LIQ­UID­ITY RE­TURNS TO SAUDI BANK­ING IN­DUS­TRY, SAYS FITCH

Rat­ing agency also says loans could rise amid eco­nomic slow­down

The National - News - - BUSINESS - SARMAD KHAN

The liq­uid­ity of the Saudi Ara­bian bank­ing sys­tem has im­proved as public-sec­tor de­posits that were yanked from lenders in the af­ter­math of the 2014 oil crash to help shore up state fi­nance re­turn, Fitch Rat­ings said.

De­spite that im­prove­ment, the bank in­dus­try’s level of non-per­form­ing loans may rise be­cause of the slow­down in the econ­omy, the agency said.

“Most of the public-sec­tor de­posits that were drained from the bank­ing sys­tem in 2016 in re­sponse to fall­ing oil prices have since re­turned and the state has cleared the vast ma­jor­ity of its over­due pay­ments to con­trac­tors,” it said.

“Fund­ing costs, which spiked dur­ing the 2016 tight­en­ing, have fallen back to­wards the very low lev­els to which most Saudi banks had be­come ac­cus­tomed.

“An­other wave of gov­ern­ment de­posit with­drawals is less likely now that Saudi Ara­bia is partly fi­nanc­ing its fis­cal deficit with sov­er­eign debt is­suance.”

Fitch said most banks had strong liq­uid­ity cov­er­age ra­tios of 200 per cent at the end of the end of the first half. Dur­ing the same time there was a 1.4 per cent rise in non-per­form­ing loans amid slug­gish eco­nomic growth.

The agency said Saudi GDP growth slowed to 1.4 per cent in 2016 from 3.4 per cent in 2015 and is ex­pected to grow be­low 1 per cent both this year and in 2018.

Still, de­spite the gain in non-per­form­ing loans, the lev­els are still low by global stan­dards and the earn­ings of Saudi banks re­main solid.

“Although higher im­pair­ment charges will af­fect cap­i­tal ra­tios, slow loan growth and still-solid earn­ings should mean that sec­tor cap­i­tal­i­sa­tion will con­tinue to im­prove, with banks stor­ing ex­cess cap­i­tal ready to de­ploy if and when the econ­omy im­proves in the longer term,” the rat­ings agency said.

Moody’s In­vestors Ser­vice ear­lier this year up­graded the out­look for the Saudi bank­ing in­dus­try to stable from neg­a­tive, on ex­pec­ta­tions of a pick-up in non-oil eco­nomic growth and an im­prove­ment in the lev­els of cash avail­able for lend­ing fol­low­ing a spate of sov­er­eign bond sales.

The world’s big­gest ex­porter of crude oil has been tak­ing mea­sures to shore up its fi­nances in the wake of the steep­est drop in oil prices since the fi­nan­cial crash of 2008.

As part of that ef­fort, the gov­ern­ment sold US$17.5 bil­lion in bonds in its first in­ter­na­tional sale last year and an­other $12.5bn last month.

The gov­ern­ment is fore­cast­ing a bud­get deficit of 198bn

riyals for 2017, com­pared with an ac­tual deficit of 300bn Saudi riyals (Dh293.8bn) last year.

In Au­gust, the Saudi Ara­bia’s min­istry of fi­nance said the king­dom nar­rowed fis­cal deficit by a fifth from a year ear­lier in the sec­ond quar­ter, thanks to an uptick in rev­enues and a de­cline in spend­ing.

Rev­enues rose 6 per cent year-on-year to 163.9bn riyals dur­ing the sec­ond quar­ter, with oil rev­enues surg­ing 28 per cent to 101bn riyals on higher oil prices. Spend­ing fell 1.3 per cent to 210.4bn riyals in the sec­ond quar­ter, cut­ting the deficit to 46.5bn riyals from 58.4bn riyals a year ear­lier.

The state re­lies on sales of crude to fund more than 75 per cent of its bud­get.

Plum­met­ing oil prices have prompted the gov­ern­ment to try to plug the gap in its fi­nances via debt sales, re­duc­tions in sub­si­dies and new forms of tax­a­tion.

Bloomberg

With an up­grade to its sys­tem ear­lier this year, Saudi banks have strong liq­uid­ity cov­er­age ra­tios

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