Improved sovereign bond issued by Saudi banking sector

The sovereign bond ($17.5 billion) issued by Saudi Arabia last month had a major impact in the domestic banking system. To some extent, it has made an easier liquidity condition.

Even though the monetary survey data for October is yet to be seen, projections are made that a portion of the bond proceeds have been transferred to the domestic banking system, with both government and private sector deposits likely to have increased over the past few weeks.

However, report has it that the government has started paying contractors with outstanding payments. Currently the total amount paid is 40 billion Saudi riyals. There is also another 100 billion riyals of delayed payments (which is expected to be paid by the end of the year.

For the past 2 weeks, interbank rate has fell and this is as a result of the increase in bank deposits. The dollar rates has also increased substantially. The narrowing spread reflects the easier liquidity conditions.  Also, the overall public debt has doubled.

“We estimate that Saudi Arabia’s stock of public debt has increased by 223 billion riyals ($59.5 billion) year-to-date. While 120 billion riyals was through domestic bonds while the balance was raised through a syndicated loan and the sovereign bond. We estimate public debt to GDP has increased to just over 15 per cent of GDP this year, from under 6 per cent in 2015,” said Khatija Haque (Head of MENA Research at Emirates NBD).

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