Sama lifts loan/deposit ratio to counter liquidity squeeze
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The Saudi Arabian Monetary Agency (Sama) has increased the maximum loan-to-deposit ratio for the kingdom’s 12 commercial banks to 90 per cent from 85 per cent to counter evidence of a liquidity squeeze in the Saudi economy.
The new ratio was announced on 14 February.
The move follows a contraction in the total deposits with the 12 banks in the second half of 2015. The year-on-year increase in deposits with Saudi banks was 1.85 per cent in 2015, the lowest rate of increase for more than a decade.
“A tightening of liquidity in the Saudi banking sector is reflected in a shift in the composition of both assets and liabilities,’ Fitch Ratings said in a statement on 17 February. “Loans rose slightly to 61.6 per cent of sector assets at end-2015, from 58.6 per cent at end-2014 and the proportion of liquid assets shrank.”
Liquid assets comprise cash and cash reserves, largely placed with Sama, plus Sama securities, government and private sector bonds and interbank placements. They represented 15.6 per cent of assets at the end of 2015, 22.3 per cent down on a year earlier.
“This reflects a sharp reduction in holdings of Sama securities, a strong increase in government bonds, albeit from a low base, and a sharp increase in interbank placements, but also from a small base,” Fitch said.