RIYADH: Saudi Arabia’s robust economic fundamentals, coupled with sustained positive momentum from public spending, have provided a buffer against the impact of rising interest rates on the domestic economy, according to the governor of the Kingdom’s central bank.
In an interview with Oxford Business Group, Ayman Al-Sayari stated that the global increase in the cost of borrowing is expected to have only a “modest” effect on the domestic economy.
“Higher interest rates are likely to benefit domestic banks in terms of higher net margins supported by lower funding costs — given the sizable portion of non-interest-bearing deposits, which represent around 57.5 percent of the deposit base as of the second quarter of 2023,” he explained.
Al-Sayari further underscored Saudi Arabia’s consistent display of promising financial growth indicators, noting that capital and liquidity metrics surpass the standards outlined in the Basel Accord.
The accord comprises international banking regulations designed to ensure that financial institutions maintain sufficient capital reserves, thereby reducing the risk of crises.
Al-Sayari delved deeper into the strategies promoting economic stability emphasizing the Saudi Central Bank's dedicated involvement in the Financial Sector Development Program as part of Vision 2030.
A primary objective of this initiative is to amplify the financing of micro, small, and medium-sized enterprises within the banking system.
“One of the goals of the FSDP is to increase the percentage of MSME financing within the banking system to 11 percent by 2025, building upon a baseline of 5.7 percent. As of the second quarter of 2023, this ratio had increased to 8.4 percent,” he added.
Furthermore, Al-Sayari shed light on the transformative influence of open banking in the Kingdom, terming it as a cornerstone of the FSDP’s fintech strategies.
“The open banking policy is one of the most important initiatives of the fintech pillars of the FSDP. Open banking has significant potential for offering new products and services to Saudi consumers and businesses and foster a more dynamic and resilient financial ecosystem,” he said.
He added: “Open banking will stimulate competition and innovation within the financial sector by allowing permitted third-party providers access to financial data with customer consent.”
Al-Sayari further stated that the number of fintech companies in the Kingdom grew to 183 in mid-2023, from 147 by the end of 2022. The cumulative investment in fintech in Saudi Arabia in 2021-2022 stood at SR4.1 billion ($1.1 billion), a figure that exceeds the country’s initial targets, he pointed out.