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Report: Saudi central bank changes loan-to-deposit rate formula to spur lending


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Report: Saudi central bank changes loan-to-deposit rate formula to spur lending

The Saudi Arabian Monetary Authority told the country's banks to give more importance to long-term deposits while calculating their loan-to-deposit ratios, in order to allow more lending, Reuters reported, citing a report by financial news website

The new rules will introduce a weighting system for deposits, ranging from 100% of face value for demand deposits to 190% for deposits of more than five years' duration, the website reported, citing unnamed sources. The maximum loan-to-deposit ratio for commercial banks will remain 90%, but the higher value of deposits used to calculate the ratio will provide room for more lending, Maaal reported.

The new system will be in use from April, the website reported.

The Saudi central bank raised the loan-to-deposit ratio limit to 90% from 85% in February 2016. However, the industry-wide trend in January was around 80%, on account of low demand for loans due to slow economic growth, Reuters reported.

The new system could encourage banks to stem a relative decline in long-term deposits, which fell to 26.4% of total Saudi deposits in January from 29.4% a year earlier.