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Saudi liquidity holds up in May over stable oil

DUBAI, July 1, 2015

Saudi Arabia’s domestic liquidity held up in May, helped by the stabilization in oil prices, at the cost of continued expansionary fiscal policy, a report said.

M3 growth was 10.4 per cent year-on-year (yoy) in May, increasing from 9.4 per cent in April and 7.7 per cent yoy in January, added the “GEMs Daily - CO bond strategy; Belarus deadline; ID policy straitjacket” authored by the Bank of America Merrill Lynch GEM Fixed Income Strategy & Economics Global team, which cited statistical data from the Saudia Arabian Monetary Authority (Sama).

Bank deposits grew by 1.2 per cent month-on-month (mom) and 10.1 per cent yoy in May, accelerating from the previous month. Demand deposits grew by 1.0 per cent mom in May. Time and saving deposits reversed their contractions, helped by the rebound in government entities’ FX deposits.

Bank claims on the private sector remained healthy but below the 10 per cent handle, growing by 9.9 per cent yoy in May from 10.7 per cent yoy in March. As a result, the loan-to-deposit ratio ticked 0.1pp higher to 79.3 per cent from the 80.1 per cent average in 2014. Point-of-Sale transactions, which grew by 42.5 per cent in February following the Royal handouts, remained stable at 10.0 per cent yoy in May.

 Sama’s net foreign assets dropped by 1.0 per cent mom in May (SR24.7 billion or $6.6 billion) to SR2,521 billion ($672 billion). The cumulative year-to-date drop in Sama net foreign assets has reached a large $52.0 billion.

This move is largely explained by the liability side of the Sama balance sheet, in our view. In effect, central government deposits at Sama dropped by a large SR57.9 billion ($15.4 billion) to SR1,115 billion ($297 billion) in May, after a whopping SR115 billion drop ($30.6 billion) in February due to the Royal handouts. The cumulative year-to-date drop in central government deposits at Sama has reached a large $79.3 billion.

The drawdown is largely explained by the drop in the government’s reserve at Sama. This was offset on the Sama balance sheet by a concurrent increase in government institutional deposits and in other miscellaneous liabilities. Government deposits are thus still falling faster than overall Sama Fx reserves. Commercial banks also saw a $2.5 billion drop in net foreign assets. However, their foreign assets have increased by $12.1 billion overall year-to-date.

On an annualized basis, the year-to-date drop in central government deposits at Sama is in line with our projected budget deficit for 2015 and does not imply a material pullback in government spending, in our view.

Economic activity is likely to remain cushioned in the near term, but at the cost of wide and unsustainable fiscal deficits, in our view. The absence of material fiscal adjustment is likely to imply a need for a sharper adjustment down the line if oil prices remain low for long, in our view. The rapid drawdown in reserve assets suggests that domestic borrowing appears increasingly in the cards, the report said. – TradeArabia News Service




Tags: Saudi Arabia | banks | Sama | liquidity | Bank of America |

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