(Adds analysis, context)
KHOBAR, Saudi Arabia/DUBAI Feb 14 Seeking to
ease tightening liquidity in the banking system, Saudi Arabia's
central bank has raised the ratio of deposits which commercial
banks can lend out to 90 percent from 85 percent, industry
sources said on Sunday.
No comment was available from the central bank outside
Liquidity has tightened over the past year as low oil prices
have reduced inflows of new state revenues and prompted the
government to issue bonds to banks to cover a budget deficit
that totalled nearly $100 billion last year.
That threatens to slow economic growth; the three-month
Saudi interbank offered rate has jumped to 1.73
percent, the highest level in seven years, from below 0.80
percent in mid-2015.
By making more money available for lending, the rise in the
loan-to-deposit ratio could at least temporarily prevent
corporate loan rates from rising further, benefiting Saudi
The loan-to-deposit ratio is designed to limit risk in the
banking system by preventing banks from lending too generously.
However, raising it by 5 percentage points is unlikely to prove
dangerous, analysts said.
"In fact 85 percent is a conservative level compared to
regional banks in the United Arab Emirates and Qatar, which
allow the level to reach more than 100 percent," said Said al-
Shaikh, chief economist at National Commercial Bank.
(Reporting by Celine Aswad and Reem Shamseddine; Writing by
Andrew Torchia; Editing by Stephen Powell)