Ahmed Alkholifey, Governor, Saudi Arabian Monetary Authority (SAMA): Interview

Interview: Ahmed Alkholifey

In what ways are monetary tools being implemented in order to help reduce the impact of US Federal Reserve interest rate hikes?

AHMED ALKHOLIFEY: The benefits of the riyal-dollar peg far outweigh the effects of higher interest rates from the US Federal Reserve. Our pegged exchange rate – which has been in place since 1986 – has provided stability and certainty for domestic businesses in an oil-dominant economy. Additionally, we have a wide range of macroprudential tools for managing liquidity when the local market is in disequilibrium. For example, the caps on loan-to-deposit and loan-to-value ratios have both been raised in order to stimulate credit extension.

SAMA’s monetary policy is focused on maintaining exchange rate stability rather than targeting inflation. Although long-term inflation patterns are somewhat correlated in Saudi Arabia and the US, the exchange rate pass through tends to be weaker than government spending in influencing inflation.

Going forward, what role is mergers and acquisitions activity likely to play in driving further consolidation in the Kingdom’s banking sector?

ALKHOLIFEY: One of the main objectives of mergers and acquisitions activity in the Kingdom’s banking sector is to create operational efficiency and strengthen the financial system. Mergers enable shareholders to consolidate their interests, expand their operations as well as enhance credit volume, while at the same time allowing them to increase the ticket size of their loans and their investments. In recent years, Saudi Arabia’s banking system has grown and expanded, thanks in large part to an increase in the number of foreign bank branches and investment banks that have been licensed by SAMA and the Capital Market Authority. This growth is supporting SAMA’s objective of establishing more banks and expanding existing branches in order to add value, have better reach in rural areas, invest in new technologies and provide high-quality banking services.

How is SAMA leveraging financial technology ( fintech) to encourage wider availability and acceptance of cashless payments?

ALKHOLIFEY: New technology, coupled with the demand for secure and personalised banking experiences, are encouraging the development of fintech products in the retail banking segment. We have already introduced a regulatory sandbox allowing banks and fintech companies to test new ideas for a limited period with live consumers and fewer regulatory restrictions. In addition, as part of the Financial Sector Development Programme, SAMA launched FinTech Saudi, a government arm to connect and build the ecosystem of the emerging fintech industry. More than 15 fintech companies have been identified that provide a spectrum of supporting services to the financial and insurance industry, including the seven currently in the sandbox.

Over the last 30 years SAMA has invested heavily in building payment infrastructure and the authority will continue to support the growth of cashless payments. The Saudi payment network Mada has doubled the number of point-of-sale terminals in operation since 2015, which enabled the number of card transactions to exceed 1bn in 2018. We have also introduced new categories of payments, which address business-to-business and peer-to-peer payment transactions.

How are new financing solutions helping to bridge the existing financing gap for small and medium-sized enterprises (SMEs)?

ALKHOLIFEY: Saudi Arabia has been paying more attention to enhancing the entrepreneurship environment and improving SMEs’ access to finance. The initiatives not only cover bank lending as an external finance option but also offer alternatives, such as capital funds, and factoring and crowd-funding platforms. Broadly speaking, SAMA will seek to benefit from shorter-term market opportunities by deviating from its strategic policy mix, within predefined risk limits.