Saudi Arabia Central Bank Statement

Author: | Published: 19 Oct 2018
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The Saudi economy has the characteristics of a highly cyclical resource-based economy. Private sector contribution to GDP is correlated with government spending.

Vision 2030 seeks to diversify the economy away from dependence on oil. The government is implementing broad economic reforms, starting with revenue diversification via a 5% VAT as of January 2018, service charges and fees and a correction in energy subsidies. Reforming the labour market is an ongoing task, with its objective to provide jobs to a large number of Saudis. Privatisation of state-owned entities is next in the queue and should enhance the attractiveness of the investment environment.

Growth in 2018 is projected at 1.9%, partly due to expansionary fiscal policy and the SAR72 billion (approximately $19 billion) stimulus package (amounting to 2.8% of GDP) for the private sector.

Our monetary policy anchor is the USD/SAR pegged exchange rate, and this has helped the economy grow with modest inflation. The policy choice has worked well over decades, given its compatibility with the economic structure.

The Saudi Arabian Monetary Authority (SAMA)'s mandate is to maintain monetary and financial stability. Given limitations in interest rate management, SAMA proactively uses the macroprudential measures at its disposal. For instance, SAMA altered the calculation methodology of the loan-to-deposit ratio (LDR) to enhance number of saving products and hence promote a culture of savings.

SAMA's supportive role in Vision 2030 for the economy includes developing the financial sector and maintaining financial stability.

SAMA's banking supervision has long adhered to the Basel standards, which seek to promote international financial stability through common international standards. Leverage remains one of the principal concerns, as many banks that failed during the global financial crisis had high leverage levels (no Saudi bank failed during the crisis). Financial soundness indicators for Saudi banks exceed the Basel requirements and the outlook for our banks remains stable.

Saudi Arabia has recently passed a bankruptcy law, and banking resolution (i.e. hierarchy of settlement for failing banks) is still under discussion. The bankruptcy procedure lays down a timeline to recover assets from defaulters. As for SAMA's policy on issuing licences, it remains supportive of granting licences to both new and existing foreign bank branches to broaden the financial sector. We are open to foreign banks' entry, provided they contribute to our economic development.

Banks and fintech are ideally placed to work together to raise the quality of financial services. The shape of tech-dominated retail banking is becoming clearer.

Fintech Saudi, launched in April 2018, will support financial technology and help transform Saudi Arabia into an innovative fintech hub with a thriving ecosystem driven by local and international stakeholders. This will bring together public and private organisations to foster a culture of innovation, build a broad understanding about fintech and support the growth in SMEs.