Saudi Arabia is to pump 50 billion riyals (US$13.3 billion) into the banking system to help manage the fallout from the COVID-19 pandemic and the drop in oil prices.
The move by the Saudi Arabian Monetary Authority (SAMA) would support financial stability and boost credit facilities to the private sector, the central bank said in a statement yesterday.
The program is aimed at helping banks amend and restructure loans without additional fees and support private sector employment.
Photo: AFP
As a result of the virus outbreak, Saudi banks are “expected to encounter a reduction in activities in 2020, which will reflect negatively on profitability and possibly increase defaults,” the central bank said in its Financial Stability Report published last week.
Hit simultaneously by lower crude prices and coronavirus shutdowns, Saudi Arabia’s non-oil economy is expected to contract for the first time in more than 30 years.
The central bank had previously unveiled a 50-billion-riyal program to help mostly small private businesses in the country.
In March, the regulator urged banks to put in place a lending program for at least six months to “assist in maintaining employment levels,” according to a document sent by the regulator to lenders and seen by Bloomberg.
Saudi Arabian Minister of Finance Mohammed al-Jadaan said in a statement over the weekend that the government had also transferred 150 billion riyals from SAMA’s foreign reserves to the Public Investment Fund, the kingdom’s sovereign wealth fund, in March and April to help it finance a buying spree of assets in international markets that had dropped in value as a result of recent turmoil.
Saudi Arabia’s fiscal deficit this year is set to widen to nearly 13 percent of GDP, according to the IMF.
Gross official reserves are set to drop to about US$456 billion this year, continuing the trend into next year, when they are estimated at just more than US$409 billion, IMF projections show.
At the end of April, the central bank’s net foreign assets stood at US$443 billion.
The kingdom could borrow 220 billion riyals this year, about 100 billion riyals more than it forecast before the outbreak, while keeping its drawdown from reserves at up to 120 billion riyals.
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