Kingdom of Saudi Arabia Saudi Arabian Monetary Agency Fiftieth Annual Report 1435H (2014) SAUDI ARABIAN MONETARY AGENCY (SAMA) BOARD OF DIRECTORS 1. H.E. The Governor, Dr. Fahad Abdullah Almubarak Chairman 2. H.E. The Vice Governor, Vice Chairman 3. H.E. Mr. Abdulaziz Bin Zaid Al-Quraishi 4. H.E. Mr. Muhammad Obaid Bin Sa’eed Bin Zagar 5. H.E. Mr. Abdulaziz Bin Muhammad Al-Athel Saudi Arabian Monetary Agency — 50th Annual Report FOREWORD It gives me pleasure to present, in the name of the Board of Directors, the Fiftieth Annual Report of the Saudi Arabian Monetary Agency, which reviews the latest developments in the Saudi economy during fiscal year 1434/35H (2013). The Report covers developments in various areas of the domestic economy, including monetary developments, banking activity, capital market, prices, public finance, national accounts, foreign trade and balance of payments. It also provides an overview of the latest economic developments in the different domestic productive sectors, apart from giving a full description of SAMA's functions such as designing and conducting monetary policy and supervising commercial banks and activities of cooperative insurance and finance sectors. In addition, it includes the auditors' report on SAMA's balance sheet for the two fiscal years ended on June 30th, 2012 and June 30th, 2013. The Report mainly relies on official data obtained from ministries, government departments and public sector enterprises, in addition to data issued by SAMA. I would like to thank all ministries and other entities for their cooperation in providing valuable information and data that enabled SAMA to prepare this Report. I also would like to thank all SAMA's staff for their efforts preparation of this Report and performance of all functions entrusted to SAMA in general. Fahad Abdullah Almubarak Governor and Chairman of the Board Sha'ban 1435H June 2014 Saudi Arabian Monetary Agency — 50th Annual Report For correspondence and inquiries: Postal address: Saudi Arabian Monetary Agency Department of Economic Research P.O Box 2992, Riyadh 11169 Kingdom of Saudi Arabia Telephone: (966) 11-4662200 Facsimile: (966) 11-4662439 For the latest quarterly and non-quarterly reports, monetary and banking statistics, balance of payments estimates and instructions issued to financial institutions supervised by SAMA, please visit SAMA’s website: http://www.sama.gov.sa Saudi Arabian Monetary Agency — 50th Annual Report SAMA HEAD QUARTERS AND BRANCHES: Head Office Riyadh Branches Makkah Al-Madinah Riyadh Jeddah Dammam Ta’if Buraydah Jazan Tabuk Abha Saudi Arabian Monetary Agency — 50th Annual Report CONTENTS Page SAMA Annual Report from the 1st to the 50th Issues …..………………………………………………… 8 World Economy ……………………………………………………………………………………………. 10 Saudi Economy …………………………………………………………………………………………….. 24 Monetary Developments …...…………………………………………………............................................. 42 Banking Sector ……...………………………………………………………................................................ 51 Insurance Sector ……..................................................................................................................................... 73 Prices and Costs of Living ………………….……………………………………………………………… 82 Capital Market ………………..……………………………………………………………………………. 89 External Sector …………...………………………………………………………………………………… 103 Public Finance ……..………………………………………………………………………………………. 117 National Accounts and Sectoral Developments ……..……………………………………………………... 126 Petroleum and Mineral Resources …………………………………………….............................................. 134 Financial Statements of SAMA………………………………………………………...…………………… 144 Saudi Arabian Monetary Agency — 50th Annual Report SAMA Annual Report from the 1st to the 50th Issues The 50th anniversary of SAMA’s annual report Since the issuance of its 1st report to the 50th, it is an appropriate occasion to review the development is quite clear that SAMA has witnessed substantial witnessed by the report and SAMA during a period of development in terms of its work and functions. more than half a century, i.e. since the debut of the During its early history, SAMA’s functions have report in 1380H (1961). The development in the annual been limited to issuing the currency, conducting report has coincided with an expansion in SAMA’s monetary policy and supervising banks, as well as functions and considerable growth in the national acting as the government’s bank. At present, economy and the banking and financial sector. however, they include supervision