FINANCE

FINANCIAL SERVICES BOUNCE BACK FROM THE PANDEMIC

Q2 2021 turned out to be another strong quarter for the kingdom’s banking sector, amid robust economic growth and brisk business activity.

Total bank deposits increased by 2.5% to SAR 2.030 trillion in the second quarter, compared to a rise of 1.9% in the previous quarter, and a 10.2% increase over the same period last year, according to the Saudi Central Bank’s (SAMA) Monetary and Banking Development Q2 2021 report.

The domestic commercial banks’ total assets and liabilities stood at SAR 3.114 trillion at the end of the second quarter, a 10% surge versus the same period last year.

Banks were also busy extending credit to various sectors in a bid to jumpstart the economy.

SAMA data shows bank credit extended to government and quasi-government sector rose 23.2% (SAR 16.6 billion); agriculture and fishing up 13.4% (SAR 2 billion); water, electricity, gas, and health services up 4.3% (SAR 3 billion); commerce up 2.6% (SAR 8 billion); finance up 2.4% (SAR 1.2 billion); mining and quarrying up 1.3% (SAR 331 million); building and construction up 1.2% (SAR 1.1 billion); and to other sectors up 6% (SAR 55.2 billion).

However, bank credit to transport and telecommunication fell 7.4% (SAR 3.9 billion), services dropped by 7.4% (SAR 7.6 billion), and manufacturing and production declined by 1.1% (SAR 1.8 billion).

Overall, the commercial banks' profits rose to SAR 12.8 billion in the second quarter, a 4.3% increase over the previous quarter, and a 10.7% expansion compared to the same period last year.

Saudi Arabia’s financial services sector is also embracing the latest technologies and digital services.

SAMA said that kingdom saw “the highest adoption of contactless payments through Near-Field Communication (NFC) with 94%, the highest in the Middle East and North Africa, above of the European Union average, and ahead of Hong Kong and Canada.”

The kingdom's successful adoption of contactless payments is part of the central bank's strategy, which builds on the goals of the Financial Sector Development Program (FSDP) of Vision 2030. The programme aims to reduce cash transactions, while raising electronic payments to 70% of all transactions by 2025, SAMA noted.

“To achieve these goals, the Saudi Central Bank has fully adopted NFC payments since 2016, taking strategic steps to authorise and facilitate e-payment transactions after ensuring the highest level of security in accordance with international standards and best practices.”

The total value of Saudi Riyal Inter-bank Express System (SARIE) transactions reached SAR 15.14 trillion in the second quarter, while total customer payments stood at SAR 2.156 trillion, with a quarter-on-quarter rise of 8.3%.

 

JOINING THE BOND BENCHMARK

The FSDP, part of the Saudi Vision 2030 initiative, also ticked another box when global index provider FTSE Russell announced in October that the Saudi Stock Exchange has joined the FTSE Emerging Markets of Government Bond Index (EMGBI).

The move is part of the authorities’ goal to raise the Saudi capital markets’ global profile and deepen the financial market.

As a precursor to the FTSE Russell news, during 2020, a new special index was created in the local Sukuk and Debt Instruments market, and launched on the Saudi Tadawul website.

The landmark upgrade by FTSE Russell will develop the kingdom’s nascent sukuk and debt market and encourage foreign ownership in the instruments. The Saudi stock market is already a member of the MSCI Emerging Markets Index (MSCI), the FTSE Russell Index, and the S&P Index.

 

A HELPING HAND

SAMA is also offering targeted support to businesses that continue to suffer from COVID-19-related slowdown. In September, SAMA extended the Deferred Payment Program – one of its Private Sector Financing Support Programs – for three additional months to 31 December 2021. This will benefit micro, small and medium enterprises (MSMEs) that continue to be affected by the COVID-19 precautionary measures, based on the assessment of financing entities.

The Deferred Payment Program has provided 107,000 contracts worth SAR 174 billion since 14 March 2020.

“Meanwhile, the number of contracts benefiting from the Guaranteed Financing Program has exceeded 6,000, with total financing value of more than SAR 11 billion,” the central bank noted. “The purpose of these programmes has been to support the private sector as well as financial system liquidity, which should help in easing the economic impact of the COVID-19 precautionary measures on the MSMEs sector.”