The Kingdom Centre Tower in Riyadh, Saudi Arabia. Faisal Al Nasser/Reuters
The Kingdom Centre Tower in Riyadh, Saudi Arabia. Faisal Al Nasser/Reuters

Saudi Arabia central bank ends most repos as liquidity improves



Saudi Arabia's central bank said that it would stop all but one repurchase agreements amid an improvement of liquidity in the banking sector.

"The Saudi Arabian Monetary Authority has decided to suspend term repo facility for maturities of seven, 28 and 90 days with immediate effect," the central bank said in a brief statement on its website on Tuesday.

"This decision is reflective of recent market developments in the context of maintaining monetary stability."

Sama did not elaborate. The one-day repo remains.

The world’s largest oil exporter introduced seven-day and 28-day repurchase agreements in September 2016 as tight liquidity in the banking system threatened to add to the economic strain of lower crude prices, according to Bloomberg. The 90-day pacts were introduced a month later. Since then, liquidity has increased significantly.

For the first time since the global financial crisis in 2009, Saudi interbank offered rates are below their US dollar equivalent in London. On Monday, the gap was about 10 basis points.

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Saudi Arabia was hit hard by the collapse in oil prices that started in the summer of 2014 and which in a two-year period shaved more than 70 per cent from the price of oil. As a result, government entities yanked deposits from banks to help cut the budget deficit. The government also sold bonds both locally and abroad.

In October 2016, Saudi Arabia sold $17.5bn worth of bonds internationally for the first time to help shore up its finances to offset revenue shortfalls from stagnant oil prices. Prior to that, the government was selling 20bn Saudi riyals (Dh19.58bn) of bonds to banks each month since mid-2015 to help finance its budget deficit.

The ratings agency Fitch said in October that most banks had strong liquidity coverage ratios of 200 per cent at the end of the first half of 2017 amid a rebound in oil prices.

During the same time there was a 1.4 per cent rise in non-performing loans amid sluggish economic growth. The agency said Saudi Arabia's 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 in 2017 and 2018.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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  • The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
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Iran has sent five planeloads of food to Qatar, which is suffering shortages amid a regional blockade.

A number of nations, including Iran's major rival Saudi Arabia, last week cut ties with Qatar, accusing it of funding terrorism, charges it denies.

The land border with Saudi Arabia, through which 40% of Qatar's food comes, has been closed.

Meanwhile, mediators Kuwait said that Qatar was ready to listen to the "qualms" of its neighbours.

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Name: ARDH Collective
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