Saudi Economic Report - Al Rajhi Capital
Economic Research November 2014
Research Department ARC Research Team Tel 966 11 211 9332, [email protected]
Saudi Arabian economy
Saudi Arabian Economy Saudi Arabia reportedly raised its crude oil production in September to 9.7mbpd from 9.6mbpd in August (OPEC estimates). However, according to Bloomberg quoting various sources, the Kingdom is reported to have cut its international and domestic crude oil supply by 328,000bpd to 9.36mbpd in the same month, which excludes inventory levels. Meanwhile, Brent crude prices have eased to a four-year low in October. The average price has been ~US$88 per barrel in October, lower than the average price of ~US$99 per barrel in September. Non-oil exports from Saudi Arabia have accelerated further, while imports have turned around in August after declining for nine consecutive months. Inflation stood unchanged in September at 2.8% from its previous month. Further, the monetary indicators were largely stable in September, as credit and deposit growth inched up, whereas money supply was slightly lower in August. SAMA’s foreign reserve assets declined slightly in September. Nevertheless, Saudi’s non-oil private sector economy continued to improve, with the headline HSBC/SABB PMI rising for the fourth consecutive month in September, posting the best reading since June 2011. Economic growth in Q2 2014: The Kingdom’s real GDP growth eased to 3.8% yo-y in Q2 2014 from 5.1% y-o-y in Q1 2014 due to the oil sector and the non-oil government sector growth moderating from last year’s levels. The moderation is the result of high base rather than any slowdown in economic activities. Oil sector grew by 2.5% y-o-y in Q2 2014 compared to 6.1% y-o-y in the first quarter. Similarly, growth in the non-oil government sector eased to an annualized 2.6% in April-June quarter from 4.3% y-o-y during the same period. However, growth of the non-oil private sector was up at an annualized 4.7% y-o-y from 4.6% in the previous three months, indicating a marginal improvement in economic activities. Nevertheless, moderation in the growth is likely to continue in remaining quarters of the current year as oil sector growth will be affected by the high base effect. The oil sector is likely to disappoint owing to a record decline in crude oil prices which could eventually lead to lower production. Monetary Indicators: Money supply growth moderated slightly in September on the back of uneven deposit growth. M3 – which is the broadest measure of money supply – grew by 13.4% y-o-y in August, as time and savings growth stood at 23.3% y-o-y, while demand deposits grew by 13.9%. Total bank claims on the private sector also grew by 13.2% y-o-y as compared to 12.3% y-o-y in August. On the other hand, SAMA’s foreign reserves accumulation recorded the lowest y-o-y growth since May 2010, given the easing of crude prices. The share of “investments in foreign securities” in the total foreign assets decreased, whereas the share of “foreign currency and deposits abroad” increased slightly. Figure 1 Macroeconomic indicators for Saudi Arabia Variable Inflation Rate (2007=100) Average Oil Price (Arab Light) (US$/Barrel) Money Supply (M3)
Sep-14
Aug-14
2013
2012
2.8%
2.8%
3.5%
2.9%
94.9
100.5
102.4
106.5
13.4%
14.5%
10.9%
13.9%
Total Banking Sector Claims
15.4
14.9
14.5
14.2
Interbank Interest Rate (3 Month) (BP)
0.940
0.947
0.953
0.916
Repo Rate (BP)
2.00
2.00
2.00
2.00
Reverse Repo Rate (BP)
0.25
0.25
0.25
0.25
General Share Price Index (1985=1000)
36.3
43.1
25.5
6.0
Q2 2014*
Q1 2014*
2013*
2012
GDP Rate at Constant Prices (1999=100)
3.8%
5.1%
4.0%
5.8%
Current Account to GDP Ratio
17.4
14.1
17.7
22.4
Total Imports (fob) to GDP Ratio
20.3
18.9
20.5
19.3
7.3
7.5
7.2
6.9
Non-oil Exports to GDP Ratio Source: SAMA, Al Rajhi Capital (*Provisional)
