Saudi interbank rate hits 1% as liquidity tightens

The three-month Saudi Arabian Interbank Offered Rate (SAIBOR) rose to just under one percent Thursday, a sign of tightening liquidity in the kingdom’s banking sector amid the slump in oil prices.    

The interbank rate, used as a benchmark for commercial and consumer lending, hit 0.99 percent today. The rate rose from 0.83 percent at the end of August to 0.88 percent at the end of Sept.

Earlier this year, the kingdom’s central bank, Saudi Arabian Monetary Agency, warned that a one percent rise in the SAIBOR would result in stagnant loan growth.

Analysts say that could be bad news for Saudi loan growth, which has been positive this year. The credit portfolio of Saudi-listed banks reached SAR 1.33 trillion in the first nine months of 2015, an increase of seven percent year-on-year (YOY), according to data compiled by Argaam.

Saudi banks rely heavily on credit volume and net interest income to support revenue growth. Slower loan growth will put pressure on the overall profitability of banks.