Viewpoint: Ahmed Alkholifey
The story of Saudi Arabia over the past few decades has been its continuing integration into the global economy. This has provided opportunities and challenges in both the real and financial economy. In order to ensure a monetary and financial environment conducive to growth and prosperity, SAMA is committed to maintaining exchange rate stability, while adjusting domestic banking and monetary policies to meet changing conditions in global financial markets.
The tightening liquidity that occurred over the past year was the result of several simultaneous factors, mainly the decrease in the growth of deposits and increased government debt issuance. SAMA’s prudential measures, including relaxation of the loan-to-deposit ratio and liquidity injection, have helped address the liquidity pressures. The improved liquidity should continue as the next round of domestic government bond issuances will be conducted with greater attention to market sentiment. The improved situation is reflected in the Saudi Arabian Interbank Offered Rate, which fell from around 2.4% in September 2016 to 1.8% in September 2017. Bank balance sheets are healthy: non-performing loans are only 1.4% of total loans, and lending to the private sector, which bottomed in December 2016, is slowly recovering.
Monetary and macroprudential tools can be used to respond appropriately to market conditions in response to the actions of the Federal Reserve. We do not envisage that interest rate hikes will have a significant impact on the Saudi banking sector. Saudi banks are net creditors in the global banking system, so the impact of dollar rate hikes is confined, and the cost of funding is inherently low due to the composition of the sector’s deposit base.
The number of participants in the banking system has grown, including branches of non-domestic banks. The promising Saudi landscape continues to draw interest from a wide range of foreign financial institutions, and SAMA welcomes this as part of its strategy to broaden the financial sector by providing opportunities to both overseas and local banks. In the past five years, SAMA has issued five new licences. SAMA’s criteria provide opportunities for newcomers, who can add value to the financial system in line with Vision 2030. For example, in addition to minimum requirements related to capital, liquidity and senior management quality, our strategy also favours licensing institutions that can bring innovation and technology, improve financial inclusion, and finance our small and medium-sized enterprises (SMEs) and residential real estate sector.
Momentum is gathering for early-stage financing for SMEs through the development of venture capital and private equity networks, which are currently being supported by the SME Authority (SMEA) and the Public Investment Fund. SAMA regularly meets with SMEA representatives to ensure that policy is aligned to foster a comprehensive SME financial ecosystem. Finance companies may be the best vehicles to assess creditworthiness and undertake direct lending, and there could be a fund that invests in SMEs.
Finance companies could serve the micro and small segments of the SME market, and the banking system could serve the medium segment and businesses that have grown. In Saudi Arabia, SMEs’ contribution to GDP has been modest, which can be attributed to the predominance of the oil and public sectors.
In conclusion, SAMA plays an enabler role in Vision 2030, and, therefore, seeks to provide supportive monetary conditions. SAMA’s prudential role takes into account the impact of structural reforms on the challenges facing financial institutions, and continues to take an approach that is transparent and simple to understand. The banking system is well placed to accommodate the impact of Federal Reserve rate hikes.
Meanwhile, the riyal-dollar peg will continue to be the anchor of our monetary policy as the economy starts to diversify. Currently, SAMA’s main priority is to maintain monetary stability and support Vision 2030.
Read More from OBG
In Saudi Arabia
Catalyst for change: Digital platforms and procurement mechanisms are fuelling the expansion of private participation in health care
Saudi Arabia’s health care sector is in the midst of a period of rapid change, as regulatory efforts are made to enhance the participation of the private sector and create a more dynamic market that can better meet patients’ needs. One of the national health system’s four objectives is to invest in private sector integration to create effective strategic partnerships. This is outlined in the Health Sector Transformation Programme, one of the key Vision Realisation Programmes designed to gu…
In Financial Services
Safety net: New joint initiatives are catalysing action as the global insurance industry moves to mitigate environmental risk
With the launch of a new joint initiative to support the countries that are most vulnerable to climate change, the global insurance industry is evolving in ways that could carry important implications for business in emerging markets. One such initiative, the Global Shield against Climate Risks (GSCR) was announced by the ministers of finance of the so-called Vulnerable Twenty Group (V20) and the G7 after the COP27 UN Conference on Climate Change in Sharm El Sheikh Egypt in November 2022. It se…
Exploring Thailand's Tobacco Industry: A Comprehensive Economic Report
This Economic Impact Report presents a comprehensive analysis of Thailand's tobacco industry, shedding light on its wide-reaching value chain and contribution to the national economy. Notably, the industry directly or indirectly supports some 50,000 households, and contributed BT59.8bn to government revenue in 2022 through excise taxes, equivalent to some 12% of the country’s total excise revenue. The report explores the potential implications of a proposed full ban on tobacco additive…
“High-Level Discussions are Under Way to Identify How We Can Restructure Funding For Health Care Services”
Popular Sectors in Saudi Arabia
- Saudi Arabia Construction
- Saudi Arabia Energy
- Saudi Arabia ICT
- Saudi Arabia Industry
- Saudi Arabia Transport
Popular Countries in Financial Services
- Egypt Financial Services
- Gabon Financial Services
- Ghana Financial Services
- Myanmar Financial Services
- Papua New Guinea Financial Services
- The Philippines Financial Services
Recent Reports in Saudi Arabia