In an effort to avoid a full-blown banking crisis, Bloomberg is reporting that the Saudi Arabian Monetary Agency, the Saudi central bank, has offered domestic lenders $4BN in discounted, 1-year loans to ease liquidity constraints. Banks in the kingdom are facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund the budget deficit. Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, expects to see further easing in the coming days, saying:
"We expect to see further measures, such as possibly reducing the reserve requirement ratio or increasing the loan-to-deposit ceiling in the coming days.”
This announcement should come as no surprise to our readers (see "Saudi Arabia Admits To A Full-Blown Liquidity Crisis: Will Pay Government Contractors With IOUs, Debt"). The Saudi circular ref whereby "low oil prices -> budget deficits -> more oil pumping -> even lower oil prices" can only end badly.
An update of Saudi "stress" indicators implies the kingdom's situation has continued to deteriorate. Short-term lending rates continue to gap higher indicating liquidity constraints…
…driving higher risks of default…
…and leaving the market to question if a devaluation is imminent.
Charts: Bloomberg
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