Economic Developments First quarter of 2006
Saudi Arabian Monetary Agency Research and Statistics Department
First: Money Supply (M3)
Broad money supply (M3) rose by 6.6 percent (Rls 36.3 billion) to Rls 582.6 billion during the first quarter of 2006, compared to an increase of 3.1 percent (Rls 16.3 billion) during the preceding quarter. It registered an annual growth rate of 15.0 percent (Rls 76.0 billion). The rise in money supply during the first quarter of 2006 was mainly ascribed to an increase of Rls 11.5 billion in bank credit to the private sector.
An analysis of the components of money supply (M3) indicates that (M1) went up by 2.4 percent (Rls 6.8 billion) to Rls 290.3 billion, or 49.8 percent of total money supply (M3) in the first quarter of 2006 compared to an increase of 3.8 percent (Rls 10.4 billion) during the preceding quarter. Money supply (M1) registered an annual rise of 5.0 percent (Rls 13.9 billion) at the end of the first quarter of 2006. Money supply (M2) also went up by 7.1 percent (Rls 31.7 billion) to Rls 480.5 billion, or 82.5 percent of total money supply (M3) during the first quarter of 2006 compared to a rise of 3.4 percent (Rls 14.7 billion) in the preceding quarter. Money supply (M2) recorded an annual increase of 14.7 percent (Rls 61.7 billion) at the end of the first quarter of 2006.
Second: Monetary Policy
During the first quarter of 2006, SAMA continued to pursue an appropriate monetary policy to support domestic economic activity and cope with international economic developments aiming at maintaining price stability and making available adequate liquidity for all economic sectors. During the quarter, SAMA raised the official repurchase agreements (Repo) rate one time by 25 basis points, from 4.75 percent to 5.00 percent at the end of the first quarter. SAMA also raised reverse repurchase agreements (Reverse Repo) rate one time by 25 basis points from 4.25 percent to 4.50
stood at Rls 1,311 million during the first quarter while that of Reverse Repo was Rls 7,289 million respectively.
Reflecting the monetary policy pursued, and the rise in interest rates on the world markets, inter-bank interest rate recorded a slight increase during the first quarter of 2006. The three-month inter-bank interest rate (SIBOR) increased from 4.97 percent at the end of the fourth quarter of 2005 to 5.10 percent at the end of the first quarter of 2006. The differential between the Riyal and the Dollar interest rates for a three-month period dropped to 12 basis points at the end of the first quarter of 2006 against 43 basis points at the end of the fourth quarter of 2005. Saudi Riyal maintained stability of its exchange rate in the spot market around its official rate of 3.75 Riyals per dollar.
Third: Developments of Banks' Activities
3-1 Bank Deposits
Total bank deposits registered an increase of 8.2 percent (Rls 39.6 billion) to Rls 521.5 billion during the first quarter of 2006, compared to a rise of 2.5 percent (Rls 11.6 billion) during the preceding quarter. At the end of the first quarter of 2006, it achieved an annual rise of 16.5 percent (Rls 73.7 billion). At the end of the first quarter of 2006, the ratio of total bank deposits to total broad money supply (M3) stood at 89.5 percent compared with 88.4 percent at the end of the same period of the previous year.
A review of the developments of components of deposits by type during the fourth quarter of 2005 indicates that demand deposits rose by 2.7 percent (Rls 5.7 billion) to Rls 219.3 billion compared to a decline of 0.7 percent (Rls 1.5 billion) during the preceding quarter. Time and savings deposits went up by 2.7 percent (Rls 4.4 billion) to Rls 165.3 billion compared to an increase of 2.6 percent (Rls 4.0 billion) during the preceding quarter. Other quasi-monetary deposits rose by 1.6 percent (Rls 1.6 billion) to Rls 97.5 billion compared to a decrease of 0.1 percent (Rls 0.1 billion) during the preceding quarter. Demand deposits, time and savings deposits and other quasi- monetary deposits recorded an annual rise of 3.8 percent (Rls 8.1 billion), 20.9 percent (Rls 28.6), and 18.4 percent (Rls 15.2 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 2.4 percent (Rls 14.0 billion) to Rls 610.0 billion during the first quarter of 2006 compared with a rise of 3.9 percent (Rls 22.5 billion) in the preceding quarter. At the end of the first quarter, total bank calims recorded an annual rise of 17.7 percent (Rls 91.7 billion) to constitute 117.0 percent of total bank deposits compared with 115.7 percent at the end of the same quarter of the preceding year.
