Impact of higher SAIBOR yet to be seen: Al Rajhi Cap

The increase of the Saudi Inter Bank Offer Rates (SAIBOR) over the last year is yet to be fully reflected on borrowing costs for listed companies in the kingdom, Al Rajhi Capital said in a report.

“As borrowing rates are generally reset on a semi-annual basis or at the time of renewal, we could see financial expenses rising in the coming quarters,” the brokerage said.

Their calculations indicate a 7.4 percent potential negative impact on the aggregate net profit of Tadawul All Share Index (excluding Saudi Electricity Company, banks and insurance companies) for a 100 basis points increase in borrowing cost across the board.

Companies with low margins and high leverage are expected to be affected the most from the rise in SAIBOR rates.

The impact is noteworthy as companies are still trying to adjust to lower subsidies and higher energy costs announced by the government earlier this year, the investment arm of Al Rajhi Bank explained.

“While overall credit growth is continuing strongly at higher single digits, aggregate debt by listed firms has slowed down on the back of slowing economic growth and possibly rising borrowing rates,” the report added.

The widely used three-month SAIBOR tripled to 2.3 percent currently from less than 0.8 percent a year ago.

The main reason for the surge in SAIBOR during the past year was tighter liquidity conditions in the country.