• A possible cut in CRR; marginally positive for NIMs Bloomberg reported today that the Saudi Arabian Monetary Agency (SAMA) is considering a reduction in cash reserve requirement (CRR). Currently, the CRR stipulates a 4% reserve requirement on time deposits, and 7% reserve requirement on demand deposits. SAMA had last lowered the CRR in November 2008 when it cut the CRR on demand deposits from 10% to 7% to support system liquidity at the time of global financial crisis. While the switching of liquidity from statutory deposits, which does not pay any return, into interest earning assets should be NIM-accretive, we estimate that the incremental impact is likely to be marginal. Samba remains our preferred pick in the sector due to its high balance sheet liquidity, which provides room for NIM improvement.
• 1% cut in CRR could release SAR948 million in liquidity… According to the sector date for March 2016, banks have an aggregate of SAR94.8 billion (5.9% of sector customer deposits) in statutory deposits with SAMA. A 1% net reduction in CRR could add SAR948 million in liquidity to the system. This could possibly help to ease some pressure on the interbank market, as SAIBOR rates have been creeping up steadily since mid of last year.
• …But loan growth capped by LDR The cut in CRR is unlikely to have an impact on banks’ loan growth capacity, which is monitored through the loan-to-deposit ratio. Earlier in the year, SAMA had raised the cap on LDR to 90% from 85% previously, to allow for more room to banks for balance sheet liquidity management. Sector LDR, however, has risen since end of 2015, as deposit growth remains challenging.

Murad Ansari