Viewpoint: Fahad Al Mubarak

First, I would like to review the latest economic developments in Saudi Arabia. Last year, our economy continued to grow for the 14th consecutive year. Real GDP grew by 3.8% during 2013, which was greater than the global average of 2.9%. Meanwhile, the private sector grew by 5.5%. The growth of the Saudi economy was primarily driven by continuing government investment, especially in infrastructure, and by reforms to regulations and improvements in the business environment, which served to promote domestic and foreign investment. The growth was also attributed to the finance provided by domestic banks and specialised credit funds to support economic activities in the Kingdom.

According to data from the Ministry of Finance, the Kingdom registered a real budget surplus of SR180.3bn ($48.1bn), equivalent to 6.5% of GDP, in 2013. Public debt fell to SR75.1bn ($20.0bn), representing 2.7% of GDP. Moreover, the Kingdom achieved a current account surplus of SR486.8bn ($129.8bn), equivalent to 17.4% of GDP, compared to 22.4% in 2012. The rate of inflation increased from 2.9% in 2012 to 3.5% in 2013. Nevertheless, inflation remains under control. According to the latest data from the Central Department of Statistics and Information, the annual inflation rate declined to 2.8% during February 2014, compared to the average inflation rate in emerging and developing economies in 2013 of 6.2%. Inflationary pressures in the Kingdom were due to the housing sector and food prices.

At a time when a number of industrial countries are witnessing downgrades in their credit ratings, Fitch Ratings has upgraded the Kingdom’s sovereign credit rating from AA- to AA with a stable outlook, strengthening confidence in our economy and making it more attractive to investors.

In the banking sector, domestic banks continued to play their role in serving the national economy while utilising the latest in secure technologies in the banking services field. The M3 money supply increased by 10.8% in 2013 and by 12.8% in January 2014. Credit extended to the private sector went up by 12.1% to SR1076.4bn ($287.0bn) in 2013 and by a further 12.3% in January 2014. Contributing to stability is the fact that domestic banks maintained their healthy levels of financial solvency, recording a capital adequacy ratio of 17.9% at the end of 2013.

The number of banks operating in the Kingdom currently stands at 24, of which 12 are domestic and 12 are foreign, including Industrial and Commercial Bank of China, which was awarded a banking licence in 2012. Driven by the aim of reaching a greater proportion of citizens and expatriates, the number of bank branches operating in the Kingdom grew by 4.2%, or72 branches, in 2013, reaching 1768 branches by the end of the year. The number of ATMs stood at 13,883 at the end of 2013, increasing by 9.2% (1171 machines) over the previous twelve months. At the same time, point-of-sale terminals in the country went up by 16.5% to 107,783.

With regard to the insurance sector in the Kingdom, SAMA has continued to guide this sector towards further regulation and to work in accordance with highly professional standards and practices, aimed at promoting the competence of staff and providing better insurance services to policyholders. The insurance sector has witnessed a quantum leap over the past few years, represented by improvements in the potential, skills and technical expertise of companies and an increased awareness of insurance benefits. This has contributed to better provision of insurance services at competitive prices and coverage, thereby achieving higher growth rates in the market. The number of insurance and reinsurance companies at the end of the third quarter of 2013 stood at 34, in addition to the 180 insurance-related service companies that support the sector. Gross written premiums stood at SR19.2bn ($5.1bn) at the end of the third quarter of 2013, compared to SR15.7bn ($4.2bn) in 2012, having grown by 22.3%. The ratio of insurance written premiums to GDP stood at 0.69% up to the third quarter of 2013, indicating significant opportunities for growth in this sector in the coming years.

SAMA pays considerable attention to the rights of people who have purchased insurance. The Implementing Regulations of the Cooperative Insurance Companies Control Law oblige insurance companies to settle customers’ claims within 15 days. SAMA supervises companies’ compliance with the provisions of these regulations on a continuous basis.

In the area of finance, SAMA has published the Implementing Regulations for the Finance Laws, and issued Implementing Regulations for the Financial Leasing Law in coordination with the Ministry of Justice. It has also issued the Implementing Regulations for the Finance Companies Control Law. In this context, SAMA has applied internationally-recognised best practices, thereby ensuring the soundness and stability of the sector and the fairness of its transactions, while encouraging legitimate and fair competition between finance companies, taking the appropriate means to develop the sector, working on Saudiisation of jobs, and raising the efficiency of its employees. SAMA works in cooperation with relevant authorities, namely the Ministry of Finance, the Ministry of Housing, the Ministry of Justice, and the Ministry of Commerce and Industry to achieve the objectives of the Finance Laws.

The Implementing Regulations of the Real Estate Finance Law address the criteria and conditions to be observed for the purpose of regulating the finance sector and protecting the rights of the dealers working in it. The regulations set a maximum limit on real estate financing, which is 70% of the house value. The regulations also set up a regulatory framework for real estate refinancing, thereby establishing a secondary market that contributes to providing the necessary liquidity and reducing the cost of financing for the consumer. The Public Investment Fund will contribute SR5bn ($1.3bn) to the capital of the Saudi Refinancing Company.

The Implementing Regulations of the Financial Leasing Law include provisions related to financial leasing contracts. The regulations identify the basic rights and obligations of both the lessor and lessee, including determining the amount of ownership rights and dues of the lessee and lessor in case of the cancellation of the contract. The regulations provide the registration process for financial leasing contracts through a company incorporated for this purpose, drawing on best practices in this area. The Implementing Regulations of the Finance Companies Control Law include supervisory and control provisions for the finance sector (such as licensing requirements, conditions and procedures, and work rules for finance companies), the regulatory standards to be observed during operations, the requirements and standards necessary for the protection of consumer rights in financial services (including determining the method for calculating the annual percentage rate of financing), and clarification of procedures and criteria for early repayment.

Activation of the Finance Laws is expected to have a positive impact on developing and promoting financial activity in the Kingdom, improving the level of services provided by taking advantage of available assets and capital, and on finding new sources of funding for financing the activities of finance companies through the secondary market. The results of these changes will be reflected positively in economic activity and help to create more jobs.

Finally, SAMA has established the Department of Consumer Protection in order to protect clients’ rights in the sectors supervised by SAMA, to look into their complaints and to improve the levels of customer service dispensed by these sectors. SAMA will be happy to receive all complaints, as it attaches great importance to protecting the rights of customers and is striving to raise the levels of service they receive.