Meanwhile, Saudi Stocks Crash Near 7 Year Lows

Despite the Deutsche-driven bounce in Western markets on Friday, the 'panic in The Kingdom' that we highlighted earlier in the week is accelerating fast. Following demands from officials for banks to reschedule loans to clients affected by last week's decision to cut salaries and bonuses for state employees, Middle-East bank stocks are collapsing and Saudi's Tadawul Index is back near its 2009 lows…

The weakness – despite crude strength – was driven by Saudi Arabia’s central bank decision to direct local lenders to reschedule the consumer loans of clients affected by last week’s decision to scrap the bonuses and allowances of many state employees. As Bloomberg reports,

The Saudi Arabian Monetary Agency, as the central bank is known, said in a statement on its website on Sunday that the step was part of efforts to “reduce pressure on borrowers” whose income was cut by the government’s Sept. 26 package of measures to further trim spending.

The agency said local banks must obtain the client’s approval before rescheduling a loan. Borrowers should present proof that their income has been affected by the recent cuts to the nearest bank branch, the regulator said. Loans taken after the cabinet decision to end the payments won’t be rescheduled.

Under Deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has already delayed payments owed to contractors and started cutting fuel subsidies as it tries to manage lower oil prices. The measures may help narrow the budget deficit to 13 percent of gross domestic product this year and below 10 percent in 2017, according to International Monetary Fund estimates.

The cancellation of bonuses and allowances — and a simultaneous decision to lower ministers’ salaries by 20 percent — further spread the burden of shoring up public finances to a population accustomed to years of government largesse. Yet analysts have warned the cuts risk deepening the kingdom’s economic slowdown by damaging consumer confidence.