Total claims of commercial banks on the government and quasi-government sector rose by 1.5 percent (Rls 2.4 billion) to Rls 161.8 billion during the first quarter of 2006 compared with a decline of 3.4 percent (Rls 5.6 billion) in the previous quarter. At the end of the first quarter of 2006, they registered an annual decline of 8.8 percent (Rls 15.7 billion). Their ratio to total bank deposits stood at 31.0 percent at the end of the first quarter of 2006, compared with 39.6 percent at the end of the same period of the preceding year.
Total claims of commercial banks on the private sector rose during the first quarter of 2006 by 2.6 percent (Rls 11.5 billion) to Rls 447.5 billion compared to an increase of 6.9 percent (Rls 2.8 billion) during the preceding quarter. They registered an annual rise of 31.7 percent (Rls 107.7 billion) at the end of the first quarter of 2006. The ratio of commercial banks' claims on the private sector to total bank deposits was 85.8 percent at the end of the first quarter of 2006 compared to 75.9 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 medium-term credit rose by 7.6 percent (Rls 4.1 billion) to Rls 57.6 billion during the first quarter of 2006 compared to a rise of 4.2 percent (Rls 2.2 billion). Short-term credit went up by 3.1 percent (Rls 7.7 billion) to Rls 258.5 billion compared to a rise of 4.3 percent (Rls 10.3 billion). Long-term credit also increased by 2.0 percent (Rls 2.9 billion) to Rls 151.1 billion compared to a rise of 10.1 percent (Rls 13.6 billion) during the preceding quarter.
Total bank credit by economic activity rose by 3.2 percent (Rls 14.6 billion) to Rls 467.1 billion during the first quarter of 2006 compared to an increase of 6.1 percent (Rls 26.0 billion) during the previous quarter, recording an annual rise of 30.7 percent (Rls 109.8 billion) at the end of the first quarter of 2006, compared to the end of the
activities during the first quarter of 2006 indicates that bank credit extended to the services sector went up by 21.6 percent (Rls 3.3 billion), agriculture and fishing by 13.6 percent (Rls 0.9 billion), water, electricity and other services by 9.1 percent (Rls 0.3 billion), building and construction by 7.4 percent (Rls 2.3 billion), financing by 6.8 percent (Rls3.8 billion), commerce by 6.6 percent (Rls 5.5 billion), government and quasi-government sector by 4.2 percent (Rls 1.3 billion), mineral and mining by 1.6 percent (Rls 0.04 billion), and manufacturing and processing by 0.2 percent (Rls 0.08 billion). In contrast, bank credit extended to miscellaneous services sector went down by 1.7 percent (Rls 2.9 billion), and to transport and communications by 0.1 percent (Rls 0.02 billion).
3-3 Commercial Banks' Foreign Assets and Liabilities
Total foreign assets of commercial banks increased during the first quarter of 2006 by 5.1 percent (Rls 4.7 billion) to Rls 96.1 billion compared with an increase of 1.4 percent (Rls 1.3 billion) in the previous quarter. They recorded an annual growth rate of 6.3 percent (Rls 5.7 billion), constituting 12.1 percent of total commercial banks' assets compared with a rise of 13.3 percent at the end of the same period of the preceding year.
Their total foreign liabilities declined by 4.6 percent (Rls 3.0 billion) to Rls 62.1 billion during the first quarter of 2006 compared to a rise of 12.5 percent (Rls 7.2 billion) in the preceding quarter. They recorded an annual growth rate of 40.1 percent (Rls 17.8 billion), constituting 7.8 percent of total liabilities compared to an increase of 6.5 percent at the end of the same period of the preceding year. Net foreign assets amounted to Rls 34.1 billion, rising by 29.1 percent (Rls 7.7 billion) at the end of the first quarter of 2006 compared with a decline of 18.5 percent (Rls 6.0 billion) during the previous quarter. Net foreign assets registered a decline of 26.2 percent (Rls 12.1 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 24.5 percent (Rls 16.3 billion) during the first quarter of 2006. The ratio of commercial banks' capital and reserves to total bank deposits at the end of the first quarter of 2006 stood at 15.9 percent compared to 14.3 percent at the end of the same period of the preceding year.
