The Saudi Inter Bank Offer Rates (SAIBOR) has tripled during the past year to 2.3% currently from less than 0.8%, primarily due to tight liquidity conditions in the KSA, according to a report by Al Rajhi Capital.
“As per our analysis, this increase is yet to fully reflect in borrowing costs of listed companies,” the research firm indicated.
“As borrowing rates are generally reset on a semi-annual basis or at the time of renewal, we could see financial expenses rising in the coming quarters,” it added.
Al Rajhi Capital’s calculations indicate a 7.4% potential negative impact on aggregate TASI net profit for a 100bps borrowing cost increase across the board.
Companies with low profit margins and high leverage will be the most impacted with a continued increase in benchmark rates, according to the report.
“We believe the impact is noteworthy given the challenging operating environment and as companies are still trying to adjust to lower subsidies and higher energy costs announced by the government early this year,” the report highlighted.
While overall credit growth is continuing strongly at higher single digits, aggregate debt by listed firms has slowed down on the back of slowing economic growth and possibly rising borrowing rates, the report concluded.
