Saudi Arabia’s monetary aggregates continued to show solid growth reflecting strong economic performance, albeit at a slower pace than in previous months reflecting a seasonal trend. Growth in broad money (M3) slowed to 14 percent year-on-year (-0.2 percent month-on-month) in June from 16 percent in May. The narrower M2 measure, which includes demand deposits, time and savings deposits and currency outside banks, also slowed to 14.3 percent year-on-year (0.2 percent month-on-month) in June versus 15.6 percent in May. The slower growth in both measures reflect a slower growth in demand, time and saving deposits, which increased 14.8 percent year-on-year (0.2 percent month-on-month) in June down from 16.2 percent in May, the Riyadh-based Jadwa Investment said in its Saudi Monetary Update.
The growth of monetary base also decelerated to 11.3 year-on-year as the monthly measure contracted by 6 percent. While this monthly contraction may partly reflect a seasonal trend, the size of the monthly contraction may signal a slower credit growth in the coming months. The monthly contraction in monetary base is also reflected by lower bank deposits with SAMA (Saudi Arabian Monetary Agency) as banks allocate more funds to treasury bills and credit to private sector. At the same time, currency outside banks remained flat in June compared to previous month, but was 10.5 percent higher than a year earlier. Given such monetary dynamics, the money multiplier maintained its upward trend recording 4.9 percent in June.
The Jadwa report said net foreign assets (NFAs) of the Saudi financial system slipped by 0.1 percent month-on-month, but remained 12.8 percent higher than in June 2012. Both SAMA and commercial banks recorded lower NFA in June compared with previous month.
SAMA's NFA slipped by SR2.6 billion in June as foreign assets declined by 0.1 percent month-on-month to SR2.5 trillion. Within foreign assets, SAMA deposits with banks abroad dropped by SR24.5 billion in June while investment in foreign securities and in foreign currencies convertible to gold increased by SR15.3 billion and SR6.2 billion in June, respectively. At the same time, SAMA's foreign liabilities decreased from SR5.7 billion at the end May to SR5.3 billion in June. While the reduction in gross foreign assets is not in line with the recent trend of higher oil exports and higher prices, it may reflects higher fiscal spending in the past month as the government maintains an expansionary fiscal policy. Lower foreign asset position also contributed to lower total assets in June, which slipped by 0.2 percent month-on-month to SR2.59 trillion.
The report said positive momentum in SAMA’s foreign assets is likely to slow over the coming few months relative to their strong growth last year as oil prices shift to below $105 per barrel (pb) and the Kingdom adjusts its production to an average of 9.6 million bpd this year.
The NFAs of the commercial banks slightly declined in June to SR138.5 billion in June, or 0.5 percent lower than its level in May. This declined was mainly due to a 0.6 percent month-on-month decrease in gross foreign assets to SR214 billion while foreign liabilities eased by 0.7 percent. Despite the decline in foreign assets, bank foreign assets are 2.8 times the foreign liabilities reflecting the strong external position of the local banks.
On their domestic position, the Jadwa report said banks remained liquid with elevated deposits at the central bank. While contracting by 14.3 percent month-on-month, these deposits were SR135.2 billion in June or 12 percent higher than a year ago. Forty-one percent of these deposits or SR56 billion are excess liquidity. This reflects the amble liquidity in the Saudi banking system which could translate into higher credit growth in the coming months.
Kingdom’s monetary aggregates slow in June