Their annual growth rate rose by 29.7 percent (Rls 19.0 billion).
Commercial banks' profits rose to Rls 9.9 billion during the first quarter of 2006 compared to Rls 6.2 billion in the preceding quarter, recording a rise of 58.4 percent (Rls 3.6 billion) and an annual growth rate of 68.5 percent (Rls 12.3 billion).
Fourth: Banking Technology
Saudi Arabian Riyal Interbank Express (SARIE) made a revolution in the field of electronic banking business and commercial operations in the Kingdom, as it constitutes the infrastructure of a number of sophisticated payments and financial settlement systems. Since its inauguration in 1997, SARIE has witnessed continued development both in fields of technical technology of the system and banking business. Technically, the first stage of the development project of SARIE systems was completed as they were developed and upgraded in all banks' sites. Work is in progress on the execution of the second stage of the project, including developing and upgrading SARIE systems in SAMA's sites (Central System).As for the accession to SARIE, a plan was completed during the previous period for the accession of the National Bank of Kuwait to SARIE. On March 4, 2006, the bank was linked to SARIE's Live System. On April 19,2006, Deutsche Bank was successfully linked to SARIE's Test and Training environment. According to the plan, Deutsche Bank will be linked to SARIE's Live System during May 2006. Work is still in progress and special meetings are held for explaining requirements and initial work plans to Muscat Bank as a preliminary step for its accession to SARIE.
As for SARIE's statistics for the first quarter of 2006, the value of transactions carried out through SARIE totaled Rls 3,083 billion through 482,327 transactions. The value of single payments transactions totaled Rls 2,951 billion, whereas the value of gross payments stood at Rls 132 billion. Customers' payments amounted to Rls 389 billion (25 percent) compared to Rls 311 billion in the first quarter of the preceding year.
Inter-bank total value of payments totaled Rls 2,694 billion. It is expected that transactions via SARIE will continue to increase in upcoming years, especially in commercial transactions and those carried out by households, apart from increased payment of salaries of employees in the government and private sectors via SARIE.
As for Saudi Payments Network's (SPAN's) achievements, it is still recording good growth in terms of transactions made through it. Total operations executed through automated teller machines (ATMs) in the first quarter of 2006 amounted to 146 million, including banks' networks and SPAN's operations totaling Rls 66 billion.
Total transactions of POS terminals executed through SPAN stood at 18 million with a total value of Rls 7.6 billion. The number of ATMs amounted to 4,842, and the number of cards issued by domestic banks exceeded 8.5 million at the end of the first quarter of 2006. POS terminals continued their growth as they totaled 46 thousand at the end of the same quarter.
At the end of the first quarter of 2006, the number of clearing houses in the Kingdom amounted to 10 in all branches of SAMA, 3 of which are automated clearing houses in Riyadh, Jeddah and Dammam. The number of bank checks (outgoing and incoming) cleared at clearing houses during the quarter totaled 1.8 million with a total value of Rls 122.4 billion . The number of household and business checks totaled 1.6 million and their total value amounted to Rls 90.9 billion during the period. The number of banks' checks (certified) totaled 254.7 thousand with a total value of Rls 31 billion.
Fifth: Domestic Share Market Developments
The general share price index rose during the first quarter of 2006 by 2.1 percent to 17,060.34 points, compared to an increase of 11.2 percent in the preceding quarter, whereas it achieved an annual increase of 62.5 percent. The number of shares traded in the first quarter of 2006 declined by 11.6 percent to 3.2 billion compared to a rise of 9.6 percent in the preceding quarter. Its annual growth rate increased by 38.4 percent.
Total value of shares traded went up by 21.7 percent to Rls 1,805.7 billion compared to a rise of 42.7 percent in the preceding quarter, recording an annual growth rate of 172.2 percent.
At the end of the first quarter of 2006, the market capitalization of issued shares went up by 4 percent to Rls 2,535.7 billion compared to a rise of 11.9 percent at the end of the preceding quarter. The total number of executed transactions during the quarter registered a rise of 19.9 percent to 20,578.9 thousand compared to a rise of 28.8 percent during the preceding quarter, with its annual growth rate increasing by 290.2 percent.
