According to the monitoring unit of the reports in the “Al-Iqtisadiya” newspaper, the interest offered between Saudi banks for three months, the lowest in four years and seven months (55 months), according to the cybor closing at 1.08 per cent at the end of last month.
These developments are positive for borrowers in general, whose loans are priced at the variable interest, which follows the SIBOR movement.
The three-month cyberspace, which is used as a reference indicator with most contracts, is close to breaking the 1 percent barrier, after having broken it by “Saior for one month” for the first time in several years, where it now stands at 0.87 percent basis points.
The Saudi Arabian Monetary Agency “SAMA” had pumped, at the beginning of June, 50 billion riyals to enhance liquidity in the banking sector and enable it to continue its role in providing credit facilities to all its clients from the private sector, including the role of banks in supporting and financing the private sector from During the amendment or restructuring of their funds without any additional fees, and to support plans to maintain employment levels in the private sector, along with the exemption of a number of fees for electronic banking services, based on its role in activating monetary policy and enhancing financial stability.
Coinciding with lower interest rate indicators, private-sector bank lending rates increased in April by 12.2 percent year on year and by 0.9 percent on a monthly basis.
The infusion of liquidity, which was completed in June by Sama, is expected to increase the demand for new loans from some economic activities, as the Saudi economy opens.
It is expected that the measures of the Saudi Central Bank will reflect positively on the SIBOR, by maintaining its current levels or continuing its decline since the beginning of this year, assuming that the stimulus measures for liquidity remain the same.
The SIBOR pricing reference for loans, which is re-priced every three months, has declined, as it decreased from the beginning of this year until the end of May by 51.5 percent, compared to the rate of decline recorded at the end of the first quarter of 2020 at 47.5 percent, followed by SIBOR for six months At 48.8% for the same period, compared to the decline rate recorded at the end of March, which is 47.1%.
With this, the interest indicators, which are used with variable interest bank loans that follow the movement of the SIBOR, return to the path of their declines, which were at the highest pace during the first three months of 2020, after March witnessed two historic cuts of interest rates in the Saudi market.
The monitoring of the economic reports unit showed that the interest rates for short-term lending to Saudi Arabia (which are four) have decreased from the beginning of the year until the end of May, at levels between 48.6% and 58.3%, (equivalent to 110 basis points to 122 basis points) .
However, measuring the impact of the positive decline from the point of view of corporate and individual borrowers in the cost of financing on variable interest loans, which follow the movement of the SIBORs, was evident when looking at the low interest levels from the beginning of 2019 until the end of last month.
According to Al Eqtisadiah’s monitoring, because of the three-fold local interest rate cut in the past year and also two other cuts this year, the decline range for the four SIBOR periods during the past 17 months ranged between 63% and 68.9% (equivalent to 189 basis points). To 216 bps).
That is, who would have paid the financial institution the SIBOR interest (for 12 months), which was early 2019 at 3.34 percent, with the current levels, it was paying about 1.18 percent.
These declines in interest rates since 2019 until now reflect the new reality of the benefit of low-lending interest in Saudi Arabia, which contributed to boosting credit growth for the private sector and individuals during the last period.
In order to measure the effect of the rapid decline of the SIBOR rates during a short period of time (due to the rapid reduction of interest during the first quarter of 2020 by 125 basis points), the monitoring showed that the amount of the lost time of the four SIBOR during the first five months of this year exceeds what was lost by the same deadlines For the full 12 months of the year 2019, between 71.8% and 7.6%.
These changes in the local interest rates coincide with the time, when most of the eligible companies (eligible) got time periods according to which the collection of the finance charges due in the future will be postponed according to the economic incentives announced by the Saudi Arabian Monetary Agency “SAMA” in light of the Covid-19 pandemic. That swept the global market.
A monitoring of SIBOR terms showed that the interest offered between Saudi banks for one month recorded a decrease of 58.3 percent (equivalent to 122 basis points), from the beginning of 2020 until the end of last month, when SIBOR trades one month at levels of 0.87 percent. Thus, the one-month SIBOR becomes the first domestic interest index, which broke the 1 percent barrier.
Meanwhile, the three-month term interest, which is widely used with loans, closed with last-day trading last month at 1.08 per cent. Thus, the three-month interest rate decrease since the beginning of the year until now is 115 basis points (equivalent to 51.5%).
The six-month interest rate transactions (for the same period) were at 1.15 percent levels. This brings the fall in interest for the six-month period from the beginning of the year until the end of last month to 110 basis points (equivalent to 48.8%).
Whereas, the “interest offered between Saudi banks for one year” from the beginning of the year to the end of last month closed at 1.18 percent, registering a decline of 48.6 percent (equivalent to 112 basis points).
