Progressive Developments in Saudi Arabia’s Banking Sector
The latest Fiscal Year 2024 Budget Statement released by the Saudi Ministry of Finance highlights the significant changes and developments in Saudi Arabia’s banking sector.
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The Fiscal Year 2024 Budget Statement focuses on the Kingdom’s ongoing work in improving its economy and financial policies, in line with the goals of Saudi Vision 2030. These reforms are pivotal in shaping the financial landscape of the country.
As per data from the Saudi Central Bank (SAMA), the sector continues to exhibit robustness and security. The first three quarters of FY 2023 saw a 9.4% increase in total bank assets, reaching SAR 3.9 trillion, surpassing the FY 2025 Financial Sector Development Program (FSDP) target of SAR 3.5 trillion. This growth primarily results from an increase in lending, with the loan portfolio constituting over 65% of total assets. And when compared to the same period in FY 2022, credit landed to the private sector rose by approximately 9.3%, while there was a slight 0.8% decrease in consumer loans, which make up about 18% of the total loan portfolio. The escalation in private sector credit is key to compensating the impact of rising interest rates on consumer loan growth.
By the end of Q3 in FY 2023, the volume of real estate loans granted by commercial banks had grown on an annual basis by 12.3%, reaching to about SAR 747.2 billion, which accounts for 29.4% of total bank credit. This increase is largely attributed to government initiatives promoting homeownership among citizens. Loans to small, medium, and micro enterprises also saw a significant 18.8% growth, despite increasing financing costs. The ratio of non-performing loans remained low at 1.69%, indicating a healthier state compared to pre-COVID-19 pandemic levels, while the capital adequacy ratio stood firm at 20.1%, well above the minimum recommendation of the Basel Committee on Banking Supervision, which state that the capital adequacy ratio not to be less than 10.5%.
Moreover, the money supply (M3) generated an 8.0% year-on-year increase by September of FY 2023, reaching SAR 2.66 trillion. This growth was fueled by a 49.4% rise in time and savings deposits and a 4.3% increase in currency in circulation. However, there was a decrease in other quasi-monetary and demand deposits. The expansion of the money supply reflects the ongoing improvement in economic growth and the influence of rising interest rates, which have encouraged a shift towards time and savings deposits. Additionally, by the end of September FY 2023, total bank credit had grown by about 9.9% compared to the previous year, further evidencing the positive momentum in economic activity. Bank claims on the public sector also rose by 9.5%, propelled by a 20.6% increase in bank credit to public institutions and a 6.8% rise in government and quasi-government bond issuance.
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Employment grew for the 16th consecutive month as companies expanded.
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According to a recent PMI report, Qatar experienced its fastest non-energy sector growth in almost two years in June, driven by surges in both existing and new business activities.
The Purchasing Managers’ Index (PMI) headline figure for Qatar reached 55.9 in June, up from 53.6 in May, with anything above 50.0 indicating growth in business activity. Employment also grew for the 16th month in a row, and the country’s 12-month outlook remained robust.
The inflationary pressures were muted, with input prices rising only slightly since May, while prices charged for goods and services fell, according to the Qatar Financial Centre (QFC) report.
This headline figure marked the strongest improvement in business conditions in the non-energy private sector since July 2022 and was above the long-term trend.
The report noted that new incoming work expanded at the fastest rate in 13 months, with significant growth in manufacturing and construction and sharp growth in other sectors. Despite the rising demand for goods and services, companies managed to further reduce the volume of outstanding work in June.
Companies attributed positive forecasts to new branch openings, acquiring new customers, and marketing campaigns. Prices for goods and services fell for the sixth time in the past eight months as firms offered discounts to boost competitiveness and attract new customers.
Qatari financial services companies also recorded further strengthening in growth, with the Financial Services Business Activity and New Business Indexes reaching 13- and nine-month highs of 61.1 and 59.2, respectively. These levels were above the long-term trend since 2017.
Yousuf Mohamed Al-Jaida, QFC CEO, said the June PMI index was higher than in all pre-pandemic months except for October 2017, which was 56.3. “Growth has now accelerated five times in the first half of 2024 as the non-energy economy has rebounded from a moderation in the second half of 2023,” he said.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
