Saudi banking shares rallied after the central bank said it would deposit about SR20 billion ($5.3 billion) at commercial lenders and introduce two new money market instruments to fight a surge in market interest rates caused by low oil prices.

Tadawul All-Share Index climbed 0.7 percent as three-quarters of the banking shares rose. Blue-chip lenders Samba Financial Group and National Commercial Bank gained 1.7 percent and 2.7 percent respectively.
John Sfakianakis, director of Economics Research at the Gulf Research Center, told Arab News: These are measures geared toward increasing banking liquidity which are in the right direction. More is expected to be done in the coming months in order to increase liquidity and reduce the cost of borrowing.”
A regional analyst, who wants to remain anonymous, said: This has been in the works for some time. Similar steps were used in the region in 2008-2009. I suppose the most important signal is that SAMA recognizes the importance of the liquidity issue and is determined to deal with it.”
Banking shares have been underperforming the general index for several months, hit by an illiquid construction sector, which makes up a large portion of corporate loans. Samba, for example, is trading at a 26 percent discount to its average fair value as estimated by 13 analysts, according to Reuters data.
Analysts, quoted by Reuters, believe SAMA decision offers a temporary reprieve but more ought to be done to sustain a rally.
“Yes the central bank injecting 20 billion riyals is a positive move for Saudi banks but in the present context, more needs to be done to help banks, such as increasing the loan-to-deposit limit,” said Sanyalaksna Manibhandu, head of research at NBAD Securities.
“The government needs to tap the international bond market sooner than later and help boost the liquidity of the banking system. Reviving and launching capital projects and ensuring contractors get paid for their work would also help the economy and banks,” he told Reuters.
Mohammad Al-Shammasi, chief investment officer at Riyadh-based Derayah Financial, echoed the same concern over the advances-to-deposit ratio. He said that while some lenders are close to the upper limit, there needs to be greater flexibility for them to mobilize funds toward more productive use, which would help revitalize the economy and support their earnings growth.
“So far the credit markets have not reacted much to the news, but this is what we are going to keep a close look out for,” Al-Shammasi added.
The three-month Saudi Interbank Offer Rate, SIBOR, which is up about 1 percentage point since the start of the year, did not ease from the previous session.
The petrochemical industry fared well on Monday, with its largest producer Saudi Basic Industries Corp. (SABIC) rising 0.9 percent as Brent futures climbed back over $46 a barrel. 
Oil producers are set to meet in Algeria over the coming days.

Source: Arab News