Saudi Arabia’s overall liquidity situation, which started easing following the government’s successful foray into international bond markets, improved further during October, according to economists.
The improvement was seen in a number of broader areas such as money supply, driven by an increase in deposits, which also helped in lowering the loan-to-deposit ratio, researchers at Al-Rajhi Capital said in a recent report.
Saudi Arabia’s three-month interbank rate also dropped by 30 points from its peak in October to the levels that were seen in early May 2016. 
“Our channel checks suggest that the premium which some banks used to pay over SAIBOR (Saudi Interbank Offered Rate) for bulk deposits has dropped from 120-150 bps (basis point) to around 10-30 bps now, showing easing pressure on banks to accumulate deposits,” the researchers added. 
The banks’ improved situation is also reflected in the loan-to-deposit ratio dropping below the central bank limit of 90 percent after remaining above the limit for four months, the report added.
It said that the banks’ decision to defer personal loan repayments for October in view of the rescheduling of personal loans of government employees after the cut in allowances also seemed to have helped the liquidity situation. 
The government’s decision to start releasing SR100 billion ($26.7 billion) in delayed payments to contractors in early November is also expected to further support the liquidity situation, said the report.
As private sector credit growth remains weak (almost stagnant since May), the liquidity situation is unlikely to weaken toward the year end in view of the recent measures and overall sentiment, Al-Rajhi Capital’s report on Saudi economy added.
Broader money supply (M3) grew in October (y-o-y) after falling for eight months in a row as time and savings deposits grew 23.3 percent year-on-year, said the report.
It said that the banks’ claims on the private sector rose 6.3 percent y-o-y in October, from a 7.0 percent y-o-y increase in September. Meanwhile, deposits grew for the first time in nine months in October, by 0.5 percent y-o-y. 
As a result, the loan-to-deposit ratio stood below 90 percent, after remaining above the 90 percent mark for four consecutive months.
The Saudi banking sector’s net profit slipped 1.9 percent y-o-y in the month of October, compared to the 5.5 percent decline witnessed in Q3 2016. Non-performing loans (percentage of total gross loans) for the sector rose to 1.3 percent at the end of Q3 2016, from 1.2 percent in Q2 2016.
Liquidity situation in Saudi Arabia continued to improve as indicated by easing SAIBOR rates post the international bond sale of $17.5 billion and payments to contractors.
According to the report, the IMF has reiterated its forecast of a 13 percent budget deficit for Saudi Arabia in 2016. Further, the IMF expects the Kingdom’s 2017 budget deficit to contract to 9.5 percent of GDP due to higher income from oil coupled with the controlled government expenditure.
POS transactions gained 1.4 percent y-o-y in October 2016, from a rise of 0.9 percent y-o-y in September, while ATM transactions rose by 0.7 percent y-o-y in October, as against a yearly fall of 5.5 percent in September, which could be attributable to banks’ deferral of consumer loans payments for October.
Saudi Arabia’s foreign reserve assets fell at the fastest pace in eight months (on a y-o- y basis) despite Saudi Arabia’s international bond sale in October, suggesting that the government may have partially cleared its outstanding dues with its contractors by drawing its foreign assets.
On the equity front, the TASI climbed 14.8 percent MTD in November 2016, versus an increase of 6.9 percent month-on-month in October 2016.

Source: Arab News