Saudi Arabia's central bank injects 50bn riyals to boost liquidity of financial sector

The move is part of the central bank's efforts to support the kingdom's financial institutions

Saudi Arabia's banking regulator is injecting 50bn riyals to shore up liquidity of the kingdom's banking system. Reuters

Saudi Arabia’s central bank is injecting 50 billion riyals (Dh48.82bn / US$13.29bn) into its banking sector to boost liquidity and enhance the lending capacity of financial institutions as part of continued efforts to support the sector amid the coronavirus pandemic.

Banks in the kingdom are performing well and indicators show their total assets at the end of the first quarter increased 14 per cent to 2.7 trillion riyals from a year earlier, the Saudi Arabian Monetary Authority said on Monday.

Credit facilities to the private sector in the first three months of the year rose 12 per cent and the average capital adequacy ratio reached 18.6 per cent, while the liquidity coverage ratio reached more than 200 per cent, the regulator said.

"These indicators positively reflect the continued pivotal role of commercial banks in the economic development of the kingdom," Sama said in a statement posted on its web site.

The move comes after the central bank's March announcement of a 50bn riyal stimulus package to shore up its private sector and offset the effects of Covid-19 on the country's economy.

Under its Private Sector Financing Support Programme, Sama extended about 30bn riyals to banks and financing companies to delay the payment of the dues of the financial sector from small and medium-sized enterprises for a period of six months, the regulator said at the time.

"The purpose of the programme is to mitigate the [effect] of precautionary coronavirus measures on the SME sector, specifically by reducing the burden of cash flow fluctuations, supporting working capital, enabling the sector to grow during the coming period and contributing to supporting economic growth and maintaining employment," the central bank said in March.

Concessionary finance for SMEs of up to 13.2bn riyals and loan guarantees worth 6bn riyals are also part of the package.

Sama's moves are part of several government initiatives intended to soften the economic blow of the pandemic on the kingdom amid a global slowdown.

The Covid-19 outbreak is the greatest challenge facing the world economy since the Great Depression of 1930s, and is set to tip it into the deepest recession to date, according to the International Monetary Fund.

The virus has infected more than 6.1 million people worldwide and killed more than 370,000 people, according to Johns Hopkins University, which is tracking the outbreak worldwide.

Covid-19 has also disrupted global supply chains, brought the travel industry to halt and forced governments to close borders.

The kingdom, the biggest oil exporter in the world, has started gradually opening up its economy after strict movement restrictions that led to the closure of all but essential businesses in the country.

In April, Saudi Arabia's King Salman approved a package of additional measures.

The government set aside 50bn riyals to speed up payments to the private sector, according to a government statement carried by the Saudi Press Agency said.

The government also announced a discount of 30 per cent on electricity bills for businesses in the commercial, industrial and agricultural sectors for a period of two months, with the possibility of extensions if needed.

The measures announced in April were in addition to 70bn riyals of economic support measures, including the payment of a minimum salary to self-employed drivers.

Last month, Saudi Arabia's finance minister Mohammed Al Jadaan said there was ample liquidity in the country's financial markets.

He also said the kingdom would take any measures needed to mitigate the economic damage caused by Covid-19 and lower oil prices.

Saudi Arabia reduced various expenditures in May and said it will suspend the cost of living allowance in June and triple VAT to 15 per cent from July.