Saudi Arabia Borrowing Rate Soars This Month

TEHRAN (Tasnim) - The rate at which banks in the biggest Arab economy, Saudi Arabia lend overnight to each other jumped the most in seven years in November, the fifth-straight month of increases, following a slump in deposits the previous month that forced lenders to seek more funds from each other.

Saudi Arabia Borrowing Rate Soars This Month

“The drop in deposits in October, in absolute amount, is probably the biggest since the 1990s,” Murad Ansari, a bank analyst at EFG-Hermes Holding SAE, said Tuesday. “There are payment delays from the government to contractors, which is one of the reasons for the decline in private sector deposits, and public sector deposits are shrinking as the government is running a deficit.”

The jump in bank borrowing costs provides further evidence of the impact oil’s 37 percent price drop in the past 12 months is having on a nation that gets about 90 percent of government revenue from energy. Traders are already boosting bets the Saudi riyal may be devalued.

Standard & Poor’s last month lowered the country’s credit rating. Now liquidity in the banking system is being squeezed, with demand for deposits dropping 4.7 percent in October as businesses, individuals and government entities withdraw cash Bloomberg reported on Tuesday.

The three-month Saudi Interbank Offered Rate, which is used to price some loans, climbed 13 basis points this month to 1.11625 percent Monday, according to data from the Saudi Arabian Monetary Agency on Bloomberg. That’s the biggest gain since October 2008 and the rate is at its highest since April 2009.

Saudi riyal 12-month forward points climbed to 650 last week, the highest in more than 16 years, as investors bet the government would abandon its fixed exchange rate amid oil’s decline.

Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, two knowledgeable people said.

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