How are rising interest rates expected to impact domestic financial sector performance?

AlSayari: Strong economic fundamentals, combined with the continued positive momentum provided by public spending, mean we expect the interest rate increases to have a modest effect on the domestic economy. Recent statistics have underlined the strength of the banking sector. Credit to the private sector continued on a growth trajectory, recording an annual increase of 9.6% in June 2023, while credit to the public sector witnessed an annual increase of 11.3% that same month. Higher interest rates are likely to benefit domestic banks in term of higher net margins supported by lower funding costs - given the sizeable portion of non-interest-bearing deposits, which represent around 57.5% of the deposit base as of the second quarter of 2023. Financial soundness indicators continue to be positive, with capital and liquidity surpassing the minimum Basel requirements, as well as low default rates and adequate levels of coverage.

What policies can ensure that micro-, small and medium-sized enterprises (MSMEs) receive adequate support from financial institutions?

AlSayari: SAMA is an important stakeholder in terms of the development and implementation the Financial Sector Development Program (FSDP), a key part of Vision 2030. One of the goals of the FSDP is to increase the percentage of MSME financing within the banking system to 11% by 2025, building upon a baseline of 5.7%. As of second quarter of 2023, this ratio had increased to 8.4%.

SAMA also supports MSME financing by non-bank financial institutions, such as finance companies, whose exposure to MSMEs stood at 21.9% of their total lending in the first quarter of 2023, up from 16.3% in 2018. With the entry of digital banks and other financial technology (fintech) providers into the market, further innovation will likely contribute to an increase in lending MSMEs.

In what ways is the open banking policy enhancing broader financial capabilities?

AlSayari: 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. Open banking will stimulate competition and innovation within the financial sector by allowing permitted third-party providers access to financial data with customer consent. This enables the development of new and personalized products and services, including enhanced financial management and literacy apps, as well as tailored lending solutions for individuals and small businesses that were previously underserved. This new era of consent-based data sharing should help strengthen relationships between consumers and financial institutions, and enhance confidence in the financial sector.

SAMA has adopted a regulatory-driven, decentralized approach to implementing open banking. To accelerate the development of open banking services in the Kingdom, in December 2022 SAMA announced the launch of its Open Banking Lab. The lab will provide banks and fintechs with a technical testing environment to enable them to develop, test, and certify their open banking services to ensure compatibility with the open banking framework.

The presence of a favorable regulatory environment and growth opportunities are key factors that will support the growth of new Saudi fintech innovators and attract international investors as well as business partnerships and joint ventures.

As of year-end 2022, the fintech segment had made noticeable progress, exceeding several key metrics. In 2022, 147  fintech companies operated in the Kingdom compared to the target of 116. This number grew to 183 as of second quarter of 2023. Meanwhile, cumulative investment in fintech in 2021 -22 reached SAR 4.1 billion ($1.1bn), far surpassing the target of SAR 446 million ($119m).