Economic Developments
Third Quarter of 2005
November 2005
First: Monetary and Banking Developments
Broad money supply (M3) rose by 0.3 percent (Rls 1.8 billion) to Rls 530 billion during the third quarter of 2005, compared to an increase of 4.3 percent (Rls 21.6 billion) during the preceding quarter. It registered an annual growth rate of 17.3 percent (Rls 78.1 billion). The rise in money supply during the third quarter of 2005 was mainly ascribed to an increase of Rls 33.9 billion in bank credit to the private sector.
An analysis of the components of money supply (M3) indicates that (M1) declined by 0.8 percent (Rls 1.2 billion) to Rls 273.2 billion, or 51.5 percent of total money supply (M3) in the third quarter of 2005 compared to a decrease of 0.4 percent (Rls 1.2 billion) during the preceding quarter. Money supply (M1) registered an annual rise of 12.2 percent (Rls 29.8 billion) at the end of the third quarter of 2005. Money supply (M2) also went up by 0.4 percent (Rls 1.9 billion) to Rls 434.1 billion, or 81.9 percent of total money supply (M3) during the third quarter of 2005 compared to a rise of 3.2 percent (Rls 13.3 billion) in the preceding quarter. Money supply (M2) recorded an annual increase of 17.5 percent (Rls 64.6 billion) at the end of the third quarter of 2005.
Second: Monetary Policy
During the third quarter of 2005, SAMA continued to pursue a monetary policy aimed at maintaining price stability, making available adequate liquidity for all economic sectors and ensuring a sound financial system. During the quarter, SAMA raised the official repurchase agreements (Repo) rate three times by 25 basis points each, from 3.50 percent to 4.25 percent at the end of the third quarter. SAMA also raised reverse repurchase agreements (Reverse Repo) rate three times by 25 basis points each from 3.00 percent to 3.75 percent at the end of the third quarter. The average value of Repo transactions per day stood at Rls 2,953 million during the third quarter while that of Reverse Repo was Rls 825 million.
Reflecting the monetary policy pursued, and the rise in interest rates on the world markets, inter-bank interest rates recorded a considerable increase during the third quarter of 2005. The three-month inter-bank interest rate (SIBOR) increased from 3.73 percent at the end of the second quarter of 2005 to 4.49 percent at the end of the third quarter. The differential between the Riyal and the Dollar interest rates for a three-month period went up from 21 basis points at the end of the second quarter to 44 basis points at the end of the third quarter of 2005.
Third: Banking Developments
Total assets and liabilities of commercial banks at the end of the third quarter of 2005 stood at Rls 732.7 billion, rising by 4.2 percent (Rls 29.2 billion), compared to a rise of 3.2 percent (Rls 22.1 billion) in the previous quarter, registering an increase of 19.4 percent (Rls 118.9 billion) in their annual growth rate .
3-1 Bank Deposits
Total bank deposits registered an increase of 0.5 percent (Rls 23.8 billion) to Rls 470.4 billion during the third quarter of 2005, compared to a rise of 4.5 percent (Rls 20.1 billion) during the preceding quarter. At the end of the third quarter of 2005, it achieved an annual rise of 18.8 percent (Rls 74.5 billion). At the end of the third quarter of 2005, the ratio of total bank deposits to total broad money supply (M3) stood at 88.8 percent compared with 87.6 percent at the end of the same period of the previous year.
A review of the developments of the components of deposits by type during the third quarter of 2005 indicates that time and savings deposits rose by 2.6 percent (Rls 4.04 billion) to Rls 160.9 billion compared to a rise of 10.2 percent (Rls 14.5 billion) during the preceding quarter. Other quasi-monetary deposits went down by 0.1 percent (Rls 0.14 billion) to Rls 95.9 billion compared to an increase of 9.4 percent (Rls 8.2 billion) during the preceding quarter.
Demand deposits declined by 0.7 percent (Rls 1.5 billion) to Rls 213.6 billion compared to a decrease of 1.2 percent (Rls 2.6 billion) during the preceding quarter. Demand deposits, time and saving deposits and other quasi-monetary deposits recorded an annual rise of 14 percent (Rls 26.2 billion), 27.6 percent (Rls 34.8), and 16.3 percent (Rls 13.5 billion) respectively.
3-2 Banks' Credit and Investment Activity
Total claims of commercial banks on the private and government sectors (bank credit and investments) rose by 3.8 percent (Rls 21 billion) to Rls 573.5 billion during the third quarter of 2005 compared with a rise of 6.6 percent (Rls 34.2 billion) in the preceding quarter. At the end of the third quarter, they recorded an annual rise of 22.0 percent (Rls 103.6 billion) to constitute 121.9 percent of total bank deposits compared with 118.7 percent at the end of the same quarter of the preceding year.
Total claims of commercial banks on the government and quasi-government sector declined by 7.1 percent (Rls 12.6 billion) to Rls 165 billion during the third quarter of 2005 compared with an increase of 0.1 percent (Rls 0.1 billion) in the previous quarter. At the end of the third quarter of 2005, they registered an annual decline of 7.2 percent (Rls 12.9 billion). Their ratio to total bank deposits stood at 35.1 percent at the end of the third quarter of 2005, compared with 44.9 percent at the end of the same period of the preceding year.
