The Saudi Banking System

Abstract

The financial system consists of banks and financial companies, quasi-government funds and public suppliers of credit. SAMA regulates Sharia-compliant and conventional banks in a single regime and has fully implemented Basel rules. Financial deepening of the economy is occurring. Banks are modestly leveraged, well capitalized, highly liquid, adequately provisioned and profitable. However, they depend ultimately on government spending, there are liquidity difficulties as oil prices remain low and they have concentration risk in their lending. Macroprudential rules to limit system-wide risk are under consideration. A growing range of Sharia-compliant assets is over half the total but suffers from product fragmentation and a lack of liquidity and hedging instruments, making it more difficult to regulate. There is no formal system for handling bank failures.