1 Disclosures Please refer to the important disclosures at the back of this report.
Economic Research November 2014
Non-oil foreign trade Growth of non-oil exports accelerated in August after a turnaround in June
The growth in non-oil foreign trade accelerated in August after a turnaround in June. Non-oil exports grew by 22.2% y-o-y in August as compared to 12.3% in July. Similarly, the total imports growth rebounded to a 17-month high of 19.7% y-o-y in August, after declining for nine consecutive months. Further, on a monthly basis both non-oil exports and total imports were strong in August as compared to the July levels. The ratio of non-oil exports to total imports was 32.8% in August as compared to 39.3% in July. The value of non-oil exports was SAR18.5bn comprising mainly petrochemicals and plastics. Exports of plastic and rubber products valued at SAR6.3bn constituted over 34%, and were also the top source of non-oil exports, growing at 7.8% y-o-y. On a monthly basis, plastic exports rose sharply from SAR6bn in July to SAR6.3bn in August. Exports of chemical products came in second, valued at SAR5.5bn, representing 29.5% of non-oil exports, followed by transport equipment & parts at SAR2bn, or 10.8%. Transport equipment & parts exports witnessed a robust growth of 376.5% y-o-y in August. However, on a monthly basis, the value of exports declined by 29% from SAR2.8bn in July to SAR2bn in August. The performance of other categories of exports was strong on a y-o-y basis, while on an m-o-m basis the performances were mixed as some categories witnessed a rise and some others witnessed a decline. The UAE remains the largest export destination for the Kingdom representing around 10.6% of the total exports in August, followed by China and India at 10.1% and 6% respectively. Figure 2 Recent trend in non-oil exports and imports (y-o-y) 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0%
Non-oil Export
Import
Source: CDSI, Al Rajhi Capital
Imports rebounded after declining for nine consecutive months
Total imports touched SAR56.5bn in August, 19.7% higher than the year-ago period. Moreover, it was considerably higher as compared to SAR46.6bn, the level reached in July. “Machinery and equipment, electrical appliances” remains a major component of imports, constituting 28% of the total imports in August. The value of the machinery imports was SAR15.8bn in August, 24.8% higher as compared to the levels attained in the year-ago period. Transportation equipment and related parts represented 17.1% of the total imports that grew by a staggering 28.6% y-o-y. Other group of imports which witnessed robust growth in August were Chemical, live animals and metal. “Plant products” was the only category that witnessed a decline in August as compared to the year-ago period. China again topped the list of major non-oil exporters with a share of 15.4% at SAR8.7bn and a strong y-o-y growth of 35.4%. US imports to the Kingdom also saw a double-digit growth of 12.7%, valued at SAR7.1bn as compared to a 20.3% decline in the year-ago period. Further, Germany held steady to be the third-largest source of imports as it accounted for 7.1% of the import bill during August at SAR4bn.
Disclosures Please refer to the important disclosures at the back of this report.
2
Economic Research November 2014
Monetary and credit indicators Money Supply Figure 3 Money supply growth 29%
YoY
24% 19% 14% 9% 4%
M1
M2
M3
Source: SAMA, Al Rajhi Capital
Money supply ticked up in September mainly on the back of a sharp rise in demand and robust time & savings deposits. M1 measure of money supply, which comprises “demand deposits” and “currency outside banks”, grew 13.9% y-o-y in September as compared to 12.9% y-o-y in August. The acceleration came on the back of faster growth in “currency outside banks” that increased by 13.7% y-o-y in September as compared to 9.9% y-o-y in August. Growth in “time & savings deposits” remained robust in September on an annualized basis at 23.3%. This resulted in a higher M2 growth that comprises both M1 and “time & savings deposits”. The M2 supply moved up from 15.6% y-o-y in August to 16.3% y-o-y in September. However, the broadest measure of money supply, M3 that comprises M2 and “other quasi-monetary deposits” eased to an annualized 13.4% in September from 14.5% in August, the highest rate recorded in the last one year. The deceleration was mainly due to a decline in “Other Quasi-Monetary Deposits” which fell by 5.7% y-o-y in September as compared to the 6.8% y-o-y growth in August. Money supply growth decelerated last month on a monthly basis. The growth in M1 contracted to 0.2% on a monthly basis in September as compared to a +1.5% m-o-m growth in August mainly due to a 0.5% contraction in demand deposits from a +1% growth in August. Although the growth in time & savings deposits rebounded by 2.9% m-o-m in September as compared to 0.5% m-o-m in August, the slowdown in M1 measures of money supply resulted in a deceleration in M2 growth on a monthly basis that grew 0.6% m-o-m in September as compared to 1.2% m-o-m in August. A continuous decline in other quasi-monetary deposits further pushed up the rate of decline in M3 that grew by 0.3% m-o-m in September as compared to 0.6% m-o-m in August.