Total claims of commercial banks on the private sector rose during the third quarter of 2005 by 9.1 percent (Rls 33.9 billion) to Rls 407.9 billion compared to an increase of 10.1 percent (Rls 34.3 billion) during the preceding quarter. They registered an annual rise of 40.0 percent (Rls 116.6 billion) at the end of the third quarter of 2005. The ratio of commercial banks' claims on the private sector to total bank deposits was 86.7 percent at the end of the third quarter of 2005 compared to 73.6 percent at the end of the same period of the previous year.
An analysis of bank credit by maturity (private and government sectors) shows that long- term credit rose by 11.1 percent (Rls 13.5 billion) to Rls 134.6 billion during the third quarter of 2005 compared to a rise of 17.6 percent (Rls 18.1 billion). Short-term credit went up by 7.3 percent (Rls 16.3 billion) to Rls 240.6 billion compared to a rise of 7.7 percent (Rls 16.0 billion).
Medium-term credit also increased by 6.7 percent (Rls 3.2 billion) to Rls 51.3 billion compared to a rise of 4.5 percent (Rls 2.1 billion) during the preceding quarter.
Total bank credit by economic activity rose by 8.4 percent (Rls 33.0 billion) to Rls 426.5 billion during the third quarter of 2005 compared to an increase of 10.1 percent (Rls 36.1 billion) during the previous quarter, recording an annual rise of 38.2 percent (Rls 117.9 billion) at the end of the third quarter of 2005, compared to the end of the same period of the preceding year. A breakdown of bank credit to different economic activities during the third quarter of 2005 indicates that bank credit extended to the mining sector went up by 17.8 percent (Rls 0.30
billion), water, electricity and other services by 15.8 percent (Rls 0.43 billion), commerce by 13.0 percent (Rls 9.0 billion), other services by 10.5 percent (Rls 15.9 billion), financing by 9.1 percent (Rls4.1 billion), building and construction by 6.2 percent (Rls 1.6 billion), services by 5.1 percent (Rls 0.7 billion), agriculture and fishing by 4.3 percent (0.2 billion), manufacturing and processing by 3.9 percent (Rls 1.3 billion). In contrast, bank credit extended to transport and communications went down by 3.0 percent (Rls 0.42 billion), and to government and quasi- government sector by 0.4 percent (Rls 0.13 billion).
3-3 Commercial Banks' Foreign Assets and Liabilities
Total foreign assets of commercial banks increased during the third quarter of 2005 by 8.9 percent (Rls 7.3 billion) to Rls 90.2 compared with a drop of 8.4 percent (Rls 7.6 billion) in the previous quarter. They recorded an annual growth rate of 0.2 percent (Rls 0.16 billion), constituting 12.3 percent of total commercial banks' assets compared with a rise of 14.7 percent at the end of the same period of the preceding year.
Their total foreign liabilities rose by 23.3 percent (Rls 10.9 billion) to Rls 57.8 billion during the third quarter of 2005 compared to a rise of 5.9 percent (Rls 2.6 billion) in the preceding quarter.
They recorded an annual growth rate of 20.2 percent (Rls 9.7 billion), constituting 7.9 percent of total liabilities compared to an increase of 7.8 percent at the end of the same period of the preceding year. Net foreign assets amounted to Rls 32.4 billion, dropping by 10.0 percent (Rls 3.6 billion) at the end of the third quarter of 2005 compared with a decline of 22.1 percent (Rls 10.2 billion) during the previous quarter. Net foreign assets registered a decline of 22.8 percent (Rls 9.5 billion) in their annual growth rate.
3-4 Commercial Banks' Capital and Reserves, Profits and Branches
The capital and reserves of commercial banks went up by 4.0 percent (Rls 2.5 billion) during the third quarter of 2005. The ratio of commercial banks' capital and reserves to total bank deposits at the end of the third quarter of 2005 stood at 13.7 percent compared to 13.3 percent at the end of the same period of the preceding year. Their annual growth rate rose by 23.0 percent (Rls 12.1 billion).
Commercial banks' profits rose to Rls 7.2 billion during the third quarter of 2005 compared to Rls 7.1 billion in the preceding quarter, recording a rise of 1.1 percent (Rls 0.1 billion) and an annual growth rate of 47.3 percent (Rls 6.6 billion).
The number of bank branches of commercial banks operating in the Kingdom at the end of the third quarter of 2005 amounted to1,240, increasing by 16 over the second quarter of the same year.
3-5 Banking Technology
A plan was completed during the previous period for the accession of BNP Paribas Bank to SARIE. On August 10, 2005, the bank was linked to SARIE's Test and Training environment.
According to the plan, BNP Paribas Bank was linked to SARIE's Live System on September 8, 2005. Work is still in progress and special meetings are held for explaining requirements and initial work plans to Muscat Bank, Deutsche Bank and National Bank of Kuwait as a preliminary step for their accession to SARIE.
