Economic Developments
Second Quarter, 2008
Research and Statistics Department
August 2008
Content
First: Monetary Developments ……….………. 3
Second: Monetary Policy ……….. 3
Third: Banking Developments …..……….…….……….……….. 4
3.1 Bank Deposits …..……..……….……….. 4
3.2 Credit and Investment Activity of Banks ………...………….………... 5
3.3 Commercial Banks' Foreign Assets and Liabilities ………..………... 7
3.4 Commercial Banks' Capital and Reserves, Profits and Branches …………. 8
3.5 Commercial Banks’ Assets and Liabilities ……….……….. 8
Fourth: Banking Technology ………. 9
Fifth: Domestic Share Market Developments ………... 10
Sixth: Investment Funds ..……… 11
Seventh: Cost of Living ……….…….………. 11
Eighth: Legislative and Supervisory Banking Developments during the second Quarter of 2008 ……… 12
Ninth: Most Prominent Regulatory Developments in the Saudi Economy during the second Quarter of 2008 ……… 13
First: Monetary Developments
Broad money (M3) rose by 3.2 percent (Rls 26.7 billion) to Rls 860.7 billion during the second quarter of 2008 compared to an increase of 5.6 percent (Rls 44.3 billion) during the preceding quarter. It registered an annual growth rate of 21.3 percent (Rls 151.4 billion).
An analysis of the components of money supply (M3) indicates that (M1) rose by 4.2 percent (Rls 17.4 billion) to Rls 429.2 billion, or 49.9 percent of total money supply (M3) during the second quarter of 2008 compared to a rise of 7.3 percent (Rls 28.1 billion) during the preceding quarter. Money supply (M1) registered an annual rise of 28.8 percent (Rls 96.0 billion) at the end of the second quarter of 2008.
Money supply (M2) also went up by 0.9 percent (Rls 6.1 billion) to Rls 711.9 billion, or 82.7 percent of total money supply (M3) during the second quarter of 2008, against a rise of 5.9 percent (Rls 39.2 billion) in the preceding quarter. Money supply (M2) recorded an annual increase of 21.1 percent (Rls 124.3 billion) at the end of the second quarter of 2008.
Second: Monetary Policy: Second Quarter, 2008
During the second quarter of 2008, SAMA continued to pursue a monetary policy aimed at maintaining price stability, supporting domestic economic activity and
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B i ll io b R i y a ls M o n e y S u p p ly ( M 3 )
coping with the domestic and global economic developments. Due to an increase in liquidity, SAMA increased the statutory deposit to 13 percent from 10 percent on demand deposits and to 4 percent from 2 percent on time & savings deposits during the second quarter of 2008. It continued maintaining the Official Repo Rate unchanged at 5.50 percent, and reduced the Reverse Repo Rate by 25 basis points to 2 percent at the end of the second quarter of 2008. The daily average value of Repo and Reverse Repo transactions stood at Rls 885 million and Rls 34.9 billion respectively during the second quarter of 2008, which reflects ample daily liquidity in the market though it was substantially reduced in comparison with the first quarter of 2008 after SAMA's decision to increase the statutory deposit.
Inter-bank interest rates on deposits witnessed a marked increase during the second quarter of 2008. The three-month inter-bank interest rate (SIBOR) rose from 2.26 percent at the end of the first quarter of 2008 to 3.64 percent at the end of the second quarter of 2008. The differential between the Riyal and the Dollar deposits for a three-month period turned in favor of the Riyal. It stood at 86 basis points at the end of the second quarter of 2008 against 43 basis points in favor of the Dollar at the end of the first quarter. This was attributable to SAMA's increase of statutory deposits and decreased Riyal liquidity in the Saudi banking system. At the end of the second quarter of 2008, the Riyal retained its stability against the Dollar around its official rate of Rls 3.75. SAMA also conducted Foreign Exchange Swaps with domestic banks equal to Rls 5,250 million for several terms to absorb the excess liquidity of the Riyal and provide the required liquidity of the Dollar to the banking system.
