Liquidity

How has liquidity in Saudi Tadawul fared during COVID-19?

Liquidity is one of the key indicators of a stock market and is a fundamental requirement for market efficiency. In recent years, Saudi Arabia’s equity market has implemented reforms, such as relaxation of foreign ownership and has achieved milestones such as inclusion in key indices including the MSCI Emerging Market Indices. With the listing of Saudi Aramco, it has also become one of the top 10 markets globally, by market capitalization. Given the market’s importance in GCC and globally, the...

What affects the liquidity position of Islamic banks?

This article was originally published in Islamic Finance News (IFN). Maturity transformation is the primary business of banks and which by definition is the conversion of a bank’s short-term liabilities into longer-term investments through loans and advances. The very nature of a bank’s business model requires them to hold a mix of liquid liabilities with illiquid assets. While the primary target of banks is to strive for profitability by optimal utilization of available funds, they also have to maintain an...

Liquidity in Islamic banking: Challenges and opportunities

This article was originally published in Islamic Finance News (IFN). Liquidity management has been a key element for banking, be it conventional or Islamic. However, the main difference between the two lies in the tools each of them can use to effectively manage liquidity. Conventional banks have access to instruments such as interbank deposits, repo operations, foreign exchange swaps, T-bills [treasury bills] and commercial papers that are inaccessible to Islamic banks due to their nature of charging interest, which is...

Do GCC Banks have adequate capital buffers?

The term liquidity is defined as the banks’ ability to fund rising assets and to meet its obligations on time. Therefore, when banks are unable to perform the primary tasks of funding assets and paying its obligations, it faces liquidity risk. Effective liquidity management is important to promote macro-financial stability. In the GCC countries, fixed exchange rate regimes provide reliable nominal anchors, but when combined with open capital accounts, they result in limited independence of monetary policy. At the same...

Securitization platform for Islamic liquidity management

This article was originally published in Islamic Finance News (IFN). Liquidity management has been one of the major hurdles faced by Islamic banks since inception, owing to the dearth of instruments that help maintain liquidity while complying with Shariah laws. Due to the unavailability of compliant instruments, Islamic banks typically hold a large amount of liquid assets in their balance sheets until maturity and are dependent on their balance sheet assets for liquidity management. The excess idle cash adds pressure...

Novel liquidity instruments need of the hour for Islamic financial institutions

This article was originally published in Islamic Finance News. Islamic finance is still a relatively small part of the broader financial services industry. Compared to the conventional industry, Islamic finance lacks adequate liquidity instruments as Shariah restrictions limit the number of instruments that could be used for liquidity management. Islamic interbank and money markets also lack the volume and diversification of conventional markets leading to a sectoral disadvantage from the outset. Review of 2018 Since 2015, there has been a...

Why is Liquidity important? Some Research Snippets

Liquidity is at the backbone of any market development and GCC stock markets are no exception. Strong oil price backed wealth effect coupled with retail nature of the market triggering speculative activity contributed to very robust liquidity levels in the past, especially before the financial crisis. Liquidity is generally measured as total value traded and is expressed as a % of total market capitalization to arrive at the velocity. A high velocity may indicate that liquidity is running ahead of...