Saudi Arabia's National Commercial Bank (NCB) and Banque Saudi Fransi both recorded falls in deposits in the last three months of 2015, showing how lower oil prices are squeezing lenders' liquidity.
The decline in deposits did not stop the two banks from reporting estimate-beating profits as the earnings season got under way for banks in the kingdom. Higher income from fees and lending helped to boost profits.
Saudi banks were able to build up significant deposits in recent years, as revenues garnered from high oil prices were placed with local banks by the government.
The slump in oil prices, which have lost around three-quarters of their value since a decline began in June 2014, has reverse the trend, with the government removing cash to plug its budget deficit through bond issues worth 115 billion riyals ($30.6 billion) in the second half of 2015 -- most of which were sold to local banks.
"NCB has a major government shareholding, hence it is reasonable to expect that they have a large share of government deposits. Part of this we believe may have moved out this quarter," said Chiradeep Gosh, banking analyst at Bahraini investment bank SICO.
NCB's deposits dipped 2.95 percent from the year earlier to 323.3 billion riyals at the end of Dec. 31. Banque Saudi Fransi, part owned by Credit Agricole, said its deposits slipped 2.43 percent to 141.8 billion riyals.
It is the first time that the banks, the kingdom's largest and sixth-largest by assets respectively, have reported declining deposits since oil prices began to tumble.
It is further evidence of squeezed liquidity in the kingdom's banking system, on top of money market rates which have hit record levels in recent weeks.
Despite the deposit falls, both lenders reported significant profit jumps.
NCB made a net profit of 2.13 billion riyals in the three months to Dec. 31, 16.6 percent up from the same period of 2014 and higher than the 1.95 billion riyal average forecast of three analysts polled by Reuters.
Profit growth was driven by an 11 percent year on year gain in income derived from fees, as well as a 14 percent jump over the same time in lending.
Fransi made a profit of 950 million riyals in the three months ending Dec. 31, 11.6 percent up from the same period a year earlier. Seven analysts surveyed by Reuters had on average forecast the bank would make a quarterly profit of 891.8 million riyals.
It cited an improved net interest margin as well as an 8 percent year-on-year gain in operating income for the increase in earnings.