DUBAI (Reuters) – The Saudi Central Bank, known as SAMA, may need to inject liquidity into the banking sector like it did last year as interbank rates sit at their highest since 2001, London-based Capital Economics said on Thursday.
SAMA did not immediately respond to a request for comment.
“A saving grace in the rise in SAIBOR (Saudi interbank offer rate) to close to 6% is that, compared to the spike in the middle of last year, the spread over the U.S. Libor is far lower at close to 40bp,” the research firm said in a note.
“That said, measures of liquidity in the banking sector are still pretty poor – excess liquidity of commercial banks (that is the sum of deposits with SAMA excluding statutory deposits, plus SAMA bills) stands at just over 2% of total assets.”
The note added that SAMA may have to inject liquidity into the banking sector as it did last June in order to support credit growth.
Private sector credit grew at 9.7% year-on-year in April, its slowest pace since February 2020, Capital Economics said, as lower oil prices provide a less supportive backdrop for credit growth “and could weigh on the non-oil economy which, as we have argued, will need to do the heavy lifting for GDP growth this year.”
Boosting the non-oil economy is at the heart of Saudi Arabia’s ambitious economic agenda that aims to wean the kingdom off oil. Under the plan, Vision 2030, it has invested billions to diversify into sectors such as tourism, launch massive infrastructure projects, and develop the financial and private sectors.
(Reporting by Yousef Saba; Editing by Sharon Singleton)