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Saudi Arabia doubles the amount banks can lend for Aramco IPO

Dubai

SAUDI ARABIA'S central bank doubled leverage limits for retail investors looking to buy shares in oil giant Saudi Aramco, according to people familiar with the matter, part of an effort to boost local demand for what could be the world's largest initial public offering.

Banks will be permitted to give leverage to retail customers at a ratio of 2 to 1 for every riyal they put toward buying Aramco shares, up from the normal limit of 1 to 1, the sources said, asking not to be identified because the decision is not public. Lenders will be allowed to give corporate and institutional customers higher leverage ratios based on each customers creditworthiness, the sources said.

Samba Financial Group will offer retail investors 2-to-1 leverage to invest in Aramco shares, chief executive officer Rania Nashar said in an interview with Al Arabiya TV on Monday.

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Saudi banks are seeking to cash in on the initial public offering (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.

Saudi Arabia on Sunday set a valuation target for the IPO well below Crown Prince Mohammed bin Salman's US$2 trillion target and pared back the size of the offering - easing pressure on the country's banking sector.

"The lower government valuation means reduced risk from IPO mispricing for the bank," said Dubai-based Bloomberg Intelligence analyst Edmond Christou.

"Our scenario analysis shows that a fully-funded float from the local market may worsen the statutory loan-to-deposit ratio to 84 per cent compared with 79.14 per cent as of September, but it's still a comfortable level versus the regulatory threshold."

The country's 30 lenders held 1.9 trillion riyals (S$689.3 billion) in weighted customer deposits at the end of September, according to Bloomberg calculations based on central bank data. Banks are allowed to lend as much as 90 per cent of that, but had only used about 79 per cent, leaving about US$50 billion on the table.

With a US$1.7 valuation and 1.5 per cent listing, Arqaam Capital estimates that between US$2.75 billion and US$3.45 billion in new deposits could be added to Saudi banks from foreign inflows alone.

"This could be further enhanced by leverage being provided by the banks, which should also boost overall credit demand in the country given the sheer size of the offering," said Jaap Meijer, head of research at Arqaam. BLOOMBERG