UAE banks managed asset and legal responsibility maturities higher than gulf friends, our evaluation exhibits, as lenders globally battle rising market threat amid weak sentiment and aggressive inflation-fighting financial coverage. That threatens lenders’ conventional enterprise of mobilizing short-term liquidity by way of deposits and deploying it in longer-term property. Liquidity ratios reminiscent of 30-day pressured protection or longer funding “NSFR” are on buyers’ radar, however they aren’t immune from inherited threat within the assumption of core deposit stability. Gulf banks’ core deposits are largely made up of present and financial savings “CASA” no-maturity deposits. They’ve confirmed their stickiness with retail banks assigning as much as 5 years on them underneath Basel guidelines. But assessing liquidity buffers in each 30 and 90 days to soak up stress on CASA outflow is essential.
Our mannequin permits us to calculate the cumulative funding hole for UAE, Saudi and Qatari banks underneath totally different eventualities for present and savings-deposit outflow charges. UAE banks fared higher on managing their asset legal responsibility, holding the short-term liquidity shortfall at 21% of their property after assuming theoretically present account and financial savings account (CASA) vulnerable to outflow at 90 days vs. 55% for Saudi and 41% for Qatari friends.
UAE banks’ funding hole is much less unfavourable vs. friends in stress take a look at
A liquidly hole is inherited threat throughout the banking mannequin as lenders make revenue from short-term borrowing or mobilizing low-cost or free deposits, whereas lending at larger charges for longer. UAE and Saudi lenders’ funding is characterised by a big share of present and saving accounts (CASA) that don’t have any contractual phrases or will be withdrawn any time. But these CASA accounts have confirmed their stickiness, given restricted different money-market financial savings automobiles, a big retail base and government-related entity assist.
Assuming CASA in a stress take a look at turns into outflows within the three-month liquidity bucket, the cumulative funding hole will flip unfavourable for all banks, although UAE friends with liquidity buffers might soak up liquidity threat higher. Which will result in shortfalls of 21% of their property vs. 41% for Qatari and 55% for Saudi banks.
UAE financial institution on 14% money buffer vs. Saudi friends 9% funding shortfall
Non-maturity demand and financial savings deposits (CASA) — largely retail funds — makes up massive funding sources for UAE (44% of all deposits) and Saudi banks (57% of all deposits). We’re excluding them from the three-month liquidity hole to evaluate the buffer. UAE banks have a constructive liquidity hole on all maturities. This creates a buffer to soak up migration of CASA into interest-bearing deposits in a rising interest-rate state of affairs or tightening liquidity or outflow of those deposits if in a case the deposits turned out to be unstable. Saudi friends’ funding hole turned unfavourable on 3-12 month bucket final yr vs. a yr earlier, making up a 9% liquidity shortfall on whole property for 90-day interval.
Qatari banks’ liquidity hole is unfavourable as the vast majority of deposits are interest-bearing with short-term contractual phrases.
Qatari banks unfavourable funding hole on decrease CASA
Qatari banks’ cumulative funding hole for 3-12-months is unfavourable with or with out present and financial savings deposits (CASA) as a result of interest-bearing funds are a big funding supply. These are contractually short-term deposits. Qatari banks’ liquidity shortfall is 41% (26% assuming sticky CASA) of whole property vs. a 55% shortfall for Saudi friends (9%), we calculate, however the threat solely seems if the deposits aren’t renewed and grow to be outflows.
A funding hole works as a backstop for liquidity protection (LCR) or secure funding (NSFR) as these ratios favor retail deposits over wholesale on extra secure or decrease deposit outflows. In a state of affairs the place retail deposits aren’t secure, the cumulative hole might higher estimate the funding place when present and financial savings accounts are thought of theoretical outflows within the three-month bucket.