Credit and deposit growth Figure 4 Credit and deposit growth 18%
YoY
16% 14% 12%
10% 8%
6% 4%
Deposit growth Source: SAMA, Al Rajhi Capital
Credit growth
Commercial banks’ credit to the private sector accelerated in September. Commercial banks’ total claims on the private sector increased by 13.2% y-o-y in September, the highest since December 2013. Loans, advances and overdrafts increased by 13.1% y-oy in September to a one-year high, whereas the private sector bills discounted decreased by 3.9% y-o-y though at a slower pace to touch SAR10.2bn. Commercial banks’ investment in “private sector securities” rose by 19.8% y-o-y to reach SAR52.97bn in September. Thus, the total claims of commercial banks on the private sector stood at SAR1,252bn. In terms of maturity, around half of them are short-term – maturing in less than one year, whereas 18.1% of the total credit will mature over a period of 1-3 years, and another 32.3% will mature over the next three years. Deposits increased at a lower rate as highlighted in the money supply section. Total deposit growth decelerated from 15% y-o-y in August to 13.4% y-o-y in September. The prime reason for the slowdown in total deposits was the sharp decline in “other quasi-monetary deposits” even as the growth of time and demand deposits remained steady at a high level. Total deposits stood at SAR1,526bn that translates into a loanto-deposit ratio at 82%, the highest in ten months.
Foreign reserve assets Growth in foreign reserves was the lowest Foreign reserve assets held by the Saudi Arabian Monetary Agency edged down (m-om) in September with a lower y-o-y growth rate. The foreign assets increased by 5.8% since May 2010
y-o-y to reach SAR2,793bn. The growth in the reserve assets was the lowest since May 2010. As we have mentioned in our September month report, the continued weakness in crude oil prices may impact the Kingdom’s foreign reserve accumulation in the coming months. This is the third monthly decline this year, as the reserve assets had declined by SAR4bn in September. The decline was witnessed mainly in “investment in foreign securities” that fell from SAR2,082.8bn in August to SAR2,074.6bn in September. On the other hand, investments in “foreign currency and deposits abroad” increased from SAR659.2bn in August to SAR665.2bn in September. These two categories constituted 98% of the total foreign assets.
Disclosures Please refer to the important disclosures at the back of this report.
3
Economic Research November 2014
Figure 5 Foreign reserve assets SAR billion 2,900
YoY
2,700
30% 25%
2,500 20% 2,300 15%
2,100 10% 1,900 1,700
5%
1,500
0%
Foreign reserve
%YoY Growth-rhs
Source: CDSI, Al Rajhi Capital
Inflation dynamics Inflation stood unchanged at 2.8% in September
Inflation in Saudi Arabia remained stable at 2.8% y-o-y in September from the previous month. A moderation in annual inflation for furnishings was balanced by a steady rise in food and housing categories. Tobacco, health and education components increased by 7.32%, 3.28% and 3.6% y-o-y at the same pace in September as it was in August. The components of inflation that witnessed moderation are transport (0.18% vs. 0.27%), communication (-0.21% vs. 0.21%), recreation (10.62% vs. 10.9%) and miscellaneous goods (3.06% vs. 4.27%). On the flip side, housing rent increased by 3.35% y-o-y in September. In the Food & Beverages category, prices of items such as Bread & Cereals, Meat & Poultry, Fish & Seafood and Fruits & Nuts increased by 5.9%, 1.0%, 10.4% and 4.7% respectively.
Figure 6 Inflation ranging between 2.5%-3.0% levels
Figure 7 Sectors impacting inflation
YoY 4.5%
YoY 8.0% 7.0% 6.0%
4.0%
5.0% 4.0%
3.5%
3.0% 3.0%
2.0% 1.0%
2.5%
0.0% -1.0%
2.0%
-2.0%
Food
Source: CDSI, Al Rajhi Capital
Housing
Furniture
Source: CDSI, Al Rajhi Capital
On a monthly basis, consumer inflation moderated from 0.4% in August to 0.2% in September. Prices in many important categories such as tobacco and education did not change during the month, whereas prices of clothing & footwear, transport, communication, restaurants & hotels and miscellaneous goods declined slightly. Three components of inflation declined for the second consecutive month. Clothing & footwear (-0.8% m-o-m in September vs. -0.4% m-o-m in August), transport (-0.4% m-o-m vs. -0.1% m-o-m) and communication (-0.2% m-o-m vs. -0.4% m-o-m) have pulled consumer inflation down on a monthly basis.
Disclosures Please refer to the important disclosures at the back of this report.
