Kingdom of Saudi Arabia
Saudi Arabian Monetary Agency Research and Statistics Department
February 2005
Economic Developments
Fourth Quarter of 2004
Fourth Quarter of 2004 ---
Latest monetary, banking and financial data of SAMA’s Quarterly Statistical Bulletin indicate continued growth of the Saudi economy during the fourth quarter of 2004 as a result of improved oil prices in world markets. According to such data, it is noted that money supply, assets of commercial banks, and bank deposits rose.
Profits of commercial banks grew, and positive performance of the Saudi Stock Exchange continued. Some economic and banking regulatory and legislative decisions and circulars, aimed at invigorating the banking business and boosting the growth of the domestic economy, were also issued. The following is a review of the most prominent monetary, banking and financial developments during the fourth quarter of 2004.
First: Monetary Developments
Broad money (M3) rose by 6.8 percent (Rls 30.5 billion) to Rls 482.4 billion during the fourth quarter of 2004 compared to an increase of 2.3 percent (Rls 10.0 billion) during the third quarter of the same year.
The bulk of the rise in M3 was accounted for by bank deposits which increased by 86.6 percent. Currency outside banks also rose by 13.4 percent. An analysis of developments of money supply (M1) and (M2) indicates that M1 rose by 8.2 percent (Rls 20.1 billion) to Rls 263.5 billion compared to a rise of 0.3 percent (Rls 0.7 billion) during the preceding quarter of the same year. Thus, the increase in M1 constituted 65.8 percent of the total increase in M3. M1 represented 54.6 percent of aggregate money supply (M3) at the end of December 2004 compared to a lower percentage of 54.2 percent at the end of the same month of the preceding year. M2 rose by 8.3 percent (Rls 30.7 billion) to Rls 400.1 billion, or 82.9 percent of aggregate money supply (M3), compared to a growth of 3.2 percent (Rls 11.6 billion) during the preceding quarter of the same year. The rise in M2 over M1 was caused by an increase of 8.4 percent (Rls 10.6 billion) in time and savings deposits during the fourth quarter of 2004.
2 Second: Monetary Policy
During the fourth quarter of 2004, SAMA continued to pursue a monetary policy aimed at maintaining price stability, providing adequate liquidity to all economic sectors and coping with global economic and financial developments.
SAMA raised the official repurchase agreements (Repo) rate and repurchase agreements (Reverse Repo) rate (ORR and RRR) twice during the fourth quarter of 2004 by 25 basis points each time to 2.50 percent and 2.25 percent respectively. The average value of Repo per day stood at Rls 1,182 million during the quarter under study, while that of reverse Repo was Rls 5,740 million, reflecting abundant day to day liquidity in the market.
Inter-bank interest rates recorded a rise during the fourth quarter of 2004.
The three-month inter-bank interest rate (SIBOR) increased from 2.22 percent at the end of the third quarter to 2.61 percent at the end of the fourth quarter of 2004. The differential between the Riyal and the Dollar interest rates on three-month deposits went down from 20 basis points to 5 basis points at the end of December in view of the availability of liquidity at the end of the year and a decline in government borrowing in general.
Third: Developments in Commercial Banks’ Activity
According to data of the Consolidated Financial Position of Commercial Banks at the end of the fourth quarter of 2004, commercial banks recorded remarkable improvement in their performance. Their total assets rose by 6.8 percent (Rls 41.5 billion) to Rls 655.4 billion compared to an increase of 3.9 percent (Rls 23.2 billion) during the preceding quarter of the same year.
3.1 Bank Deposits
Total bank deposits went up by 6.7 percent (Rls 26.4 billion) to Rls 422.3 billion during the fourth quarter of 2004 compared to an increase of 2.9 percent (Rls 11.1 billion) during the third quarter of the same year. The ratio of total deposits to the total consolidated financial position of commercial banks stood at 64.4 percent at the end of December 2004 compared to 65.4 percent at the end of same month of 2003.
A classification of deposits by sector enhanced the prospects of the growth of the domestic private sector. Deposits of the private sector rose by 6.8 percent (Rls 22.3 billion) during the quarter under study compared to a lower growth of 1.5 percent (Rls 5.0 billion) during the preceding quarter of the current year. Deposits of the public sector also grew by 6.2 percent (Rls 4.1 billion) compared to an increase of 10.1 percent (Rls 6.1 billion) in the third quarter of 2004.
