BANKS’ LIQUIDITY POSITION LOWEST IN 3 MONTHS

MBABANE – While the country’s banks’ liquidity remains healthy, there has been a notable decline of late.

It has fallen by around 12 per cent in the last three months. Liquidity can be defined as a measure of the cash and other assets banks have available to quickly pay bills and meet short-term business and financial obligations. Liquid assets are cash and assets that can be converted to cash quickly if needed to meet financial obligations. Examples of liquid assets generally include central bank reserves and government bonds.

To remain viable, a financial institution must have enough liquid assets to meet withdrawals by depositors and other near-term obligations. Comparisons made by this publication showed that August figures were lowest over a three-month period. Overall liquidity position of banks’ assets amounted to E7.4 billion at the end of August this year. The numbers decelerated by 10.4 per cent month-on-month and grew by 22.9 per cent year-on-year to E7.6 billion at the end of July this year. The month-on-month reduction was predominantly driven by banks’ balances held with the Central Bank as well as investments in Central Bank bills.

Overall

At the end of June, on the other hand, the overall liquidity position of the banking sector amounted to E8.5 billion in 2021, higher by 22.1 per cent from the previous month and 31.0 per cent over the year. Growth was driven by an increase in the banks’ balances with the Central Bank as well as investments in the latter’s bills over the month under review. Consequently, the banks’ liquidity ratio increased to 38.0 per cent at the end of June from 35.2 per cent recorded in May 2021.

September figures are yet to be provided. Analysts consider liquidity management as the linchpin of any and every financial sector. Financial institutions like banks are often evaluated on their liquidity, or their capacity to meet cash and collateral obligations without provoking sizeable losses.

Reported

Meanwhile, in its 2020 economic review report, the Central Bank of Eswatini (CBE) reported that throughout the period ended March 2020, the liquidity and reserves levels of banks remained healthy as both ratios were in surplus positions. The liquidity ratio ranged between 31.3 per cent and 39.8 per cent while the reserve ratio ranged between 6.2 and 7.5 per cent over the review year. In March  last year, CBE reduced  the  statutory liquidity and  reserve requirements  in order to  improve banking sector liquidity geared towards supporting the real economy as part of its regulatory relief measures in response  to the  coronavirus pandemic.

The minimum liquidity requirement was reduced from 25 to 20 per cent for commercial banks and from 22 to 18 per cent for the development bank. The minimum reserve requirement was reduced by 100 basis points for all banks from six to five per cent. The country’s banks are said to be well capitalised and profitable and not-credit strained. Due to this development, there have been calls  for the banks to consider lending as much as possible to micro, small and medium-sized enterprises (MSMEs).

Banks, on the other hand, across the globe are said to be facing problems with the liquidity crisis because of poor liquidity management. As every transaction or commitment has implications for a bank’s liquidity, managing liquidity risks are of paramount importance. Liquidity risk has become one of the most important elements in enterprise-wide risk management framework. A bank’s liquidity framework should maintain sufficient liquidity to withstand all kinds of stress events that will be faced. Constant assessment of liquidity risk management framework and liquidity position is an important supervisory action that will ensure the proper functioning of the bank.

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