4
Economic Research November 2014
Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Contact us Jithesh Gopi, CFA Head of Research Tel : +966 1 211 9332 [email protected]
Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
5
Research Department ARC Research Team Tel 966 11 211 9332, [email protected]
Saudi Arabian economy
Saudi Arabian Economy Saudi Arabia reportedly raised its crude oil production in September to 9.7mbpd from 9.6mbpd in August (OPEC estimates). However, according to Bloomberg quoting various sources, the Kingdom is reported to have cut its international and domestic crude oil supply by 328,000bpd to 9.36mbpd in the same month, which excludes inventory levels. Meanwhile, Brent crude prices have eased to a four-year low in October. The average price has been ~US$88 per barrel in October, lower than the average price of ~US$99 per barrel in September. Non-oil exports from Saudi Arabia have accelerated further, while imports have turned around in August after declining for nine consecutive months. Inflation stood unchanged in September at 2.8% from its previous month. Further, the monetary indicators were largely stable in September, as credit and deposit growth inched up, whereas money supply was slightly lower in August. SAMA’s foreign reserve assets declined slightly in September. Nevertheless, Saudi’s non-oil private sector economy continued to improve, with the headline HSBC/SABB PMI rising for the fourth consecutive month in September, posting the best reading since June 2011. Economic growth in Q2 2014: The Kingdom’s real GDP growth eased to 3.8% yo-y in Q2 2014 from 5.1% y-o-y in Q1 2014 due to the oil sector and the non-oil government sector growth moderating from last year’s levels. The moderation is the result of high base rather than any slowdown in economic activities. Oil sector grew by 2.5% y-o-y in Q2 2014 compared to 6.1% y-o-y in the first quarter. Similarly, growth in the non-oil government sector eased to an annualized 2.6% in April-June quarter from 4.3% y-o-y during the same period. However, growth of the non-oil private sector was up at an annualized 4.7% y-o-y from 4.6% in the previous three months, indicating a marginal improvement in economic activities. Nevertheless, moderation in the growth is likely to continue in remaining quarters of the current year as oil sector growth will be affected by the high base effect. The oil sector is likely to disappoint owing to a record decline in crude oil prices which could eventually lead to lower production. Monetary Indicators: Money supply growth moderated slightly in September on the back of uneven deposit growth. M3 – which is the broadest measure of money supply – grew by 13.4% y-o-y in August, as time and savings growth stood at 23.3% y-o-y, while demand deposits grew by 13.9%. Total bank claims on the private sector also grew by 13.2% y-o-y as compared to 12.3% y-o-y in August. On the other hand, SAMA’s foreign reserves accumulation recorded the lowest y-o-y growth since May 2010, given the easing of crude prices. The share of “investments in foreign securities” in the total foreign assets decreased, whereas the share of “foreign currency and deposits abroad” increased slightly. Figure 1 Macroeconomic indicators for Saudi Arabia Variable Inflation Rate (2007=100) Average Oil Price (Arab Light) (US$/Barrel) Money Supply (M3)
Sep-14
Aug-14
2013
2012
2.8%
2.8%
3.5%
2.9%
94.9
100.5
102.4
106.5
13.4%
14.5%
10.9%
13.9%
Total Banking Sector Claims
15.4
14.9
14.5
14.2
Interbank Interest Rate (3 Month) (BP)
0.940
0.947
0.953
0.916
Repo Rate (BP)
2.00
2.00
2.00
2.00
Reverse Repo Rate (BP)
0.25
0.25
0.25
0.25
General Share Price Index (1985=1000)
36.3
43.1
25.5
6.0
Q2 2014*
Q1 2014*
2013*
2012
GDP Rate at Constant Prices (1999=100)
3.8%
5.1%
4.0%
5.8%
Current Account to GDP Ratio
17.4
14.1
17.7
22.4
Total Imports (fob) to GDP Ratio
20.3
18.9
20.5
19.3
7.3
7.5
7.2
6.9
Non-oil Exports to GDP Ratio Source: SAMA, Al Rajhi Capital (*Provisional)
