Guidelines for Calculating Loan to Deposit Ratio (LDR)

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In the Name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority Main Center

Office of the Deputy Governor for Supervision

No: 391000072844 Date: 1439/06/25 (March 2018) Attachments: 6

Circular

To the Honorable, Subject: Amendment of Loan to Deposit Ratio.

Based on the powers granted to the Authority under the Banking Control System issued by Royal Decree No. M/5 dated 1386/2/22H, and referring to the instructions issued by SAMA regarding the maximum Loan to Deposit Ratio (LDR) cap, which was gradually increased from 60% to 85% since 2006, and from 85% to 90% in early 2016. In line with the Kingdom of Saudi Arabia Vision 2030, SAMA collaborated with the National Savings Committee to review related regulations and bylaws to strengthen the savings culture in the Kingdom.

We inform you that SAMA has introduced new rules for calculating the Loan to Deposit Ratio (LDR) to incentivize banks to create savings products by assigning higher weights to long-term deposits (attached). These rules will take effect and be disclosed in current data forms starting from April 1, 2018.

Yours sincerely,

Ahmed bin Abdullah Al-Sheikh Deputy Governor for Supervision

Distribution Scope:

• Banks and financial institutions operating in the Kingdom.
• Supervision Department administrations.

P.O. Box 2992, Riyadh 11169, Tel: 4662300 - Fax: 4662543

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Saudi Arabian Monetary Authority General Department for Banking Control Banking Policy Department March 2018

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Guidelines for calculating Loan to Deposit Ratio (LDR)

• The updated methodology is applied separately and on a consolidated basis, and must be disclosed in the existing LDR data forms submitted to SAMA monthly.
• The weightings apply exclusively to deposits and do not cover other liabilities, such as: repurchase agreements, interbank transactions, short-term/long-term subordinated debt, and sukuks.
• It includes both local currency and foreign currency deposits from resident and non-resident entities.
• The calculation mechanism is as follows:
  • Apply the weightings in the table above to deposits to calculate weighted deposits.
  • Original maturities are used for new deposits, while older deposits are based on residual maturities.
  • Maturity mismatches will not be adjusted at this stage, but SAMA will review them for each bank individually in the future.
  • Weighted deposits are added to the permitted long-term loans to calculate the denominator for the LDR.
  • The updated methodology is applied using the formula [(Loans and advances) / (total weighted deposits and long-term loans)].
  • The LDR based on weighted deposits must not exceed 90%. The additional lending headroom is calculated by taking the difference between the numerator and denominator, subject to not exceeding the total actual deposits.
  • Attached is an illustrative example.

Deposit Weights

Demand	Less than 1 month	1-3 months	3-4 months	4-6 months	6-8 months	8-12 months	1-2 years	2-5 years	More than 5 years
100%	105%	110%	115%	120%	130%	140%	150%	170%	190%

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Example

Balance Sheet Item	Demand (<1mo)	1-3 mo	3-4 mo	4-6 mo	6-8 mo	8-12 mo	1-2 yr	2-5 yr	>5 yr	Total (SAR '000)	LDR
Loans and advances, net	998	200	237	64	64	32	0	40	37	1,673	78% (Existing)
Longer term loans, bonds, syndicated, SUKUK, sub debt	998	210	261	74	77	42	0	60	63	2	1,787
Customers' deposits	998	200	237	64	64	32	0	40	37	1,673	78% (Existing)
Existing headroom to lend up to 90% LDR										202
Weighted deposits (Existing deposits x weightage)	998	210	261	74	77	42	0	60	63	2	1,787
Headroom to lend against weighted deposits										304
Additional headroom created by weighted deposits										102

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