DUBAI, Sept 27 (Reuters) - Saudi Arabia's stock market may be hit on Tuesday after the government said it would cut ministers' salaries by 20 percent and scale back financial perks for public-sector workers.
The measures, disclosed in a cabinet statement and royal decree broadcast on state-run Ekhbariya TV on Monday, constitute the first pay cuts for government employees, who make up about two-thirds of working Saudis, and is one of the most drastic measures yet by the energy-rich kingdom to save money at a time of low oil prices.
Saudi Arabia's stock index
.TASI
is chiefly traded by local retail investors, with certain sectors, such as insurance, traded almost entirely by that group, leaving the index vulnerable to a sell-off.
The banking sector, however, may mitigate some of the losses as institutional and long-term investors hunt for value in those shares following Sunday's announcement by the kingdom's central bank that it would take monetary action by depositing about 20 billion riyals ($5.3 billion) at commercial lenders and introduce two new money market instruments to fight a surge in market interest rates caused by low oil prices.
On Monday, global rating agency Fitch said Saudi Arabian banks continue to report healthy liquidity coverage ratios and that their liquidity positions, at least in the short term, are resilient.
Analysts told Reuters that the move by the central bank was a positive but they believe more has to be done for a sustained rally.
"SAMA's (the central bank) move may offer some temporary relief on high loan-to-deposit ratios and interbank rates. But the main drivers of tight system liquidity - low oil prices and continuing reserve burn - are unchanged," said Simon Kitchen, head of research at EFG Hermes.
"However, we think that we need to see NPLs fall at the banks and greater clarity on government spending before we see a lasting rally in Saudi stocks."
(Reporting by Celine Aswad; Editing by Sunil Nair) ((celine.aswad@thomsonreuters.com)(+9715 62247653)(Reuters Messaging: celine.aswad.thomsonreuters.com@reuters.net))
The measures, disclosed in a cabinet statement and royal decree broadcast on state-run Ekhbariya TV on Monday, constitute the first pay cuts for government employees, who make up about two-thirds of working Saudis, and is one of the most drastic measures yet by the energy-rich kingdom to save money at a time of low oil prices.
Saudi Arabia's stock index
The banking sector, however, may mitigate some of the losses as institutional and long-term investors hunt for value in those shares following Sunday's announcement by the kingdom's central bank that it would take monetary action by depositing about 20 billion riyals ($5.3 billion) at commercial lenders and introduce two new money market instruments to fight a surge in market interest rates caused by low oil prices.
On Monday, global rating agency Fitch said Saudi Arabian banks continue to report healthy liquidity coverage ratios and that their liquidity positions, at least in the short term, are resilient.
Analysts told Reuters that the move by the central bank was a positive but they believe more has to be done for a sustained rally.
"SAMA's (the central bank) move may offer some temporary relief on high loan-to-deposit ratios and interbank rates. But the main drivers of tight system liquidity - low oil prices and continuing reserve burn - are unchanged," said Simon Kitchen, head of research at EFG Hermes.
"However, we think that we need to see NPLs fall at the banks and greater clarity on government spending before we see a lasting rally in Saudi stocks."
(Reporting by Celine Aswad; Editing by Sunil Nair) ((celine.aswad@thomsonreuters.com)(+9715 62247653)(Reuters Messaging: celine.aswad.thomsonreuters.com@reuters.net))
