Saudi banks’ liquidity squeeze to moderate in 2017: Moody’s

Saudi banks’ liquidity pressures will moderate in 2017 compared with 2016, primarily as a result of subdued credit growth, Moody’s Investors Service said in a note on Thursday.

Lower credit growth, however, will reduce the profits of banks in the kingdom, the rating agency added.

The fall of the three-month Saudi Interbank Offered Rate (SAIBOR) below 2 percent on Jan. 30 is credit-positive for Saudi banks, implying that liquidity pressures have eased since Q3 2016, the note said.

Last October, the SAIBOR hit its highest level since January 2009 at 2.4 percent, reflecting tougher funding conditions for banks amid the kingdom’s spending cuts and payment delays.

However, the trend reversed since Q3 2016 due to the large liquidity injected into local banks following a $17.5 billion international sovereign bond issuance in October 2016, and the payment of $28 billion of overdue bills to Saudi contractors in Q4, which led to significant loan repayments to banks. 

Going forward, Moody’s said it expects deposit growth to remain challenging, even as liquidity pressures are expected to remain moderate over the next 12-18 months, the report said.

Subdued economic conditions will continue to weigh on corporate profits and savings, with the kingdom’s non-oil gross domestic product (GDP) projected to grow by 2 percent this year.

Meanwhile, the Saudi government should fund its fiscal deficit either through its reserves and deposits with banks, or debt issuance, the report added. 

However, the rating agency noted that it views the government’s decision on Jan. 30 to suspend domestic debt sales for the fourth straight month as positive, as local bond issues can crowd out bank liquidity.