LONDON (Bloomberg) — The Saudi Central Bank deposited about 50 billion riyals ($13 billion) with commercial lenders, seeking to ease the worst liquidity crisis in more than a decade, according to people familiar with the matter.
The intervention began just before the U.S. Federal Reserve’s interest rate hike this month, and included money provided to banks at a discount to the three-month Saudi interbank offering rate, or cybor, that could be used to pay a loan for value.
The liquidity situation as measured by Cybor is the toughest since late 2008, when the price of crude fell below $40 a barrel. The extent of funding tensions between Saudi banks is much less in external periods when oil prices were crashing or global crises such as the 2008–2009 credit crisis.
This year, by contrast, Saudi Arabia is on track to run its first budget surplus in nearly a decade, as oil prices rally above $100 and increased revenues spurred production.
Funds from the central bank have so far come in at least three different phases, including three months of deposits in the first and second injections, totaling about 15 billion rial, the people said. He said it has done at least one more placement in the recent past involving both short and long maturities.
In a sign that the latest injections by the central bank are already taking effect, the cybor rate fell nearly 17 basis points from Friday to 3.13% on Sunday, its biggest drop in a month, according to data compiled by Bloomberg.
The action reflects rising concerns about costly liquidity for banks in Saudi Arabia and its impact on the economy as officials raise capital to power the kingdom’s mega projects. In order to reduce immediate funding constraints, the central bank recently increased the tenure on its repo facility from four to a maximum of 13 weeks.
Growth in bank deposits has lagged Saudi credit expansion driven largely by a boom in mortgages. It has squeezed the money market while the government curtails its oil inflows as part of a more conservative approach to fiscal spending.