JEDDAH: Getting a loan has just got harder for consumers, corporate, and even financial institutions themselves according to local banks which are reporting stiff demands for credit amid an increasing lack of deposits.

“There is an increasing number of requests for credit from facilities in the economy and contributors to the economy but not enough money in riyals to support these requests,” the chief economist of SABB in Riyadh said.

Three-month CIBOR (corporate Saudi riyal interest rates), according to analysts have risen sharply over the past few months, which saw the rates at around 2.2 percent in May of this year but rose to 4 percent last month.

“Overall the cost of local currency borrowing is increasing as the riyal gets more difficult to find and due to the global credit crunch driving up the cost of borrowing in US dollars more companies in the region are looking for a cheaper currency to trade in, which in this case is the local currency, the riyal causing rates to increase due to the high demand,” John Sfakianakis said. Local banks have found themselves in an increasingly difficult position as the Saudi Arabian Monetary Agency (SAMA) has cautioned local commercial banks not to exceed their asset to deposit limit, which is equal to 85 percent of their total assets, while on the other hand trying to battle rising inflation.

“I believe there is a tightening of liquidity and an easing of speculation of riyal appreciation as SAMA’s tightening of the screws has taken hold,” Howard Handy, chief economist of Samba Financial Group said, referring to the Saudi central bank’s decision to increase reserve requirements four times last year resulting in “a direct effect on the liquidity picture.”

On the supply side banks are faced with a large number of withdrawals of riyals due to summer travelers which have taken their money abroad and a longer than usual holiday this year also including Ramadan. However, on the demand side we see a need for local project implementation and continued high demand for credit to fuel these projects financially,” Handy added. He also said that short-term rates are up while slightly and attributed another reason for the rise of these rates to currency trading speculators who in the past flooded the market to purchase local currencies with the presumption that GCC countries would take the advise of globally known investment firms and most recently the International Monetary Fund to break their links to the weak US dollar thus resulting for a rise in the local currency value and big gains for the speculators.

However, bankers say that they believe the preconceived idea that some GCC member states will de-peg or revalue their currencies has faded. “Media reports saying that the currency would be revalued while quoting heads of the region’s central banks played a big role in taking local currency out of the bank market but since the same central bank heads have reiterated that they will by no means de-peg or revalue but instead stay the course until they reach the GCC unified currency in 2010 the picture has changed,” commented the business development and loans director in a local bank.

He also added that the only alternatives for local banks without sufficient deposits but an increased demand for credit is to borrow from international banks which at the moment can not be easily tapped or offer incentives to attract both corporate and consumer customers to deposit in their banks. “Many banks have been advertising to try to get more accounts opened and therefore more deposits, so there is a sort of war going on to which bank can offer the better account package,” he said.

But customers aren’t so easy to lure as money is tight. “I have seen the ads in the supermarkets and around the city but I would rather not keep my money in the banks as an investment as the rate of return is only 4 percent while the inflation rate is over 10 percent, so in my opinion I don’t think that it would be very profitable,” said 19-year old Rawan Ahmed who is thinking of opening a bank account after starting work in her first job last month.