Saudi Bank Stocks Tumble As Bailout Fails To Stem Liquidity Stress

Saudi bank stocks' dead-cat-bounce - following the central bank's cash injection 'bailout - is dying once again as Bloomberg reports funding pressures remain in The Kingdom's financial system.

The interest rate banks charge one another for loans rose by the most since August on Sunday, extending a trend that’s slowing earnings and corporate borrowing in the world’s biggest oil exporter. The increase is defying the central bank, which has sought to ease the cash crunch by relaxing lending limits, offering new borrowing facilities and injecting funds into the financial system, including 20 billion riyals ($5.3 billion) pledged Sept. 25.

Financial institutions in the Arab world’s largest economy are bearing the brunt of a halving of oil prices since 2014. Economic growth in the kingdom is slowing, curtailing bank deposits just as the government increases borrowing to help plug a budget deficit that last year was the widest since 1991.


“Rates won’t easily come down with one $5 billion injection,” said John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh.


“Bringing them down would require a significant liquidity injection effort. The $5 billion is a good step forward, but given the asset size of Saudi banks it would require several additional injections.”

And it appears investors are rapidly realizing that (as the market demands more)...


Saudi Arabia will post a budget deficit of 13.5 percent of economic output this year, the highest since 1992, declining to 9.6 percent in 2017, according to forecasts from the International Monetary Fund. Amid the shortfall, direct local government debt climbed to $63 billion at the end of August from almost $38 billion at the end of 2015, according to information in the Saudi bond prospectus obtained by Bloomberg.

Rising Saibor rates reflect the “extent of the liquidity challenge in the banking system,” said Raza Agha, the London-based chief economist for the Middle East and Africa at VTB Capital Plc. “The outlook for government borrowing has risen sharply and even if next year’s deficit declines to perhaps 8 percent of gross domestic product, you’re still looking at deficit-financing needs of $56 billion.”