A breakdown of bank deposits by type shows that demand deposits increased by 8.5 percent (Rls 15.9 billion) during the fourth quarter of 2004 compared to a rise of 1.0 percent (Rls 1.8 billion) in the third quarter of 2004. Time and savings deposits also grew by 8.4 percent (Rls 10.6 billion) compared to a rise of 9.4 percent (Rls 10.8 billion) during the third quarter of the same year. Other quasi- monetary deposits fell slightly by 0.2 percent (Rls 0.2 billion) compared to a decline of 1.8 percent (Rls 1.5 billion) in the third quarter of 2004.
An analysis of deposits by currency indicates that domestic currency deposits accounted for the highest percentage of the increase, rising by 9.4 percent (Rls 30.7 billion) compared to a lower rise of 4.1 percent (Rls 12.8 billion) during the preceding quarter of the same year. Foreign currency deposits also went down by 6.2 percent (Rls 4.3 billion) compared to a fall of 2.4 percent (Rls 1.7 billion) during the third quarter of 2004.
3.2 Credit and Investment Activity of Banks
In the area of commercial banks’ credit and investment activity in the public and private sectors, total bank claims on both sectors rose during the fourth quarter of 2004 by 4.4 percent (Rls 20.6 billion) to Rls 490.0 billion compared to an increase of 5.1 percent (Rls 22.6 billion) in the preceding quarter of the same year.
Such expansion in the activity of banks suggests the prospects of continued growth for the Saudi economy at good rates during the period. These claims constituted 116.1 percent of total deposits at the end of December 2004 compared to 113.8 percent at the end of December 2003.
Developments by sectors indicate that total bank claims on the private sector went up by 7.8 percent (Rls 22.7 billion) during the fourth quarter of 2004 compared to a growth of 9.1 percent (Rls 24.2 billion) during the preceding quarter
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of the same year, constituting 74.3 percent of total deposits at the end of December 2004 compared to 64.1 percent at the end of December 2003. In contrast, total bank claims on the public sector (loans to public institutions and investments in government securities) went down by 1.2 percent (Rls 2.1 billion) compared to a smaller fall of 0.8 percent (Rls 1.4 billion) during the third quarter of the same year.
Total bank claims on the public sector represented 41.6 percent of total deposits at the end of December 2004 compared to 49.6 percent at the end of December 2003.
A review of bank credit according to maturity shows that short-term credit (less than one year) rose by 6.4 percent (Rls 11.6 billion) during the fourth quarter of 2004 compared to a rise of 7.1 percent (Rls 11.9 billion) during the third quarter of the same year. Medium-term credit (for 1 to 3 years) increased by 1.8 percent (Rls 0.8 billion) compared to a decline of 3.6 percent (Rls 1.6 billion) in the third quarter of the same year. Long-term credit (more than three years) also went up by 13.0 percent (Rls 11.1 billion) compared to a rise of 17.2 percent (Rls 12.6 billion) in the third quarter of the same year.
A breakdown of bank credit by economic activity during the fourth quarter of 2004 indicates that financing for “other” purposes (the bulk of these were loans to individuals) rose by Rls 7.9 billion to Rls 122.7 billion compared to a rise of Rls 0.6 billion during the same quarter of the preceding year. Bank credit for “finance”
purposes increased by Rls 7.4 billion to Rls 33.8 billion against a growth of Rls 0.7 billion in the same quarter of the preceding year. Credit for "commerce" rose by Rls 7.3 billion to Rls 62.8 billion compared to an increase of Rls 5.9 billion during the same quarter of the preceding year. Credit for "Services" purposes went up by Rls 0.7 billion to Rls 12.3 billion against a decline of Rls 0.9 billion during the same quarter of the preceding year. Credit for "agriculture and fishing" grew by Rls 0.4 billion to Rls 3.8 billion compared to a small growth of Rls 0.02 billion during the same quarter of the preceding year. Credit for "transport and communications" went up by Rls 1.8 billion to Rls 13.4 billion against a fall of Rls 0.7 billion during the same period of the preceding year. Credit extended to government and quasi- government sector also rose by Rls 2.3 billion to Rls 29.1 billion, compared with a rise of Rls 0.9 billion during the same period of the preceding year. In contrast, credit for "manufacturing and processing" dropped by Rls 2.4 billion to Rls 26.5 billion against a rise of Rls 1.3 billion in the same quarter of 2003. Credit for
"building and construction" fell by Rls 1.7 billion to Rls 23.1 billion against a rise
of Rls 1.2 billion during the same quarter of the preceding year. Credit for "water, electricity and other services" declined by Rls 0.1 billion to Rls 3.3 billion against an increase of Rls 0.3 billion during the same quarter of the preceding year.
