Al Rajhi Capital, one of the Kingdom's largest Investment firms, has published a report titled "Saudi economy — liquidity improves further". The report highlights that the money supply in the country improved in October driven by increased deposits, which has also lowered the overall loan-to-deposit ratio to below the regulatory limit of 90 percent. The improved liquidity situation also led to an almost 30 basis points drop in Saudi 3 month interbank rate from its peak in October 2016. More importantly, research report highlights that the premium paid by some banks on bulk deposits has also reduced from 120-150 bps to around 10-30 bps now, indicating the easing liquidity pressure in the system. Government's decision to start releasing SR100bn in delayed payments to contractors in early November is expected to further improve liquidity going forward. Some of the key details of the report are: Broader money supply (M3) grew in October (y-o-y) after falling for 8 months in a row as time and savings deposits grew 23.3 percent y-o-y. Banks' claims on the private sector rose 6.3 percent y-o-y in October, from a 7.0 percent y-o-y increase in September. Meanwhile, deposits grew for the first time in 9 months in October, by 0.5 percent y-o-y. As a result, the loan-to-deposit ratio stood below 90 percent, after remaining above the 90 percent mark for four consecutive months. Saudi banking sector's net profit slipped 1.9 percent y-o-y in the month of October, compared to the 5.5 percent decline witnessed in Q3 2016. Non-performing loans (percent of total gross loans) for the sector rose to 1.3 percent at the end of Q3 2016, from 1.2 percent in Q2 2016. Liquidity situation in the Kingdom continued to improve as indicated by easing SAIBOR rates post the international bond sale of $17.5bn and payments to contractors. POS transactions gained 1.4 percent y-o-y in October 2016, from a rise of 0.9 percent y-o-y in September, while ATM transactions rose by 0.7 percent y-o-y in October, as against a yearly fall of 5.5 percent in September, which could be attributable to banks' deferral of consumer loans payments for October. Saudi Arabia's foreign reserve assets fell at the fastest pace in eight months (on a y-o-y basis) despite the Kingdom's international bond sale in October, suggesting that the government may have partially cleared its outstanding dues with its contractors by drawing its foreign assets. — SG
