Lower SAMA Bills and Pensions “Good Sign” for Saudi Economy, Says Leading Economist

RIYAD: The monthly statistical report produced by the Saudi Central Bank (SAMA) revealed a decrease in SAMA bills and repo agreements.

This is a good sign according to Mohamad Ramady, a London-based independent economist, who said: “It means banks are investing more abroad. [of SAMA], instead of placing their excess deposits overnight with SAMA, and SAMA does not borrow more from banks, crowding out the private sector.

Regarding SAMA’s reserve assets, Special Drawing Rights (SDRs) have seen a remarkable rise, increasing by over 160% this month. This reflects Saudi Arabia‘s “significant enough contribution” to help other third countries.

SAMA data also showed changes in the monetary survey, which is the aggregate balance sheet of all depository institutions and SAMA.

He revealed that the net foreign assets of commercial banks increased by 8.16% to reach SR 58.43 billion in August.

Bank claims on the government also increased by SR 10.74 billion to reach SR 465.32 billion in August, reflecting a growth rate of 2.36%.

In addition, bank claims on non-financial public sector enterprises increased by 5.25%, from SR 88.43 billion in July to SR 93.07 in August. This is contrasted by the very slight increase in bank claims on the private sector, amounting to a growth rate of only 0.56 percent.

Ramady noted that “these changes in lending models may be explained by the interest of Saudi commercial banks in new government projects, including the projects of the Red Sea Development Company (TRSDC) and NEOM.”

In addition, data released by SAMA showed a decrease in demand deposits and foreign currency outside banks of SR 5.33 billion and SR 4.03 billion, respectively, for the month of August. This was accompanied by a notable increase in term deposits and savings, with an increase of over SR 10 billion and growth of 2.33%.

This reflects a change in people’s preferences over the period in which they prefer higher interest deposits to low income foreign currency and term deposits, Ramady noted. He also added that this increase in deposits was used to lend to the public sector.

While the total asset structure of the central bank has not changed much, the most important change concerns the Bank’s deposits with banks abroad, where they increased by SR 19.78 billion. The reason is that it is a more liquid and more profitable option than the others, Ramady said.

The data also revealed that the government’s current account deposits and reserves with SAMA significantly decreased by around 18%, reaching SR 69.72 billion in August. This means that government institutions are drawing on their current accounts as the pace of project start-up and completion accelerates.

However, deposits of government institutions with the central bank increased by about SR 30 billion. Ramady explained that this could be due to the fact that they are earning more income as the effects of the pandemic begin to subside, adding that “it could be due to the increase in revenue from zakat, from the ‘income tax and VAT’.

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