3.3 Commercial Banks’ Foreign Assets and Liabilities
Total foreign assets of commercial banks rose during the fourth quarter of 2004 by 3.1 percent (Rls 2.8 billion) to Rls 92.8 billion compared to a rise of 0.8 percent (Rls 0.7 billion) during the third quarter of 2004. Their total foreign liabilities, however, fell by 4.9 percent (Rls 2.4 billion) to Rls 45.7 billion against a rise of 15.5 percent (Rls 6.5 billion) in the third quarter of 2004. Thus, their net foreign assets went up by 12.3 percent (Rls 5.1 billion) to Rls 47.1 billion against a decline of 12.1 percent (Rls 5.8 billion) during the third quarter of 2004.
3.4 Reserves, Capital, Profits and Branches of Commercial Banks
Banks raised their liquidity position during the fourth quarter of 2004, with total cash in vault and deposits with SAMA rising by 43.4 percent (Rls 9.7 billion) to Rls 32.0 billion compared to a smaller rise of 0.1 percent (Rls 0.03 billion) during the third quarter of 2004. The ratio of total reserves to total bank deposits at the end of December 2004 stood at 12.4 percent compared to 13.2 percent at the end of December 2003. The bulk of rise was accounted for by deposits with SAMA and cash in vault, increasing by Rls 9.3 billion and Rls 0.4 billion respectively.
Banks' capital and reserves declined by Rls 0.3 billion, or 0.7 percent, to Rls 52.2 billion during the fourth quarter of 2004 compared to a fall of Rls 1.1 billion, or 2.1 percent in the preceding quarter of the same year. Capital adequacy of commercial banks according to Basle Standard stood at 18.3 percent at the end of December 2004. Banks also realized profits of Rls 4.2 billion during the fourth quarter of 2004, compared to Rls 4.3 billion in third quarter of the same year.
The number of commercial banks’ branches operating in the Kingdom stood at 1,216 at the end of the fourth quarter of 2004 compared to 1,212 at the end of the third quarter of the same year, increasing by 2 branches in the Central Province and 1 branch in each of the Western and Eastern Provinces.
6 3.5 Banking Technology
SAMA, in co-operation with commercial banks, has continued to develop banking technology in the Kingdom. As regards the e-commerce Trust Centre, all Saudi banks were linked to the final operational phase of the e-commerce Trust Centre in September of the year under study. Work is underway to link non-Saudi banks operating in the Kingdom (the Gulf International Bank and the Emirates Bank) with the e-commerce Trust Centre. Discussions are also in progress between SAMA, represented by the manager of the Trust Centre, and banks in order to benefit from the Centre in the modern systems operated by them with the aim of supporting and developing e-commerce in the Kingdom.
Among the most prominent works and developments made during the fourth quarter of 2004 was the follow-up and evaluation of offers submitted for upgrading SARIE System and commercial banks' systems, and the supply of new advanced systems in addition to the evaluation of the Backup Solution's offers. Within the scope of this project, the SARIE technical team is conducting tests on the operation system AIX version 5.2.
As for participation of new banks in the Kingdom in SARIE, a technical team was formed to implement the plan for the participation of the National Kuwait Bank, Al-Bilad Bank and BNP Paribas Bank. The team works according to an integrated plan to ensure coordination among all concerned authorities when a new bank wishes to participate in SARIE. This would entail the application of unified technical procedures, which have already been in force.
As regards linking SARIE with the new systems, "Sadad" system was linked to SARIE in the live systems environment to electronically transmit clearing from
"Sadad" system to SARIE via a link. Tests are still underway to link SARIE with
"Tadawaul" system and "SPAN2".
SARIE technical team is currently in the process of developing the SARIE- MIS link by using TCP/IP protocol (used for linkage among all banks and clearing systems) instead of the SNA. As for future developments concerning security aspect of SARIE, an integrated plan with a time schedule for complete development of this system was finalized.