Third: Banking Developments
3.1 Bank Deposits
Total bank deposits went up by 2.8 percent (Rls 21.5 billion) to Rls 783.1 billion during the second quarter of 2008 compared to an increase of 6.1 percent (Rls 44.1 billion) during the preceding quarter. Bank deposits recorded an annual rise of 21.9 percent (Rls 140.8 billion) at the end of the second quarter of 2008. The ratio of
total bank deposits to total broad money supply (M3) stood at 91.0 percent at the end of the second quarter of 2008 compared to 90.6 percent at the end of same period of the preceding year.
A review of the components of deposits by type during the second quarter of 2008 indicates that other quasi-monetary deposits rose by 16.0 percent (Rls 20.6 billion) to Rls 148.8 billion compared to a rise of 4.1 percent (Rls 5.1 billion) during the preceding quarter. Demand deposits rose by 3.6 percent (Rls 12.2 billion) to Rls 351.6 billion compared to a rise of 9.0 percent (Rls 27.9 billion) during the preceding quarter, while time and savings deposits went down by 3.9 percent (Rls 11.4 billion) to Rls 282.8 billion against a rise of 3.9 percent (Rls 11.1 billion) during the preceding quarter. Demand deposits, time and savings deposits, and other quasi-monetary deposits recorded annual rises of 32.1 percent (Rls 85.4 billion), 11.1 percent (Rls 28.2 billion), and 22.3 percent (Rls 27.1 billion) respectively.
3.2 Credit and Investment Activity of Banks
Total claims of commercial banks on the private and government sectors (bank credit and investment) rose by 7.2 percent (Rls 61.3 billion) to Rls 909.5 billion during
B A N K D E P O S IT S D IS T R IB U T E D B Y T Y P E
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D e m a n d D e p o s i t s T i m e & s a v i n g d e o p s i t s O t h e r Q u a s i - m o n e t a r y d e p o s i t s
the second quarter of 2008 compared to an increase of 11.5 percent (Rls 87.2 billion) in the preceding quarter. At the end of the second quarter of 2008, they recorded an annual rise of 35.0 percent (Rls 235.9 billion) to constitute 116.1 percent of total bank deposits compared with 104.9 percent at the end of the same quarter in the preceding year.
Total claims of commercial banks on the private sector during the second quarter of 2008 went up by 10.3 percent (Rls 64.3 billion) to Rls 690.3 billion compared to an increase of 8.3 percent (Rls 48.1 billion) during the preceding quarter, recording an annual rise of 34.9 percent (Rls 178.7 billion) at the end of the second quarter of 2008. The ratio of commercial banks' claims on the private sector to total bank deposits was 88.1 percent at the end of the second quarter of 2008 compared to 79.7 percent at the end of the same quarter of the previous year.
Total claims of commercial banks on the government and quasi-government sectors declined by 1.3 percent (Rls 2.8 billion) to Rls 218.0 billion during the second quarter of 2008 compared to a rise of 21.6 percent (Rls 39.2 billion) during the preceding quarter. At the end of the second quarter of 2008, they registered an annual increase of 35.7 percent (Rls 57.3 billion). Their ratio to total bank deposits amounted to 27.8 percent at the end of the second quarter of 2008 compared with 25.0 percent at the end of the same quarter of the preceding year.
An analysis of bank credit by maturity (private and government sectors) shows that short-term credit increased by 13.8 percent (Rls 52.3 billion) to Rls 431.7 billion compared to an increase of 9.2 percent (Rls 31.9 billion) during the preceding quarter.
Medium-term credit rose by 6.6 percent (Rls 6.1 billion) to Rls 98.0 billion during the second quarter of 2008 compared to a rise of 10.5 percent (Rls 8.7 billion) during the preceding quarter. Long-term credit also went up by 3.1 percent (Rls 5.2 billion) to Rls 174.5 billion compared to a rise of 3.2 percent (Rls 5.3 billion) during the preceding quarter.
