Saudi FX reserves improved with oil market, says SAMA official

Saudi Arabia’s foreign reserves have improved on the recent oil market recovery and normalized foreign cash outlflows, Fahad Alshathri, Deputy Governor for Research and International Affairs at Saudi Arabian Monetary Authority (SAMA), told Argaam during the Euromoney Conference on Wednesday.

The Kingdom’s central bank deems interest rates as a monetary policy instrument that helps maintain stable currency rates.

“The government expenditure is the key driver of the economic growth”, said Alshathri, commenting on Moody’s forecasts if SAMA hikes key interest rates.

Here is the full interview with Alshathri:

Q: SAMA’s assets are continuing to decline on a monthly basis, how do you see this? What is the percentage of foreign assets to the Kingdom’s GDP?

A: Despite a drop in SAMA’s foreign assets in mid-2014, the recent recovery in the oil market and normalized foreign cash outlflows have enhanced foreign reserves. Foreign assets increased by SAR 5.6 billion month-on-month last September to SAR 1.8 trillion. Assets maintained growth in October and November ahead of a marginal decline at 0.4 percent in December. Foreign assets rose by 1.5 percent in March 2018.

Meanwhile, there are several indicators that SAMA has sufficient foreign reserves, mainly higher foreign reserves when compared to money supply, along with a rise in oil prices that stabilized above $70 per barrel.

The Kingdom’s latest international debt sale as well as the steep decline in credit-default swaps reflected investor confidence in its economic policy.

In addition, the stable US dollar/riyal forward rates also signaled confidence in the Saudi foreign exchange policies.

Q: Moody’s Investor Service said that SAMA’s potential hike of key interest rates would impact local economic recovery this year, what do you think about this?

A: The economic recovery is never linked to one indicator or one policy. It rather implies an integrated set of factors, variables and policies.

SAMA views interest rates as a monetary policy instrument that helps support and maintain economic recovery and stable currency locally and overseas.

Meanwhile, SAMA uses other precautionary policies to overcome financial or economic shocks and fluctuations, so as to mitigate the impact of higher interest rates, support local economy and maintain fiscal balance.

Q: SAMA has recently signed a deal with US-based financial technology company Ripple in managing a cross-border transaction of local banks. Have you started this pilot program? And what are the main benefits and expected savings?

A: We’ve started applying the Ripple program. We’re closely watching potential impacts from the new technology on the applicable regulations, economy and fiscal balance.

In the long term, we believe that such innovative technologies will enhance efficiency, safety, cut costs and boost financial inclusion.

Q: How can you evaluate the asset quality of the banking system?

A: Despite recent reforms, the ratio of non-performing loans (NPLs) to total loans is still low in Saudi banks at 1.6 percent, with coverage ratio of 151.9 percent. Meanwhile, the sector recorded better financial safety indicators, when compared to other countries.

Q: What about the impact of Zakat Authority’s additional claims on banks?

A: SAMA is working with the competent authorities to handle these additional claims in a way that does not adversely impact the banking sector.

Q: Are there any requests by foreign banks to operate in the Kingdom? If yes, how many?

A: SAMA is currently considering several requests from banks to get licenses and operate in the Kingdom, in line with its strategy to license new and existing foreign banks, so as to enhance the financial sector.