According to statistics of banking technology, the number of automatic teller machines (ATMs) increased by 139 to a total of 4,104 during the fourth quarter of 2004 compared to a rise of 113 in the same period of the preceding year. The number of ATM cards rose by 96.2 thousand to a total of 6.4 million compared to a rise of 191.4 thousand during the fourth quarter of the preceding year. Cash withdrawals through ATMs increased by Rls 3.9 billion to Rls 54.4 billion against a decline of Rls 1.0 billion during the same period of the preceding year. Cash withdrawals through Saudi Payments network (SPAN) went up by Rls 0.9 billion, and withdrawals through banks' network went up by Rls 3.0 billion. Total number of transactions also rose by 10.4 million to 114.3 million compared to a rise of 4.3 million in the fourth quarter of 2003.
The number of Points of Sale (POS) terminals increased during the fourth quarter of 2004 by 1,453 to a total of 35.5 thousand compared to a rise of 1,240 during the same quarter of the preceding year. The value of sales transactions made through POS terminals grew by Rls 353.4 million to Rls 6.5 billion.
The value of transactions executed through SARIE was up by Rls 329.3 billion to Rls 2,225.9 billion during the fourth quarter of 2004 compared to a decline of Rls 41.7 billion in the same quarter of 2003. The number of transactions also increased by 35.0 thousand to 353.9 thousand compared to a rise of 18.6 thousand during the same period of the preceding year.
With regard to clearing house operations, the number of clearing houses at all SAMA's branches in the Kingdom stood at 10, of which 3 are in Riyadh, Jeddah and Dammam. The number of cheques (incoming and outcoming) cleared through clearing houses stood at 1.9 million during the fourth quarter of 2004, and their value totaled Rls 130.0 billion. The number of commercial and personal cheques stood at 1.6 million, with a total value of Rls 94.6 billion. The number of (certified) banks’ cheques was 285.2 thousand, with a total value of Rls 35.5 billion.
Fourth: Stock Market Developments
Some indictors of the domestic stock market showed fluctuating performance during the fourth quarter of 2004. The general share price index stood at 8,206.23 compared to 6,593.76 at the end of the preceding quarter of the same year,
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recording a rise of 24.5 percent. Market capitalization at the end of the fourth quarter of 2004 went up to Rls 1,149 billion compared to Rls 891 billion at the end of the third quarter of the same year, rising by 29.0 percent. In contrast, the value of shares traded went down by 10.2 percent to Rls 459.86 billion during the fourth quarter of 2004 against Rls 512.06 billion during the preceding quarter of the same year. The total number of shares traded during the fourth quarter of 2004 fell by 38.5 percent to 1,820 million against 2,960 million during the third quarter of 2004.
The total number of transactions also went down to 3,271.59 thousand against 4,421.72 thousand in the third quarter of 2004, denoting a decline of 26.0 percent.
Fifth: Price Indices
According to recent data issued by the Central Department of Statistics, the general price index went up by 0.2 percent during the third quarter of 2004 over its level during the same quarter of the preceding year. This resulted from an increase in price indices of "all food groups" by 2.7 percent, "health care" by 0.6 percent,
"other goods and services" by 0.5 percent, and "housing" by 0.1 percent. In contrast, price indices of "fabrics, apparel and shoes" declined by 2.7 percent, "house furnishings" by 1.9 percent, "transport and communications" by 0.9 percent, and
"education and entertainment" by 0.6 percent.
Sixth: Supervisory and Legislative Developments during the Fourth Quarter of 2004
- The draft circular of "Requirements of Appointment in the Leading Posts at Banks Operating in the Kingdom" is expected to be finalized and be effective as of the beginning of the second quarter of fiscal year 2005.
- The draft on controls for regulating consumer financing was finalized. It is expected to be issued during the second quarter of fiscal year 2005.
- A Circular was issued on 8/11/1425 to all banks operating in the Kingdom regarding setting limits to credit facilities for financing subscription to public offering of companies' shares.
- A Circular on determining capital requirements to meet market risks was issued on 17/11/1425 corresponding to 29/12/2004.
- Work is currently underway, in cooperation with domestic banks, for considering the optimal method for adopting the new Capital Adequacy Criteria (Basle 2).
- On 1/11/2004, the Council of Ministers issued its Resolution approving the establishment of a joint-stock company under the name "Al-Bilad Bank" after taking necessary regulatory measures for completing the merger of 8 money changers under one banking corporation with a capital of Rls 3000 million.
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