The foreign assets of Saudi Arabia’s commercial banks surged by 22 per cent in February, reaching a total of 347.63 billion riyals ($92.7bn), compared to the same month of the previous year, reports Arab News.
This notable increase, as reported by recent data from the Kingdom’s central bank, also known as SAMA, reflects a significant expansion in the institution’s international holdings and investments.
Conversely, Saudi banks witnessed a 38pc surge in foreign liabilities over the same period, increasing to 288.22bn riyals. This rise, which encompasses various financial obligations to banks outside the kingdom, resulted in the calculation of net foreign assets amounting to 59.41bn riyals.
Despite the growth achieved by international holdings, the increase in liabilities has resulted in a 21pc decrease in the net figure from 75bn riyals, which was recorded during the same month in the preceding year.
Additionally, SAMA reported that its net foreign assets reached 1.55 trillion riyals in February. This figure indicates the overall financial strength and global position of the kingdom’s banking sector. However, it reflects a 5pc decline compared to the same month last year.
The main difference between the foreign assets of central and commercial banks lies in their purpose and role within the financial system.
Central banks’ foreign holdings are primarily for reserve management and monetary policy purposes, while commercial banks’ foreign assets are for business operations, customer services, and investment activities.
Total reserve holdings totalled 1.62trn riyals, a 5pc decline from the same month last year.
Reserve assets for financial institutions comprise a range of highly liquid assets held to ensure stability and fulfil short-term financial obligations. Among these holdings are monetary gold, which serves as a traditional store of value and a hedge against currency fluctuations.
Special Drawing Rights represent an international reserve asset created by the International Monetary Fund and allocated to member countries, acting as a supplement to their existing funds.
The reserve position in the IMF refers to a country’s holdings of foreign currencies with the IMF, providing an asset that can be utilised to obtain foreign currency when needed. Additionally, banks hold foreign currency and deposits in international institutes, enabling them to meet obligations denominated in other currencies.
Furthermore, banks invest in foreign securities, such as government and corporate bonds issued by global entities. These investments not only provide a source of income but also offer diversification benefits to the institutes’ portfolios.
In February, investments in international securities accounted for 60pc of the reserve position.