Saudi Arabia central bank Governor Ahmed Alkholifey said a cash crunch that squeezed commercial lenders last year is over and that he’s open to more foreign financial institutions operating in the biggest Arab economy.
The Saudi Arabian Monetary Authority sees no need for further steps to boost banking liquidity, Alkholifey said in an interview with Bloomberg Television in Davos on Thursday, his first with an international news organization since taking office last year. SAMA, as the central bank is known, has injected billions of riyals into the banking system and introduced more repurchase agreements.
“We had to intervene,” Alkholifey said. The central bank is now comfortable with current liquidity levels “and I don’t think we need to intervene anymore,” he said.
A key measure of domestic borrowing costs has dropped after Saudi Arabia sold the biggest ever bond from an emerging market in October and cut weekly domestic debt issuance. Interbank rates have fallen 15 percent since peaking at 2.386 in October, the highest level since the 2008 financial crisis.
The Tadawul Bank Index rose 1.4 percent on Thursday, with Saudi Investment Bank rising 3.4 percent to 14.58 riyals and Saudi British Bank up 3.3 percent, the most since Nov. 13, to 21.8 riyals.
Contractor Payments
Saudi Arabia is navigating the biggest economic shakeup in its history as authorities seek to counter the impact of low oil prices and cut reliance on hydrocarbon exports. The kingdom has repaid more than 270 billion riyals owed to contractors after halting payments because of the slump in crude, Finance Minister Mohammed Al-Jadaan said in December. The government still owes 30 billion riyals, he said.
The payments have helped ease liquidity constraints at Saudi banks, Aqib Mehboob, a senior analyst at Saudi Fransi Capital, said today. “SAMA figures suggest that north of SAR55 billion was paid to contractors in November,” he said. “This has resulted in a significant fall in the loan-to-deposits ratio.”
Thousands of low-paid foreign laborers -- employed by construction companies such as Saudi Oger and the Saudi BinLadin Group -- were left stranded in labor camps after the government stopped project payments. Saudi Oger is in talks with banks to restructure about $3.5 billion of debt it has been unable to repay because of the late payments, people with knowledge of the matter said last month.
“The exposure of the whole banking sector to the construction sector is less than 8 percent of total loans,” Alkholifey said. “Any defaults in that sector won’t be systematic.”
Foreign Banks
The governor said the central bank is reviewing one licensing application from a regional lender and is open to requests from other foreign banks. “We have an open policy,” he said. “We accept applications for sure. As we speak we have one application in the pipeline.”
The central bank recently approved a request by Bank of Tokyo-Mitsubishi to operate in the kingdom. “Usually we look at the financial position of that bank” and “the value added to the sector and the economy,” Alkholifey said.
Foreign reserves held by SAMA have dropped more than $200 billion since August 2014, to $538 billion at the end of November, as the kingdom burned through savings to fund the budget deficit.
“Capital outflow is a reality,” Alkholifey said. “We are operating in a free economy. We never put restrictions on capital outflow. They go and come. It’s not unusual.”
--With assistance from Glen Carey To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net, Matthew Martin in Dubai at mmartin128@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Dale Crofts, Christian Baumgaertel
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