Middle East: Saudi banks breathe as liquidity fears ease
The liquidity issues that have plagued the Kingdom’s banks for months appear to have abated. But a persistently low oil price and the impending generational reform programme mean that Saudi Arabia’s financial sector still faces some big challenges.
One year ago, when asked about the state of banking in Saudi Arabia, Bernd van Linder, CEO of Saudi Hollandi, appeared dispirited. “Hard work for very little result,” is how he defined conditions in the new, low oil price environment, which was sapping bank liquidity and raising fears of widespread corporate loan defaults.
A year on, van Linder has left Saudi Arabia to head Commercial Bank of Dubai, but for the bankers that remain, conditions appear to have improved markedly.
Analysts say a combination of changes – some deliberate, some coincidental – have conspired to bolster the Saudi financial sector. “Bank liquidity has vastly improved,” says Johan Hattingh, CEO at Ashmore Investment Saudi Arabia, in Riyadh. “If anything, they [the banks] probably need assets.”
To understand the reasons for recent improvements, one has to go back to the period when banks’ liquidity position seemed most compromised.
The fall in the price of oil was the initial cause for concern. But, as Hasnain Malik, head of frontier markets equity strategy at Exotix, points out, the impact was not immediately felt by the banks. “There was a bit of a lag,” he says.