of finance companies, cooperative insurance and insurance SAMA’s annual report has become one of the related services companies, and supervision of the most significant official reports reviewing, on a Saudi Credit Bureau (SIMAH). Moreover, they yearly basis, latest economic developments in various extend to promotion of the growth of the financial sectors and activities in a way that is reliable, official system and ensuring its soundness, and development and publicly available. A comparison between of training programs to further advance the SAMA 1st and 50th annual reports shows a competence of the banking and financial sector’s remarkable quantum leap in all aspects. The first employees. SAMA also represents the Kingdom report issued in 1380H (1961) (consisting of 22 pages through its membership in several international in addition to a statistical appendix) included few organizations, such the IMF, the World Bank, Bank topics addressing the currency stabilization program, of International Settlements and others. fiscal developments, money and banks, as well as a statistical tables appendix encompassing the national The Saudi banking and financial sector has economy’s most important indicators. On the other witnessed significant growth during the hand, the 50th report is an inclusive report reviewing aforementioned period. The sector has grown domestic and global economic developments with a enormously to cope with the considerable increase great emphasis on the national economy, including in government revenues and expenditures, the need developments in the monetary and banking sector, for financing development projects, tremendous finance, insurance, capital market, external sector, developments in the area of telecommunications and commerce and industry, water and electricity, computer technology, and the society’s growing transport and communications, agriculture and demand for financial and banking services. animal husbandry, population and labor force, health Commercial banks’ financial position has improved and social services, and petroleum and mineral during the period under review. Their assets grew resources, in addition to statistics covering these from SAR 921 million in 1961 to SAR 1,893.2 areas in the form of time series updated biannually on billion in 2013 and money supply (M3) from SAR SAMA’s website. The report’s current contents also 937.8 million in 1961 to nearly SAR 1,545.1 billion indicate the new responsibilities entrusted to SAMA, in 2013. This period has also witnessed a large such as supervision of finance and cooperative increase in the number of commercial banks insurance companies. As for monetary, banking and operating in the Kingdom, with their number in balance of payments data, they are prepared 1961 standing at 12, of which 3 were Saudi and the according to an internationally recognized statistical rest were foreign banks. The number of branches methodology adopted by international organizations, stood at 50 in that year. At the end of 2013, the such as the International Monetary Fund (IMF). The number of banks operating in the Kingdom was 23, recent annual reports have also become publicly of which 13 were Saudi. The number of commercial available on SAMA’s website. banks’ branches rose to 1,768. This progress has SAMA Annual Report from the 1st to the 50th Issues 8 Saudi Arabian Monetary Agency — 50th Annual Report been coupled with the introduction of state-of-the art confidence, and a rise in inflation. Consequently, the technology in payments and services, such as Kingdom sought the advice of the IMF to study the ATMs, points of sale (POS) terminals, telephone economic situation of the Kingdom and make banking, e-banking, and SARIE and SADAD recommendations thereon. As a result, a currency payment systems. stabilization program was announced by the government of Saudi Arabia in Shawwal 1377H. In At the level of the national economy contrast, our national economy has recently gained developments, the Saudi economy underwent a great strength and stability, as evidenced in difficult crisis during the period preceding the unprecedented figures recorded by various issuance of the first annual report (1370H-1375H). macroeconomic variables. For instance, the current Government expenditures increased while revenues account surplus of the Kingdom’s balance of were modest, resulting in a rise in the government payments rose from SAR 1.0 billion in 1961 to SAR debt. Hence, the balance of payments was adversely 503.7 billion in 