Total bank credit by economic activity rose by 9.9 percent (Rls 63.6 billion) to Rls 704.3 billion during the second quarter of 2008 compared to an increase of 7.7 percent (Rls 45.8 billion) during the preceding quarter, recording an annual rise of 32.4 percent (Rls 172.2 billion) at the end of the second quarter of 2008. A breakdown of bank credit by different economic activities during the second quarter of 2008 indicates that bank credit extended to miscellaneous services went up by 34.9 percent (Rls 74.0 billion), transport and communications by 24.7 percent (Rls 7.7 billion), industry and production by 18.5 percent (Rls 10.5 billion), water, electricity and other services by 16.9 percent (Rls 1.3 billion), services by 16.5 percent (Rls 4.7 billion), building and construction by 10.6 percent (Rls 5.1 billion), commerce by 6.4 percent (Rls 9.1 billion), agriculture and fishing by 6.2 percent (Rls 0.6 billion), government and quasi-government sector by 4.8 percent (Rls 1.6 billion), mineral and mining by 2.3 percent (Rls 0.1 billion). In contrast, bank credit extended to finance dropped by 77.0 percent (Rls 51.1 billion).
3.3 Commercial Banks' Foreign Assets and Liabilities
Total foreign assets of commercial banks rose during the second quarter of 2008 by 8.9 percent (Rls 12.5 billion) to Rls 153.1 billion compared to a decline of 4.8 percent (Rls 7.1 billion) during the preceding quarter, recording a negative annual growth rate of 0.9 percent (Rls 1.4 billion) and constituting 12.5 percent of total commercial banks' assets compared with a positive increase of 16.5 percent at the end of the same period of the preceding year.
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F o r e i g n A s s e t s F o r e i g n L i a b i l i t i e s N e t F o r e i g n A s s e t s B illio n R iy a ls F O R E IG N A S S E T S A N D L IA B IL IT IE S O F B A N K S
Banks' total foreign liabilities went down by 2.5 percent (Rls 3.5 billion) to Rls 134.6 billion during the second quarter of 2008 against a rise of 31.2 percent (Rls 32.8 billion) in the preceding quarter. They recorded an annual growth rate of 107.4 percent (Rls 69.7 billion), constituting 11.0 percent of total liabilities compared to 6.9 percent at the end of the same period of the preceding year. Net foreign assets stood at Rls 18.5 billion, rising by 605.8 percent (Rls 15.9 billion) at the end of the second quarter of 2008 compared to a decrease of 93.8 percent (Rls 39.9 billion) during the preceding quarter.
3.4 Commercial Banks' Capital and Reserves, Profits and Branches
The capital and reserves of commercial banks went up by 6.9 percent (Rls 8.9 billion) during the second quarter of 2008. The ratio of commercial banks' capital and reserves to total bank deposits at the end of the second quarter of 2008 stood at 17.6 percent compared to 16.5 percent in the the preceding year. Their annual growth rate rose by 29.9 percent (Rls 31.8 billion).
Commercial banks' profits increased to Rls 9.1 billion at the end of the second quarter of 2008 compared to Rls 8.3 billion in the preceding quarter, recording a rise of 9.6 percent (Rls 0.8 billion) and an annual growth rate of 1.2 percent (Rls 0.4 billion).
The number of commercial banks' branches increased during the second quarter of 2008 to 1,384 compared with 1,371 in the preceding quarter, recording a growth rate of 0.9 percent (13 branches). The number of commercial banks' branches registered an annual growth rate of 4.6 percent (61 branches) in the second quarter of 2008 as compared with 1,323 in the corresponding quarter of 2007.
3.5 Commercial Banks' Foreign Assets and Liabilities
Total foreign assets and liabilities of commercial banks stood at Rls 1,222.9 billion at the end of the second quarter of 2008, rising by 4.2 percent (Rls 49.5 billion)
compared to a rise of 9.1 percent (Rls 98.2 billion) during the preceding quarter. They recorded an increase of 30.6 percent (Rls 286.8 billion) in their annual growth rate at the end of the second quarter of 2008.
