond issue in October.

The three-month Saudi Interbank Offered Rate (Saibor), which measures what it costs banks to borrow from one another, fell below 2% on Monday, its lowest level since April 2016.

“This is credit positive for Saudi banks’ funding costs and confirms that liquidity conditions in Saudi Arabia have eased since the third quarter of 2016 after significant tightening last year because of falling oil prices,” said ratings agency Moody’s in a report.

The agency credited the fall in Saibor to the recent bond issue, which raised a better-than-expected $17.5 billion, and to the payment of $28 billion of overdue bills to Saudi contractors settled in the last quarter. These trends have bolstered liquidity in the Saudi banking system.

However, Moody’s predicted challenges for Saudi banks in the next 18 months.

“Corporate profits and savings will remain constrained by subdued economic conditions, with our estimate for non-oil GDP growth at 2% in 2017,” said the report by analysts Jonathan Parrod and Olivier Panis.

©2017 funds global mena

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