2013. Government expenditure also affected, the Saudi riyal exchange rate against the went up from SAR 1.6 billion in 1961 to SAR 925 US dollar dropped in the free market from SAR 3.75 billion in 2013. Moreover, SAMA’s total assets per dollar to SAR 6.25 per dollar. This has also increased from SAR 1 billion in 1961 to SAR 2,738 resulted in an efflux of Saudi capital due to shaky billion at the end of 2013. SAMA Annual Report from the 1st to the 50th Issues 9 Saudi Arabian Monetary Agency — 50th Annual Report WORLD ECONOMY World Economic Situation (of former Soviet Union) registered a growth rate of The world economy witnessed a slight decline 2.0 percent in 2013 compared to 3.4 percent in 2012. in its growth rate to 3.0 percent during 2013 from 3.1 percent in 2012. This was due to a number of factors, According to WEO projections, the growth including a further weakening in domestic demand, rate of the world economy is projected to strengthen slow growth in a number of key emerging economies to 3.6 percent in 2014. Advanced economies are and continuation of recession for a longer period in projected to record a growth rate of 2.2 percent in the euro area. According to estimates of the IMF’s 2014. The euro area is expected to register an World Economic Outlook (WEO), April 2014, the improved growth of 1.1 percent in 2014. The growth global growth is projected to strengthen to 3.6 rate in developing and emerging economies is percent in 2014. expected to increase to 5.0 percent in 2014. In China, the growth rate is expected to decline to 7.5 percent in Economic Growth 2014 from 7.7 percent in 2013. In the United States, Advanced economies registered a growth rate the growth rate is expected to rise to 2.9 percent in of 1.3 percent against 1.4 percent in the preceding 2014. Chart 1.1 shows the world real GDP growth year. In the United States, the growth rate stood at rates in a group of countries during 2009-2014. 1.9 percent in 2013 compared to 2.8 percent in 2012 (Table 1.1). The euro area recorded a contraction of Inflation 0.4 percent in 2013 against a contraction of 0.7 Globally, the inflation rate declined to 3.8 percent in 2012. Germany grew by 0.5 percent in percent in 2013 from 4.0 percent in 2012. In 2013 compared to 0.9 percent in 2012. France advanced economies, inflation rate went down to 1.4 registered a growth of 0.3 percent in 2013. Italy percent in 2013 from 2.0 percent in 2012 and in the witnessed a contraction of 1.8 percent in 2013 against euro area to 1.4 percent from 2.5 percent. However, a contraction of 2.5 percent in 2012. Japan grew by the inflation rate in Asian developing countries rose 1.6 percent in 2013 against a growth rate of 1.4 to 4.8 percent in 2013 from 4.5 percent in 2012. In percent in the previous year. In the United Kingdom, the Commonwealth of Independent States, the rate the growth rate was 1.8 percent in 2013 compared to went down slightly to 6.4 percent in 2013 from 6.5 0.3 percent in 2012. In the emerging markets and percent in 2012 (Table 1.2). Chart 1.2 shows developing countries, the growth rate dropped to 4.7 percentage change in consumer prices for groups of percent in 2013 from 4.9 percent in 2012. The growth countries during 2012-2014. rate in Asian developing countries stood at 6.5 percent in 2013, compared to 6.4 in the preceding Unemployment year. The growth rate in China stood at 7.7 percent in Unemployment rates in advanced economies 2013. In India, the growth rate rose to 4.4 percent in decreased to 7.9 percent in 2013 from 8.0 percent in 2013 from 3.2 percent in 2012. In the Middle East 2012. In the United States, it went down to 7.4 and North African (MENA) countries, Afghanistan percent in 2013 from 8.1 percent in 2012. In the euro and Pakistan, the growth rate went down to 2.4 area, it rose to 12.0 percent in 2013 from 11.3 percent percent in 2013 from 4.1 percent in 2012. Central and in 2012. The unemployment rate in France increased Eastern Europe countries (CEECs) registered a to 10.8 percent from 10.2 percent. In Germany it growth rate of 2.5 percent in 2013 against 1.4 percent declined to 5.3 percent from 5.5 percent, while in in 2012. Latin America and the Caribbean countries Italy it rose to 12.2 percent from 10.6 percent. In the grew by 2.7 percent against 3.0 percent in the United Kingdom, it dropped to 7.6 percent. The rate previous year. Commonwealth of Independent States in Japan fell to 4.0 percent in 2013 from 4.3 percent World Economy 10 Saudi Arabian Monetary Agency — 50th Annual Report