1 Disclosures Please refer to the important disclosures at the back of this report.
Economic Research November 2014
Non-oil foreign trade Growth of non-oil exports accelerated in August after a turnaround in June
The growth in non-oil foreign trade accelerated in August after a turnaround in June. Non-oil exports grew by 22.2% y-o-y in August as compared to 12.3% in July. Similarly, the total imports growth rebounded to a 17-month high of 19.7% y-o-y in August, after declining for nine consecutive months. Further, on a monthly basis both non-oil exports and total imports were strong in August as compared to the July levels. The ratio of non-oil exports to total imports was 32.8% in August as compared to 39.3% in July. The value of non-oil exports was SAR18.5bn comprising mainly petrochemicals and plastics. Exports of plastic and rubber products valued at SAR6.3bn constituted over 34%, and were also the top source of non-oil exports, growing at 7.8% y-o-y. On a monthly basis, plastic exports rose sharply from SAR6bn in July to SAR6.3bn in August. Exports of chemical products came in second, valued at SAR5.5bn, representing 29.5% of non-oil exports, followed by transport equipment & parts at SAR2bn, or 10.8%. Transport equipment & parts exports witnessed a robust growth of 376.5% y-o-y in August. However, on a monthly basis, the value of exports declined by 29% from SAR2.8bn in July to SAR2bn in August. The performance of other categories of exports was strong on a y-o-y basis, while on an m-o-m basis the performances were mixed as some categories witnessed a rise and some others witnessed a decline. The UAE remains the largest export destination for the Kingdom representing around 10.6% of the total exports in August, followed by China and India at 10.1% and 6% respectively. Figure 2 Recent trend in non-oil exports and imports (y-o-y) 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0%
Non-oil Export
Import
Source: CDSI, Al Rajhi Capital
Imports rebounded after declining for nine consecutive months
Total imports touched SAR56.5bn in August, 19.7% higher than the year-ago period. Moreover, it was considerably higher as compared to SAR46.6bn, the level reached in July. “Machinery and equipment, electrical appliances” remains a major component of imports, constituting 28% of the total imports in August. The value of the machinery imports was SAR15.8bn in August, 24.8% higher as compared to the levels attained in the year-ago period. Transportation equipment and related parts represented 17.1% of the total imports that grew by a staggering 28.6% y-o-y. Other group of imports which witnessed robust growth in August were Chemical, live animals and metal. “Plant products” was the only category that witnessed a decline in August as compared to the year-ago period. China again topped the list of major non-oil exporters with a share of 15.4% at SAR8.7bn and a strong y-o-y growth of 35.4%. US imports to the Kingdom also saw a double-digit growth of 12.7%, valued at SAR7.1bn as compared to a 20.3% decline in the year-ago period. Further, Germany held steady to be the third-largest source of imports as it accounted for 7.1% of the import bill during August at SAR4bn.
Disclosures Please refer to the important disclosures at the back of this report.
2
Economic Research November 2014
Monetary and credit indicators Money Supply Figure 3 Money supply growth 29%
YoY
24% 19% 14% 9% 4%
M1
M2
M3
Source: SAMA, Al Rajhi Capital
Money supply ticked up in September mainly on the back of a sharp rise in demand and robust time & savings deposits. M1 measure of money supply, which comprises “demand deposits” and “currency outside banks”, grew 13.9% y-o-y in September as compared to 12.9% y-o-y in August. The acceleration came on the back of faster growth in “currency outside banks” that increased by 13.7% y-o-y in September as compared to 9.9% y-o-y in August. Growth in “time & savings deposits” remained robust in September on an annualized basis at 23.3%. This resulted in a higher M2 growth that comprises both M1 and “time & savings deposits”. The M2 supply moved up from 15.6% y-o-y in August to 16.3% y-o-y in September. However, the broadest measure of money supply, M3 that comprises M2 and “other quasi-monetary deposits” eased to an annualized 13.4% in September from 14.5% in August, the highest rate recorded in the last one year. The deceleration was mainly due to a decline in “Other Quasi-Monetary Deposits” which fell by 5.7% y-o-y in September as compared to the 6.8% y-o-y growth in August. Money supply growth decelerated last month on a monthly basis. The growth in M1 contracted to 0.2% on a monthly basis in September as compared to a +1.5% m-o-m growth in August mainly due to a 0.5% contraction in demand deposits from a +1% growth in August. Although the growth in time & savings deposits rebounded by 2.9% m-o-m in September as compared to 0.5% m-o-m in August, the slowdown in M1 measures of money supply resulted in a deceleration in M2 growth on a monthly basis that grew 0.6% m-o-m in September as compared to 1.2% m-o-m in August. A continuous decline in other quasi-monetary deposits further pushed up the rate of decline in M3 that grew by 0.3% m-o-m in September as compared to 0.6% m-o-m in August.
