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June 27, 2022

Saudi Central Bank provides $13bn capital support to lenders

Saudi Arabia’s central bank has made a capital injection of about SAR50bn ($13bn) to help Saudi banks deal with the worsening liquidity crisis.

Speaking to Bloomberg, sources privy to the matter said that the Saudi Central Bank, also known as SAMA, has placed the funds with commercial banks as time deposits.

The central bank started pumping capital earlier this month just before the US Federal Reserve hiked interest rates.

It included money provided to banks at a discount to the three-month Saudi Interbank Offered Rate, or Saibor, the unnamed sources said.

Saibor is used as a benchmark to price loans.

Notably, liquidity conditions are the worse since late 2008, when the price of crude oil slumped below $40 a barrel.

According to the sources, SAMA has made the infusion in at least three separate tranches so far.

The first and the second tranche consisted of three-month deposits worth around SAR15bn each, they said.

In recent days, SAMA has injected more capital in the form of shorter and longer maturities, they added.

Bloomberg Intelligence senior analyst Edmond Christou noted: “The Saudi central bank’s fresh injection of cheap money and 13-week repos will improve funding costs. Banks still must diversify funding and gather SAR160bn riyal to pay for 14% credit growth, as SAMA’s aid just delays a fix.”

In 2020, SAMA offered more than SAR100bn to local banks to help them deal with the impact of the Covid-19 pandemic.

In November 2021, SAMA Governor Fahd Al-Mubarak revealed that the central bank plans to offer operating licences to more digital banks in the Kingdom.

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