Interview: Ahmed Alkholifey

What measures are being taken to mitigate the impact of Covid-19 on the banking sector?

AHMED ALKHOLIFEY: The Saudi authorities took strong and decisive action in March 2020 to mitigate the spread of Covid-19. The economic implications of the pandemic are still unfolding. Indeed, SAMA is maintaining close communication with players in the financial sector and other institutions under its supervision, and is following all developments carefully. We are ensuring the sector’s internal preparedness for managing potential shocks, and assessing how operations and financial positions across banking and finance are being impacted.

SAMA considers the resilience of the Kingdom’s financial system to be strong. The banks have adequate capital and liquidity buffers in place, and indeed these have been strengthened in recent years. This implies that the conditions remain in place for the banks to meet their customers’ needs for financial services even in a more difficult economic environment. We know from previous experiences that in times of uncertainty there is a risk that the financial sector can become too cautious, and that credit constraints may amplify real economic challenges. SAMA has therefore promptly taken a number of actions to ensure that micro-, small and medium-sized enterprises can rely on a secure supply of credit to maintain their production and investment needs. In March 2020 a SR50bn ($13.3bn) financing support programme was announced for the private sector to enable it to continue playing its role in the economy. The programme consists of three basic elements: deferred payments, funding for lending and loan guarantees.

To what extent does Saudi Arabia follow interest rate cuts by the US Federal Reserve?

ALKHOLIFEY: Given the structure of the economy, SAMA and the Saudi authorities generally remain committed to the fixed exchange rate between the riyal and the US dollar. The objective of the Kingdom’s monetary policy is to maintain financial stability in order to support economic growth. In light of evolving global developments, we lowered our repo and reverse repo rates by 50 basis points on March 3, 2020, and by an additional 75 basis points on March 16, 2020 to the levels of 1.00% and 0.50%, respectively. A significantly accommodative monetary policy is indeed called for in the current circumstances, especially given the evolving global developments and taking into account subdued inflation pressures in Saudi Arabia.

How can financial literacy be reinforced among Saudi nationals, especially when it comes to the basics of budgeting and saving?

ALKHOLIFEY: The Financial Sector Development Programme (FSDP), under the auspices of Vision 2030, recognises the importance of improving financial literacy, and encourages current and future generations to save more and in a smarter way. The FSDP focus is to help people make sound decisions and follow behaviours that will improve their financial well-being and stability.

In what ways can financial technology (fintech) help bolster financial inclusion?

ALKHOLIFEY: Fintech plays an important role in supporting financial inclusion, as it often reaches a larger number of consumers in a more efficient, user-friendly and inexpensive way than traditional financial avenues do. Saudi Arabia has seen the introduction of online bank accounts, electronic know-your-customer technology, digital payments and online financing, all of which improved financial inclusion rates among underserved groups. These solutions facilitate financial access for all segments of society, particularly those living in remote areas.