Qatar ranks top in GCC Islamic banks’ liquid asset ratio

Qatar’s Islamic banks have the highest liquid asset ratio among GCC countries in the period between 2016 and 2018. The liquid assets to total assets ratio, or liquid asset ratio, is one of the key indicators of a bank’s liquidity.

Despite the outflow of deposits following the blockade during 2017, the country’s Islamic banks have managed to improve their liquidity situation using government and public sector deposits and depending more on long-term sources of funding. Consequently, its liquid asset ratio improved in 2018 after a temporary fall in 2017, according to Islamic Finance News.

Qatar’s Islamic banking share in the country’s total banking assets is 25.2 percent, the third highest in the region. The liquid asset ratio of Qatar’s Islamic banks stood at 35 percent in 2018, the highest in the region and up from 32.7 percent in the previous year.

While comparing GCC economies, Islamic banks in Qatar, Kuwait and Saudi Arabia are observed to have a very high portion of liquid assets on their books. Although having liquidity levels higher than the regulatory requirement enhances their resilience, it has an adverse effect on profitability. Considering the developments observed in the Islamic capital markets, the excess liquidity situation is expected to stabilize going forward.

Liquid assets are generally the assets that mature within one year, held as either cash or cash equivalents and consist of currencies, deposits (or other assets that are available on demand within three months) and securities that can be traded in the liquid market without the risk of change in value. Banks, irrespective of whether they are conventional or Islamic, are expected to maintain an acceptable level of liquidity in order to meet their financial obligations such as meeting depositor demand, maintaining the commitment to their creditors and complying with regulatory requirements.

The majority of GCC Islamic banks tend to maintain surplus liquidity, much like other jurisdictions around the world.

Source from: The Peninsula