Saudi Central Banker says crunch that squeezed lenders is over

Bloomberg

Saudi Arabia central bank Governor Ahmed Alkholifey said a cash crunch that squeezed commercial lenders last year is over and that he’s open to more foreign financial institutions operating in the biggest Arab economy.
The Saudi Arabian Monetary Authority sees no need for further steps to boost banking liquidity, Alkholifey said in an interview with Bloomberg Television in Davos, his first with an international news organization since taking office last year.
Alkholifey, a former deputy governor, was appointed in May as the world’s biggest oil exporter grappled with the impact of low crude prices on the economy. With falling revenue, the government drew down on its deposits in the banking system, causing a cash squeeze that sent a key measure used to price loans to the highest level since 2008.
Policy makers responded by injecting billions of riyals into the banking system and deploying other monetary policy tools to ease the strain. Authorities also sold the biggest ever bond from an emerging market in October and cut weekly domestic debt issuance. Interbank rates have fallen 15 percent since peaking at 2.386 in October.
“We had to intervene,” Alkholifey said. The central bank is now comfortable with current liquidity levels “and I don’t think we need to intervene anymore,” he said.

Contractor Payments
The government has also repaid more than 270 billion riyals owed to contractors after halting payments because of the slump in crude, Finance Minister Mohammed Al-Jadaan said in December.
The payments have helped ease cash constraints at Saudi banks, Aqib Mehboob, a senior analyst at Saudi Fransi Capital, said. Central bank data suggests that more than 55 billion riyals ($14.7 billion) were to contractors in November, he said. “This has resulted in a significant fall” in the ratio of loans to deposits.
“The exposure of the whole banking sector to the construction sector is less than 8 percent of total loans,” he said. The governor is part of a senior Saudi delegation attending the World Economic Forum, touting an unprecedented plan to overhaul the economy and reduce its reliance on oil. The kingdom is also courting overseas investments, opening its stock market last year to direct foreign investments and allowing full non-Saudi ownership in several industries.

Foreign Banks
The central bank is reviewing one licensing application from a regional lender and is open to requests from other foreign banks. “We have an open policy,” the governor said. “We accept applications for sure. As we speak we have one application in the pipeline.”
The central bank recently approved a request by Bank of Tokyo-Mitsubishi to operate in the kingdom. “Usually we look at the financial position of that bank” and “the value added to the sector and the economy,” Alkholifey said.
Asked if capital outflows were another reason for the drop in reserves, the governor said: “Capital outflow is a reality. We are operating in a free economy. We never put restrictions on capital outflow,” he said.