The National Bank of Kuwait is to be linked to SARIE Test and Training environment on November 23, 2005, and then to SARIE's Live System at the end of December 2005.
As for SARIE's statistics for the third quarter of 2005, the value of transactions carried out through SARIE totaled Rls 2,389,835 million through 415, 294 transactions. The value of single payments transactions totaled Rls 2,257,798 million) whereas the value of bulk payments stood at Rls 132,037 million.
It is expected that transactions via SARIE will continue to increase in upcoming years, especially commercial transactions and those carried out by households, apart from increased payment of salaries of employees in the government and private sectors via SARIE.
The number of bank checks (outgoing and incoming) cleared at clearing houses during the third quarter of 2005 totaled 1.8 million with a total value of Rls 112.6 billion compared with 1.7 million checks with a value of 100 billion during the third quarter of 2004. The number of household and business checks totaled 1.5 million and their total value amounted to Rls 87.2 billion during the period under review. The number of banks' checks (certified) totaled 270,196 thousand with a total value of Rls 29.7 billion.
Total withdrawal operations executed through automated teller machines (ATMs) in the third quarter of 2005 amounted to Rls 63 billion. Total transactions of POS terminals executed through SPAN stood at 16 million with a total value of Rls 7 billion. The number of ATMs amounted to 4413, and the number of cards issued from domestic banks exceeded 7.5 million at the end of the third quarter of 2005. POS terminals continued their growth as they totaled 41 thousand at the end of the third quarter of 2005.
Fourth: Domestic Stock Market Developments
The general share price index went up by 11.7 percent to 15036.04 during the third quarter of 2005 compared to an increase of 28.9 percent in the preceding quarter, registering an annual rise of 128.1 percent. The number of stocks traded declined by 4.4 percent to 3.4 billion during the third quarter of 2005 against a rise of 99.5 percent in the preceding quarter, with its annual growth rate rising by 7.4 percent. Total value of stocks traded declined by 7.5 percent to Rls 1,039.8 billion compared to a rise of 128.7 percent in the preceding quarter, with an increase of 113.3 percent in its annual growth rate.
At the end of the third quarter of 2005, the market capitalization of issued shares went up by 12.1 percent to Rls 2,179 billion compared to a rise of 31.7 percent at the end of the preceding quarter. The total number of executed transactions during the quarter registered a rise of 15.9 percent to 13,329.4 thousand compared to a rise of 149.1 percent during the preceding quarter, with its annual growth rate increasing by 201.5 percent.
Total assets of investment funds managed by commercial banks recorded an increase of 16.2 percent (Rls 15.9 billion) to Rls 113.8 billion in the third quarter of 2005 compared to a rise of 41.5 percent (Rls 28.7 billion) in the preceding quarter, registering an annual growth rate of 99.3 percent (Rls 56.7 billion).
A breakdown of the funds' total assets indicates a rise in domestic assets by 18.8 percent (Rls 15.4 billion) to Rls 97.1 billion in the third quarter of 2005 compared to an increase of 54.3 percent (Rls 28.8 billion) in the preceding quarter. Domestic assets recorded an annual growth rate of 136.3 percent (Rls 56.0 billion). Foreign assets registered a rise of 3.7 percent (Rls 0.6 billion) to Rls 16.7 billion during the third quarter of 2005 against a fall of 0.3 percent (Rls 0.04
billion) in the preceding quarter. They recorded an annual growth rate of 4.4 percent (Rls 0.71 billion).
The number of subscribers to investment funds increased by 20.4 percent (82,723) to 488,963 in the third quarter of 2005 compared to a rise of 83.2 percent (184,478) in the preceding quarter. The number of subscribers recorded an annual growth rate of 164.3 percent (303,808).
The number of operating funds rose from 196 in the second quarter of 2005 to 197 in the third quarter of 2005, increasing by 0.5 percent compared to a rise of 3.7 percent in the preceding quarter. The number of operating funds registered an annual growth rate of 5.9 percent.
Fifth: Cost of Living
During the second quarter of 2005, the average cost of living index (for all cities) declined by 0.1 percent. It registered an annual rise of 0.4 percent compared to the same period of the previous year. The cost of living index for "transport and communications" rose by (0.4 percent),
"foods and beverages" by (0.3 percent), "house furniture" and "goods and other services" by (0.2 percent each), "medical care" and "entertainment and education" by (0.1 percent each). In contrast, it declined by 0.7 percent for fabrics, apparel and shoes, and by 1.5 percent for renovation, rent, fuel and water.
Sixth: Supervisory and Legislative Developments During the Third Quarter of 2005
Circular No. 28568/MASH/437 dated 10/8/1426H corresponding to 17/9/2005 was issued providing for the establishment of the Financial Investigation Unit which is responsible for receiving reports on suspicious transactions associated with money laundering or terrorism financing.
The Council of Ministers issued Resolution No. 188 on 17/7/1426H approving the
application of "State Bank of India" to open a branch in the Kingdom.
The Council of Ministers issued Resolution No. 189 on 17/7/1426H approving the
application of "National Bank of Pakistan" to open a branch in the Kingdom.
" BNP Paribas" has opened a branch for banking business in Riyadh.
