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Thu 17 Dec 2015 02:42 PM

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Saudi banks seen benefiting from Fed interest rate rise

New report says lenders have relatively high portion of interest-free deposits, meaning they’ll benefit as higher rates are passed on

Saudi banks seen benefiting from Fed interest rate rise

Saudi Arabian banks are set to benefit from the US Federal Reserve’s decision to raise interest rates for the first time since 2006 as loans reprice to higher levels, according to Saudi Fransi Capital.

Lenders have a relatively high portion of interest-free deposits, meaning they’ll benefit as higher rates are passed on, Saudi Fransi Capital said in a note to investors on Thursday. The bank expects to see an impact on this quarter’s results as the Saudi Interbank Offered Rate, a key lending benchmark, has already been rising in the fourth quarter.

Net interest margins in the fourth quarter may not fully reflect the rate rise as competition to book deposits in the last few months of the year has intensified amid a slowdown in deposit growth, the bank said.

Saudi Arabia’s central bank increased its key reverse repurchase rate by a quarter-point to 0.5 percent, matching the upward move by the US Federal Reserve, even as the kingdom’s economy is squeezed by plunging oil prices. Saudi Arabia, the world’s biggest oil exporter, pegs its riyal currency to the dollar and typically follows the Fed’s interest-rate moves.

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