Moody's re­vises out­look for Saudi banks to neg­a­tive

The Pak Banker - - FRONT PAGE -

DUBAI: Moody's In­vestors Ser­vice changed its out­look for Saudi Ara­bia's banks to neg­a­tive from sta­ble on the ex­pec­ta­tion that bad loans will rise over the next 12 to 18 months be­cause of low oil prices and a de­cline in govern­ment spend­ing. Non­per­form­ing loans will rise to about 2.5 per cent of to­tal loans over the pe­riod, from a "very low av­er­age 1.4 per cent in Septem­ber 2015, Olivier Pa­nis, a vice pres­i­dent at the rat­ings firm, said in a state­ment on Wed­nes­day. Banks will also re­main ex­posed to loan de­faults ow­ing to their "per­sis­tently high sin­gle-party ex­po­sures," the an­a­lyst said.

Saudi Ara­bia's eco­nomic growth will slow to 1.5 per cent in 2016 and 2 per cent in 2017, well below the 3.4 per cent growth es­ti­mated for 2015 be­cause of the im­pact of lower crude prices, ac­cord­ing to Moody's. Banks' loan growth will slow to be­tween 3 per cent and 5 per cent in 2016, from 8 per cent in 2015 and 12 per cent the pre­vi­ous year, it said.

Still, cap­i­tal buf­fers of Saudi banks are likely to re­main "solid," with the sec­tor's av­er­age tan­gi­ble com­mon equity ra­tio re­main­ing sta­ble at about 15.7 per cent at the end of 2016, com­pared with 15.4 per cent in Septem­ber 2015, Moody's said. Prof­itabil­ity is also likely to re­main strong be­cause of the banks' lean cost struc­tures and zero cor­po­rate tax, it said.

"Tight­en­ing liq­uid­ity - as pub­lic-sec­tor de­posit in­flows and cor­po­rate prof­its mod­er­ate - will likely ex­pose banks to greater fund­ing volatil­ity in line with re­gional pres­sures," Khalid Howladar, a se­nior credit of­fi­cer based in Dubai, said in the re­port. "How­ever, we ex­pect the lo­cal im­pact to be man­age­able and fund­ing struc­tures to re­main rel­a­tively sta­ble thanks to a broad and grow­ing de­pos­i­tor base." Saudi Ara­bia's cen­tral bank does not think fur­ther mea­sures to boost liq­uid­ity are nec­es­sary af­ter in­creas­ing the loan to de­posit ra­tio last month, Ab­du­laziz al-Fu­raih, Saudi Ara­bian Mon­e­tary Agency vice gov­er­nor, told Al Riyadh news­pa­per. SAMA, as the cen­tral bank is known, told banks last month that they can lend the equiv­a­lent of 90 per cent of their de­posits, up from an ear­lier limit of 85 per cent.

The cur­rent sit­u­a­tion is very sta­ble and re­as­sur­ing and we don't think that we have reached a stage that forces us to use other op­tions, Al-Fu­raih was cited as telling the news­pa­per. The world's largest oil ex­porter is seek­ing to re­vive its econ­omy and stim­u­late credit as the slump in oil rev­enue and govern­ment spend­ing strain the bank­ing sys­tem. The three-month Saudi Ara­bia In­ter­bank rate rose to 1.77 per cent on Wed­nes­day, the high­est in about seven years, ac­cord­ing to data com­piled by Bloomberg.

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