Fourth: Banking Technology
Statistics of the Saudi Riyal Inter-bank Express System (SARIE) show that the value of transactions in the second quarter of 2008 totaled Rls 8,631 billion via 9.8 million transactions carried out through SARIE. The value of single payments transactions totaled Rls 8,409 billion, whereas the total value of gross payments stood at Rls 222 billion. Customers' payments amounted to Rls 726 billion, rising by 53.16 percent compared to the second quarter of 2007. Total value of Inter-bank payments stood at Rls 7,904 billion. It is expected that transactions via SARIE will continue to increase rapidly in the upcoming years, especially in e-commerce transactions and individuals' transfers, apart from growing use of SARIE system for payment of salaries of employees in the government and private sectors.
The Saudi Payments Network (SPAN) has continued to record good growth in terms of transactions made through it. Total transactions executed via SPAN in the second quarter of 2008 amounted to 216 million with a total value of Rls 96 billion.
The number of ATMs amounted to 8,200. The number of cards issued by domestic banks stood at 11.4 million.
Total transactions of POS terminals executed through SPAN stood at 31 million (with a total value of Rls 14 billion). POS terminals continued their growth, amounting to 66 thousand at the end of the second quarter of 2008.
The number of bank checks (outgoing and incoming) cleared at clearing houses during the second quarter of 2008 totaled 1,944 thousand with a total value of Rls 196.4 billion. The number of household and business checks was 1,681 thousand with a total value of Rls 135.8 billion during the period. The number of banks' checks (certified) totaled 263 thousand with a total value of Rls 60.6 billion.
Fifth: Domestic Share Market Developments
The general share price index rose during the second quarter of 2008 by 2.4 percent to 9,352.30 compared to a decline of 18.3 percent in the preceding quarter, recording an annual rise of 34.2 percent. During the second quarter of 2008, the number of traded shares rose by 419.4 percent to Rls 12.9 billion compared to an increase of 54.2 percent in the preceding quarter. The annual growth rate of traded shares went up by 493.6 percent. Total value of traded shares increased by 312.0 percent to Rls 581.6 billion compared to a rise of 9.2 percent in the preceding quarter, with its annual growth rate rising by 230.7 percent.
At the end of the second quarter of 2008, the market capitalization of issued shares went up by 6.0 percent to Rls 1,775 billion against a decline of 13.9 percent at the end of the preceding quarter, recording an annual growth rate of 59.5 percent.
Total number of transactions executed in the second quarter of 2008 recorded a rise of 212.3 percent to 15,489.5 thousand compared to an increase of 70.1 percent in the preceding quarter. The annual growth rate of the total number of executed transactions went up by 330.1 percent.
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Sixth: Investment Funds
Total asset of investment funds managed by commercial banks recorded a rise of 5.7 percent (Rls 5.9 billion) to Rls 109.8 billion in the second quarter of 2008 compared to a decline of 1.1 percent (Rls 1.1 billion) in the preceding quarter, registering an annual growth rate of 41.3 percent (Rls 32.1 billion).
A breakdown of the funds' total assets indicates a rise in domestic assets by 6.3 percent (Rls 5.2 billion) to Rls 88.2 billion in the second quarter of 2008, compared to a rise of 3.9 percent (Rls 3.1 billion) in the preceding quarter. Domestic assets recorded an annual growth rate of 63.5 percent (Rls 34.3 billion). Foreign assets registered a rise of 3.1 percent (Rls 0.6 billion) to Rls 21.6 billion during the second quarter of 2008 against a drop of 16.8 percent (Rls 4.2 billion) in the preceding quarter, recording a negative annual growth rate of 9.1 percent (Rls 2.2 billion).
