Saudi Arabia’s slowing economy, tighter liquidity and rising interbank rates mean investors should avoid the country’s banks, Dubai-based Arqaam Capital said.

Tighter liquidity conditions are likely to persist in the “medium term,” the investment bank said in a note on Thursday, adding that rising interbank rates have a relatively insignificant impact on bank margins and profitability. Arqaam also said it doesn’t expect the Saudi Arabian Monetary Agency to fine any banks as a result of its request that lenders stop lowballing interbank rate submissions.

SAMA, as the central bank is known, wrote to banks last week instructing them not to submit levels for the Saudi Interbank Offered Rate that are below what they’re actually willing to deal at, people with knowledge of the matter said. Liquidity has tightened as the government has withdrawn deposits and sold local currency debt. The central bank has also been clamping down on currency traders amid speculation that the country won’t be able to maintain the riyal’s peg to the dollar and also eased rules on bank lending.

Analysts have been cutting their earnings projections for Saudi Arabian banks amid the highest borrowing costs in seven years and expectations that provisions for bad loans will start to rise.

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