Saudi banks are illiquid
Posted by Ivo Cerckel on August 9th, 2009
Saudi Arabia has demonstrated a “reasonable” level of liquidity, with a loan-to-deposit ratio of 88 percent as of the end of December 2008, says Khalil Hanware today in the Arab News newspaper (1)
The virtue of “matching maturities” – matching one year loans to one year deposits and so on
– is a lesson taught in basic college finance classes.
And it is simple common sense.
But unfortunately, Saudi banks don’t do business that way.
But a bank with mismatched maturities is however bank an illiquid bank. (2)
Like all the planet’s banks, Saudi banks don’t match maturities and are thus illiquid,
i.e.,
they should be liquidated because they are fraudulent.
Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/
NOTES
(1)
Deposits with Saudi banks rise to SR916 billion
Khalil Hanware | Arab News
Sunday 9 August 2009 (18 Sha`ban 1430)
JEDDAH
http://www.arabnews.com/?page=6§ion=0&article=125293&d=9&m=8&y=2009
(2)
Harry Browne, “The Economic Time Bomb”, New York, St Martin’s Press, 1989, p. 10
Many banks have a smaller net worth than you do.
If they tried to pay of all their depositors, they would have little money left/
Browne, pp. 49 – 50
A bank earns its living by taking money in from depositors, and lending the money to its customers
or investing it.
The bank’s gross profit is the difference between the interest it earns and the interest it
pays.
A bank’s assets are its cash holdings, its outstanding loans (the money owed to it by borrowers
and its investments.)
its main liabilities are its outstanding deposits – money it owes to its depositors.
Because banks generally can earn a greater return on loans than on investment,
it will lend out as much of its money as it dares.
a bank may tie up nearly all of its assets in loans – if it’s confident that only a few of its
depositors will want to withdraw their money on any day or in any short period.
A bank fails when it doesn’t have enough cash available to pay the depositors who want to
withdraw their money – even if the bank’s assets are worth enough money to pay everyone
eventually
Browne, p. 50
§ MATCHING MATURITIES
for a bank, LIQUIDITY is the key
the availability of enough cash (or assets that can be converted to cash immediately) to honour
all withdrawal requests
To be liquid, a bank doesn’t need to have all its money in the vault.
But it does need to arrange its loans and investments to allow for the promises that the bank has
made to its depositors.
Browne, p. 51
§ IN PRACTICE
The virtue of “matching maturities” – matching one year loans to one year deposits and so on
– is a lesson taught in basic college finance classes.
And it is simple common sense.
But unfortunately, American banks don’t do business that way
- this is done in order to increase banks’ profit margins
But a bank with MISMATCHED MATURITIES is an ILLIQUID bank.
No related posts.
August 9th, 2009 at 08:57
UAE central bank urged to enhance liquidity
Bloomberg/Dubai
Latest Update: Sunday 9 August 2009, 12:07 AM Doha Time
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=307935&version=1&template_id=48&parent_id=28
SNIP
The United Arab Emirates’ central bank should either buy securities from local banks to help ease liquidity in the economy or loosen a cap on lending, the chief executive officer of the country’s second-biggest bank said.
“There has to be either some quantitative easing by the central bank broadly speaking by buying in securities” from banks and giving them money “or some easing in the ratios,” Michael Tomalin, head of the National Bank of Abu Dhabi, said in an interview in Abu Dhabi. “Because banks are tight for liquidity, there is quite a bidding war for deposits,” and “this is keeping interest rates higher than they should be.”
August 9th, 2009 at 09:06
Despite a growth in deposits,
Saudi banks remain illiquid.
Why is that?
Saudi Arabia bank credit remains dormant despite monetary easing
By Nadim Kawach on Sunday, August 09, 2009
http://aa.mc536.mail.yahoo.com/mc/welcome?.gx=1&.rand=ai0cmv807jsa2#_pg=compose&&.rand=1667217085&clean&.jsrand=4128462
SNIP
The recent debt crisis by two major Saudi groups has allied with plunging consumer demand and growing risk sensitivity by domestic banks to hit credit activity in the Kingdom despite a spate of monetary easing measures by the country’s central bank, a key Saudi bank said yesterday.
Despite a growth in deposits
with the 12 commercial banks in the world’s largest oil exporter, they have remained reluctant to provide loans, while their investments in government securities have contracted because of lower rates, the Saud
August 9th, 2009 at 13:20
IN REACTION TO THIS ARTICLE:
Universal truths about banks and banking
Stephen Hester’s first job was packing Polo mints. Now he’s running Royal Bank of Scotland. From the mint with a hole to the bank with a hole – the hole being £7.5bn in impairment charges arising from a disastrous first half of the year.
By Damian Reece
Published: 9:26PM BST 08 Aug 2009
http://www.telegraph.co.uk/finance/comment/damianreece/5994698/Universal-truths-about-banks-and-banking.html
AND TO THIS COMMENT:
UK Debt Slave
on August 08, 2009
at 10:10 PM
Universal truths about banks and banking”………..
WILL NEVER be explined to the people in a newspaper or other media form.
Very simply because if the masses understood the machinations of fractional reserve lending and fiat currency, there would be a revolution tomorrow and every banker in the land would be in a queue at the guillotine….with their politician and freemason friends.
THE SUNDAY TELEGRAPH PUBLISHES THIS COMMENT:
Ivo Cerckel
on August 09, 2009
at 06:12 AM
UK Debt Slave,
The virtue of “matching maturities” – matching one year loans to one year deposits and so on – is a lesson taught in basic college finance classes.
And it is simple common sense.
But unfortunately, UK banks don’t do business that way –
this is done in order to increase banks’ profit margins.
But a bank with mismatched maturities is an illiquid bank.
(Harry Browne, “The Economic Time Bomb”, New York, St Martin’s Press, 1989, p. 51)
August 9th, 2009 at 16:22
“The Royal Scam” by Anonymous Correspondent
http://www.oftwominds.com/blogaug09/KaPoom2CHS.htm
August 9th, 2009 at 16:48
“money” is not circulating through the UAE system properly
Cautious UAE banks may hamper govt stimulus spending
by Soren Billing on Sunday, 09 August 2009
http://www.arabianbusiness.com/564202-cautious-uae-banks-may-hamper-govt-stimulus-spending—nbk
SNIPS
Weak monetary growth in the UAE may be an indication that higher government spending is not having
the desired effect on the country’s economy, National Bank of Kuwait (NBK) has said.
+
The most important factor could be that money is not circulating through the system properly, with hesitant banks looking to hoard money and preserve capital rather than extend or renew credit to
customers,” said [NBK senior economist Daniel] Kaye.