The number of subscribers to investment funds dropped by 4.3 percent (17,596) to 396,340 in the second quarter of 2008 compared to a decline of 2.9 percent (12,149) in the preceding quarter. The number of subscribers recorded a negative annual growth of 11.8 percent (53.1 thousand).
The number of operating funds increased by 7.7 percent (18 funds) to 252 in the second quarter of 2008 compared to an increase of 4.5 percent (10 funds) to 234 in the third quarter of 2007. Thus, the number of operating funds registered an annual growth rate of 17.8 percent (38 funds).
Seventh: Cost of Living
During the second quarter of 2008, the average cost of living index increased by 2.1 percent, recording an annual rise of 10.6 percent (June 2008 together with June 2007). The index for “renovation, rent, fuel and water” rose by 5.7 percent, “food and beverages” by 2.3 percent, “goods and other services” by 1.4 percent, “house furnishing” by 1.2 percent, “medical care” by 0.4 percent and “fabrics, apparel and
shoes” by 0.3 percent. On the other hand, the index for “transport and communications” and that for “education and training" dropped by 0.1 percent each.
Eighth: Legislative and Supervisory Banking Developments during the second Quarter of 2008
Circular No. 15711/M Q/M 195/HA, dated 26/3/1429 (3/4/2008) was issued instructing banks to increase the percentage of the statutory deposit held with SAMA to 12 percent of total demand deposits as of April 2008.
Circular No. 209 B.C.S/16623, dated 4/4/1429 (10/4/2008) was issued informing banks of the draft instructions for issuing credit cards and their modus operandi.
Circular No. 210 B.C.S/16633, dated 4/4/1429 (10/4/2008) was issued informing banks of the draft instructions for the procedures of adopting IRB APPROACHES.
Circular No. 239 B.C.S/19726, dated 21/4/1429 (27/4/2008) was issued informing banks of SAMA's survey study of consumer credit and real estate finance activities.
Circular No. 20849/MAH/250, dated 28/4/1429 (4/5/2008) was issued instructing banks to increase the percentage of the statutory deposit held with SAMA to 13 percent of total demand deposits and 4 percent of total time and savings deposits as of May 2008.1 0 1 . 0 1 0 3 . 0 1 0 5 . 0 1 0 7 . 0 1 0 9 . 0 1 1 1 . 0 1 1 3 . 0 1 1 5 . 0 1 1 7 . 0
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Circular No. 253 B.C.I/21381, dated 1/5/1429 (6/5/2008) was issued informing banks of SAMA's intention to carry out a study of structures and functions of audit committees at banks.
Circular No. 359 B.C.S/29896, dated 19/6/1429 (23/6/2008) was issued instructing banks to manage country risks and transfer risks.Ninth: Most Prominent Regulatory Developments in the Saudi Economy during the Second Quarter of 2008
o The Council of Ministers issued a resolution on 29/4/1429H (5/5/2008) approving long and short term arrangements regarding provision of goods and food supplies and control of their prices in the domestic market.
o The Council of Minister issued a resolution on 7/5/1429H (12/5/2008) approving the licensing of a joint-stock company under the name of "ACE Arabia Cooperative Insurance Company ".
o The Council of Ministers issued a resolution on 12/6/1429H (16/6/2008) approving the strategy for tourism development of the Red Sea Shore to strengthen the tourism growth in the Kingdom. The strategy also aims at addressing difficulties that hinder the optimal utilization of tourism potential in this important shore economically, environmentally, and historically.
o The Council of Ministers issued a resolution on 12/6/1429H (16/6/2008) approving the general plan for training at the Technical and Vocational Training Corporation to contribute to achieving sustained development and qualifying the national human resources to obtain appropriate opportunities in the labor market.
o The Council of Ministers issued a resolution on 26/6/1429H (30/6/2008) approving the licensing of three insurance companies, namely: Weqayah Takaful Insurance and Re-insurance Company, Al-Rajhi Company for Insurance and AXA Cooperative Insurance Company.
SK964-08