Credit and deposit growth Figure 4 Credit and deposit growth 18%
YoY
16% 14% 12%
10% 8%
6% 4%
Deposit growth Source: SAMA, Al Rajhi Capital
Credit growth
Commercial banks’ credit to the private sector accelerated in September. Commercial banks’ total claims on the private sector increased by 13.2% y-o-y in September, the highest since December 2013. Loans, advances and overdrafts increased by 13.1% y-oy in September to a one-year high, whereas the private sector bills discounted decreased by 3.9% y-o-y though at a slower pace to touch SAR10.2bn. Commercial banks’ investment in “private sector securities” rose by 19.8% y-o-y to reach SAR52.97bn in September. Thus, the total claims of commercial banks on the private sector stood at SAR1,252bn. In terms of maturity, around half of them are short-term – maturing in less than one year, whereas 18.1% of the total credit will mature over a period of 1-3 years, and another 32.3% will mature over the next three years. Deposits increased at a lower rate as highlighted in the money supply section. Total deposit growth decelerated from 15% y-o-y in August to 13.4% y-o-y in September. The prime reason for the slowdown in total deposits was the sharp decline in “other quasi-monetary deposits” even as the growth of time and demand deposits remained steady at a high level. Total deposits stood at SAR1,526bn that translates into a loanto-deposit ratio at 82%, the highest in ten months.
Foreign reserve assets Growth in foreign reserves was the lowest Foreign reserve assets held by the Saudi Arabian Monetary Agency edged down (m-om) in September with a lower y-o-y growth rate. The foreign assets increased by 5.8% since May 2010
y-o-y to reach SAR2,793bn. The growth in the reserve assets was the lowest since May 2010. As we have mentioned in our September month report, the continued weakness in crude oil prices may impact the Kingdom’s foreign reserve accumulation in the coming months. This is the third monthly decline this year, as the reserve assets had declined by SAR4bn in September. The decline was witnessed mainly in “investment in foreign securities” that fell from SAR2,082.8bn in August to SAR2,074.6bn in September. On the other hand, investments in “foreign currency and deposits abroad” increased from SAR659.2bn in August to SAR665.2bn in September. These two categories constituted 98% of the total foreign assets.
Disclosures Please refer to the important disclosures at the back of this report.
3
Economic Research November 2014
Figure 5 Foreign reserve assets SAR billion 2,900
YoY
2,700
30% 25%
2,500 20% 2,300 15%
2,100 10% 1,900 1,700
5%
1,500
0%
Foreign reserve
%YoY Growth-rhs
Source: CDSI, Al Rajhi Capital
Inflation dynamics Inflation stood unchanged at 2.8% in September
Inflation in Saudi Arabia remained stable at 2.8% y-o-y in September from the previous month. A moderation in annual inflation for furnishings was balanced by a steady rise in food and housing categories. Tobacco, health and education components increased by 7.32%, 3.28% and 3.6% y-o-y at the same pace in September as it was in August. The components of inflation that witnessed moderation are transport (0.18% vs. 0.27%), communication (-0.21% vs. 0.21%), recreation (10.62% vs. 10.9%) and miscellaneous goods (3.06% vs. 4.27%). On the flip side, housing rent increased by 3.35% y-o-y in September. In the Food & Beverages category, prices of items such as Bread & Cereals, Meat & Poultry, Fish & Seafood and Fruits & Nuts increased by 5.9%, 1.0%, 10.4% and 4.7% respectively.
Figure 6 Inflation ranging between 2.5%-3.0% levels
Figure 7 Sectors impacting inflation
YoY 4.5%
YoY 8.0% 7.0% 6.0%
4.0%
5.0% 4.0%
3.5%
3.0% 3.0%
2.0% 1.0%
2.5%
0.0% -1.0%
2.0%
-2.0%
Food
Source: CDSI, Al Rajhi Capital
Housing
Furniture
Source: CDSI, Al Rajhi Capital
On a monthly basis, consumer inflation moderated from 0.4% in August to 0.2% in September. Prices in many important categories such as tobacco and education did not change during the month, whereas prices of clothing & footwear, transport, communication, restaurants & hotels and miscellaneous goods declined slightly. Three components of inflation declined for the second consecutive month. Clothing & footwear (-0.8% m-o-m in September vs. -0.4% m-o-m in August), transport (-0.4% m-o-m vs. -0.1% m-o-m) and communication (-0.2% m-o-m vs. -0.4% m-o-m) have pulled consumer inflation down on a monthly basis.
Disclosures Please refer to the important disclosures at the back of this report.
4
Economic Research November 2014
Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Contact us Jithesh Gopi, CFA Head of Research Tel : +966 1 211 9332 [email protected]
Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
5
