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21 November 2019
BUSINESS

SAMA monitors banks for excessive lending ahead of Saudi Aramco IPO

The central bank met local banks in October 2019 to ensure that they would be able to maintain enough liquidity while still ensuring enough loans were available to support investors in the listing.

Bloomberg/Simon Dawson


Saudi Arabia is closely monitoring how much banks are lending to local investors rushing to buy shares in Saudi Aramco and what impact the mammoth offering will have on the Kingdom’s financial sector, reported Bloomberg.

The Saudi Arabian Monetary Authority (SAMA) wants daily updates on how much credit banks are providing after it eased lending limits for buyers. The regulator is warning banks not to breach any prudential limits after institutions were permitted to lend as much as double every riyal buyers put toward the oil company shares—from the usual limit of 1 to 1.

Officials are concerned that leverage dedicated to the Saudi Aramco IPO could potentially deprive the private sector of credit. Additionally, they are also concerned what will happen if Saudi Aramco’s share price slumps after listing.

Saudi banks are seeking to cash in on the state-owned energy giant’s IPO after years of falling loan growth and a decline in the pace of economic expansion. Lenders will gain from revenue generated from margin loans and brokerage. But any windfall will also come with risks—any jump in lending could be brief—as investors receive only a portion of the shares they bid for and borrowers are at risk of defaulting if the deal turns sour.

Bloomberg reported that bankers on the deal are seeing sufficient early demand to pull off the IPO just three days after launching the deal.

Saudi authorities have been pulling several levers to try and make the deal a success. As well as easing lending, they’ve also persuading the Kingdom’s richest families to invest.

Saudi Arabia has been negotiating commitments from the billionaire Olayan family, who owns a major stake in Credit Suisse Group and Saudi Prince Alwaleed Bin Talal.


RELATED STORIES: Olayan family Saudi Aramco IPO Saudi Arabian Monetary Authority Credit Suisse Group Prince Alwaleed Bin Talal

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