February 14, 2016 / 5:50 PM / 4 years ago

UPDATE 1-Saudi central bank raises loan-to-deposit ratio -sources

(Adds analysis, context)

KHOBAR, Saudi Arabia/DUBAI, Feb 14 (Reuters) - 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 office hours.

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 companies.

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)

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