Sixth: Investment Funds
Total assets of investment funds managed by commercial banks recorded an increase of 0.8 percent (Rls 1.1 billion) to Rls 138.0 billion in the first quarter of 2006 compared to a rise of 20.3 percent (Rls 23.1 billion) in the preceding quarter, registering an annual growth rate of 99.7 percent (Rls 68.9 billion).
A breakdown of the funds' total assets indicates a rise in domestic assets by 1.1 percent (Rls 1.3 billion) to Rls 116.9 billion in the first quarter of 2006 compared to an increase of 19.1 percent (Rls 18.6 billion) in the preceding quarter. Domestic assets recorded an annual growth rate of 120.9 percent (Rls 64 billion). Foreign assets registered a decline of 1.0 percent (Rls 0.2 billion) to Rls 21.1 billion during the first quarter of 2006 against a rise of 27.3 percent (Rls 4.6 billion) in the preceding quarter.
They recorded an annual growth rate of 30.2 percent (Rls 4.9 billion).
The number of subscribers to investment funds increased by 16.7 percent (94,956) to 663,240 in the first quarter of 2006 compared to a rise of 16.2 percent (79,321) in the preceding quarter. The number of subscribers recorded an annual growth rate of 199.1 percent (441,478).
The number of operating funds rose from 199 in the fourth quarter of 2005 to 204 in the first quarter of 2006, increasing by 2.5 percent compared to a rise of 1.0 percent in the preceding quarter. The number of operating funds registered an annual growth rate of 7.9 percent.
Seventh: Cost of Living
During the first quarter of 2006, the average cost of living index went up by 0.6 percent. It registered an annual rise of 1.8 percent compared to the fourth quarter of the previous year. The cost of living index for "goods and other services" rose by (1.8 percent), "foods and beverages" by (1.3 percent), "entertainment and education" by (0.4 percent) and "house furnishing" by (0.1 percent). In contrast, it declined by 0.6 percent for fabrics, apparel and shoes, by 0.3 percent for renovation, rent, fuel and water, and by 0.2 percent for "medical care". The index for "transport and telecommunications" declined by 0.5 percent.
Eighth: Supervisory and Legislative Developments during the First Quarter of 2006
Circular No. 1087/MAT/15 dated 8/2/2006 was issued regarding a plan to raise the level of banks' customer banking awareness related to swindling and fraud and warning thereof.
Circular No. 5423/MAT/92 dated 14/3/2006 was issued concerning the Draft of the Second update of the Manual of the Rules for Opening Accounts and General Rules for their operation.
A Draft concerning controls of Deposit Lending was issued on 15/3/2006 to obtain banks' comments on these controls.
Ninth: Regulatory Developments in the Saudi Economy during the First Quarter of 2006
─ The Council of Ministers issued a resolution on 2/12/1426 H corresponding to 2/1/2006 G on approval of Dual Tax Prevention Agreements with Malaysia and India.
─ The Council of Ministers issued a resolution on 2/12/1426 H corresponding to 2/1/2006 G, approving cooperation protocol with China in oil, gas and minerals sectors.
─ A Royal directive was issued on 15/2/1427 H (corres 15/3/2006) on considering the direct access of expatriates to the Saudi Stock Market, and not confining their access to mutual funds, and decreasing the nominal value of share by splitting stocks.
─ The Council of Ministers issued a resolution on 27/2/1427 H (corres. 27/3/2006) approving the establishment of a joint-stock company called Inma' Bank (the Development Bank) with a total capital of Rls 15 billion to practice normal banking and investment business. The Public Investment Fund, the Pension Organization and General Organization for Social Insurance will subscribe for 30 percent of the total capital (10 percent each) and the remaining (70 percent) will be floated for public subscription.
─ The Council of Ministers issued a resolution on 27/2/1427 H (corres. 27/3/2006), approving that the capital of any joint-stock company, offered for public subscription, should not be less than Rls 10 million, otherwise the capital of a joint-stock company should not be less than Rls 2 million and at least half of the capital should be paid on the incorporation of the company, with the value of the share is Rls 10. This applies to all joint-stock companies licensed for foundation before the execution of the resolution.
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