The private sector support program and the cost of financing
The Saudi Arabian Monetary Agency (the Central Bank) said in mid-March that it had prepared a package of 50 billion riyals (13 billion dollars) to help small and medium enterprises to cope with the economic effects of the Corona virus.
The financing aims to allow small and medium-sized companies to postpone the payments of banks and financing companies for a period of six months and to obtain financing on concessional terms, with exemptions from the costs of the financing guarantee support program.
Two of these measures package are related to the cost of financing, the first of which is the lending financing program, which is to provide concessional financing for small and medium enterprises with an amount of 13.2 billion riyals, by granting loans from banks and finance companies to the SME sector aimed at supporting business continuity and growth of this sector During the current stage, and in a way that contributes to supporting economic growth and maintaining employment levels in these establishments.
The second is the financing guarantees support program, whereby this is done by depositing an amount of up to six billion riyals for the benefit of banks and financing companies to enable financing agencies “banks and financing companies” to exempt small and medium enterprises from the costs of the guarantees guarantee program for loans to small and medium enterprises “guarantee” in order to contribute to reducing The cost of lending to facilities benefiting from these guarantees during FY 2020 and supporting the expansion of financing.
This was followed by the adoption of a new precautionary measures package by the Saudi Arabian Monetary Agency (SAMA) in the framework of supporting efforts to confront the effects of the spread of the COVID-19 pandemic virus on various economic sectors, and monitoring their impact on the financial markets and the economy, which included stressing on the importance of banks to commit to providing a group Among the means of support for their customers at this time and enabling them to face the effects of the spread of the Corona virus, as well as the importance of their support to the private sector to mitigate the effects of low cash flows, including reviewing the reassessment of interest rates and other charges on credit cards, whether for existing customers or new customers, in line with Low interest rates are currently due to economic conditions.
The fifth cut in Saudi interest rates
The US Federal Reserve cut interest rates for the second time in less than two weeks in March, in a new, extraordinary move to support the US economy amid the ever-expanding Corona Virus pandemic around the world.
The central bank said in a statement that it had decided to reduce the target range for interest rates to between zero and 0.25 per cent. The Fed had already cut interest rates by half a percentage point during an urgent meeting on March 3, in the first cut outside the regular policy meeting schedule since the financial crisis in 2008.
The Saudi central bank’s response to the second rate cut by the US Federal Reserve came in March, when the Saudi Arabian Monetary Agency “SAMA” reduced the repurchase rate from 1.75 per cent to 1 per cent and the reverse repurchase rate from 1.25 per cent to 0.50 in This is the fifth cut in Saudi interest rates in eight months.
3 references to credit pricing
The Saudi financial sector depends on three pricing references, the first and oldest of which is the interest offered between Saudi banks “SIBOR”, and the second is “exchange contracts denominated in riyals”, which are used to price credit in the local market, and the financial sector uses this indicator in pricing some corporate borrowing operations, and it uses Likewise, to a rare degree as a “pricing reference” with pricing of local bonds for the private and governmental sectors, and the third references is “returns of government bonds for all maturities”, and is the last credit pricing references that appeared recently.
Before cutting interest rates twice in 2020, the Saudi Arabian Monetary Agency (Sama) in late October reduced basic interest rates in the wake of the Federal Reserve’s Federal Reserve cutting interest rates for the third time in 2019.
It is known that most of the central banks around the world, which peg their currency to the dollar, have reduced local interest rates to join the monetary easing cycle, which is led by the Federal Reserve along with Gulf counterparts.
An exceptional year
Last year, the financial sector was described as exceptional, in view of the rare credit fluctuations, some of which first appeared in nine years on the most important indicators of interest rates between Saudi banks.
During 2019, the Saudi economy and individual and corporate borrowers got positive news after repeating the local interest rate three times in the same year, which contributed to lowering the financing costs on them.
What is a cybor?
Saudi banks use the SIBOR index when they try to borrow from each other, and the SIBUR is the interest rate offered between Saudi banks for three months.
SIBOR prices vary, according to the “short-term” borrowing terms, which may range from month to year, and SIBOR prices are considered the backbone of individual and corporate loans, as well as some sovereign bond issues, which are “with variable interest” in the local market, On the basis of which, the interest / profits that borrowers pay to banks is determined.
It is calculated after 15 banks provide the interest rate, after which the highest and lowest numbers are deleted, and then we finish with the interest rate. And when the SIBORs rise, the profit margin of the banks increases, which provided loans to clients with variable interest rates, only the clients who chose fixed interest are safe from fluctuations in interest rates.
Economic Reports Unit