26.09.2016, 17:40
Fitch: Saudi Bank LCRs Comfortable Despite Deposit Outflows
OREANDA-NEWS. Large Saudi Arabian banks continue to report liquidity coverage ratios (LCRs) above 100% despite a 30% outflow of government-related deposits from the sector since oil prices declined sharply in November 2014, says Fitch Ratings.
The banks' ability to withstand such a shock demonstrates that their liquidity positions, at least in the short term, are resilient. LCRs measure a bank's stock of qualifying liquid assets over its short-term potential liquidity needs over a 30-day horizon.
The pace of withdrawals, already slowing, will likely ease further as government debt issuance rises. However, we believe the Saudi government will continue to withdraw deposits from the banking sector to shore up its finances. Nevertheless, one-off measures can help release government-related deposits back into the banking sector to stabilise liquidity given the authorities' supportive nature.
The Saudi Arabian Monetary Agency (SAMA) released SAR20bn (USD5.3bn) of government-related deposits into the banking sector yesterday, according to media reports. One of SAMA's functions is to 'deal with the banking affairs of the government' and, as such, it holds substantial government funds. Government-related deposits are an important source of funding for the sector and feature prominently among the banks' largest depositors, exposing the banks to concentration risks.
Saudi banks rely heavily on deposits for funding, with customer deposits representing 93% of total non-equity funding in the sector at end-2015. Two-thirds of deposits are non-remunerated, meaning that banks fund themselves very cheaply. This is especially true for banks with particularly strong franchises - such as retail leader Al Rajhi Bank and National Commercial Bank (NCB) where non-remunerated deposits represent, respectively, 99% and 82% of total deposits. The cost of interbank deposits, meanwhile, has risen sharply given tighter liquidity in the sector.
The banks' ability to withstand such a shock demonstrates that their liquidity positions, at least in the short term, are resilient. LCRs measure a bank's stock of qualifying liquid assets over its short-term potential liquidity needs over a 30-day horizon.
The pace of withdrawals, already slowing, will likely ease further as government debt issuance rises. However, we believe the Saudi government will continue to withdraw deposits from the banking sector to shore up its finances. Nevertheless, one-off measures can help release government-related deposits back into the banking sector to stabilise liquidity given the authorities' supportive nature.
The Saudi Arabian Monetary Agency (SAMA) released SAR20bn (USD5.3bn) of government-related deposits into the banking sector yesterday, according to media reports. One of SAMA's functions is to 'deal with the banking affairs of the government' and, as such, it holds substantial government funds. Government-related deposits are an important source of funding for the sector and feature prominently among the banks' largest depositors, exposing the banks to concentration risks.
Saudi banks rely heavily on deposits for funding, with customer deposits representing 93% of total non-equity funding in the sector at end-2015. Two-thirds of deposits are non-remunerated, meaning that banks fund themselves very cheaply. This is especially true for banks with particularly strong franchises - such as retail leader Al Rajhi Bank and National Commercial Bank (NCB) where non-remunerated deposits represent, respectively, 99% and 82% of total deposits. The cost of interbank deposits, meanwhile, has risen sharply given tighter liquidity in the sector.
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