A deposit offered by a government agency in a bank auction a few days ago for a year witnessed “fierce” competition between 10 banks, to the extent that the margin between the interest of the winning party and the lowest offered price increased by more than double, which caused widespread confusion, especially since the highest interest was offered in the auction. The rates that some banks give on their loans to some of their customers are close to, or they may increase by a close margin, which raises the cost of money for them.
Informed sources told Al-Rai the Public Authority for Industry, as part of its work mechanisms in employing its untapped funds for investment in banks at the best possible price, offered a few days ago in an auction that it opened between banks as a deposit of 60 million dinars, for a period of 12 months, and asked each bank to present its offer for the interest that suits it, so that the winner will be the one who offers the highest rate in the end.
Surprisingly, however, 3 banks competed for the “Industry Authority” deposit with a higher interest than the market rates and a large margin, as they offered similar rates ranging between 2.58 percent and 2.67 percent, while the lowest offered rate was 1.25 percent, and higher; direct interest offered at 1.5 percent, bearing in mind that the winner of the deposit is a conventional bank. Two local banks were absent from the competition, while a branch of a foreign bank participated in the auction, offering a price of 1.75 percent.
The auction of the “Industry Authority” deposit reflected a growing banking race towards stable deposits in dinars, especially if it is known that only 3 banks offered a deposit price with an interest rate of less than 2%. You don’t want to raise the cost of money on them.
Some attributed the reason to their lack of urgent need for these funds at present, such as the banks that decided to offer an exceptional price, to their great need for this type of stable funds in arranging their maturity scales, as they use such deposits in the order of net fixed financing ratios (NSFR), which relate to deposits that are older than a year, as it seems that these banks are facing temporary challenges in meeting the liquidity ratios required by the Central Bank in the long term.
From the banking point of view, this means the high prices offered and their variance show that each bank provided the price that suits its needs of this deposit, and according to the timing, size, and classification of this deposit to the investing party, and not according to the prices traded in the market.
Perhaps what reinforces this view is that the seven banks, in their competition for the “Industry Authority” deposit, saw record interest levels in view of the circulating rates, since the Board of Directors of the Central Bank of Kuwait decided to reduce the discount rate to 1.5 percent in March 2020.
In addition, the question arises about the reasons why competition for dinar deposits is stronger than the banks’ moves to attract the dollar? In general, the fact that some banks are facing pressures in regulating their liquidity ratios does not mean that they suffer from a lack of funds in the long term, or even in the medium term.
The sources indicated that all local banks are characterized by their high liquidity surpluses, but some of them sometimes need to re-engineer their scale of entitlements with stable deposits, whose method of calculating them enhances the ratios of cash inflows to the bank, compared to its exit in the long term.
It stated that due to the slight decline in the availability of liquidity, interest rates on dinar-denominated deposits have already gradually begun to take an upward trend in the past few months after reaching their lowest levels, due to more than one reason, not least that the majority of banks’ loan portfolio is in the national currency, and accordingly this should be matched by appropriate deposit positions according to the distribution of liquidity ratios, given that the dinar is supported by the Central Bank.
The sources confirmed that all Kuwaiti banks have strong capital, supported by regulatory requirements, and did not face a liquidity crisis, despite the systematic and high withdrawals by the Public Institution for Social Security (PIFSS) since the beginning of 2017, which led to a decrease in the percentage of non-invested funds in the institution’s investment portfolio from 42 percent as on March 31, 2016, to less than 2 percent now.
