RIYADH, 11 May 2006 -- With the number of banks operating in the Kingdom expected to almost double to 20 by the end of this year, Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency, has said all banks here should implement the standardized approach for credit risk by Jan. 1, 2008.
Such a measure has become imperative in view of a record surge in bank deposits and assets and the inherent risk involved in credit management, Al-Sayari told the Euromoney Saudi Arabia Conference titled "Building the Future," which concluded here yesterday.
He also declared that the diversification of the economy leading to the growth of the oil and gas, heavy, medium and light industries would trigger a growing demand for investment banking and related services to provide advisory services in the area of underwriting and covering of new IPOs and corporate finance.
Other growth areas include financing projects, particularly megaprojects (in the fields of petroleum and gas, petrochemicals, water, electricity, housing, education and health), merger and acquisitions, securities advisory services and domestic and international brokerage, private wealth management and asset management businesses. The impending launch of a joint stock company under the name of "The Development Bank" with a capital of SR15 billion would step up competition and open new horizons for diversified banking services. At another level, telephone and Internet banking will see a major development this year, with the Saudi Payment System poised for further enhancement by SADDAD, a bill-payment system linking major companies and government agencies to their customers. This will further boost efficiency and trim costs.
In his keynote address on "The Development of Banking Sector" in the Kingdom, the SAMA governor said there were only 12 banks in 1976, but since then the number shot up from the year 2000 onward when five more regional banks entered the Saudi market. "Licenses were also granted to five other major international and emerging-market banks that include BNP Paribas, Deutsche Bank, JP Morgan, State Bank of India and National Bank of Pakistan. The last three banks are in the process of opening their branches this year."
Referring to the credit risk management program for banks, Al-Sayari said, "SAMA is also encouraging banks to consider a national data-pooling initiative to help them in credit risk management. All in all, the Saudi banking system is well on its way."
Al-Sayari also cited recent measures implemented by banks for the prevention and control of money-laundering activities. These require Saudi banks to implement "Know Your Customer" rules, maintain records of suspicious transaction and report any suspicious activities to law-enforcement agencies and SAMA.
In a review of the banking sector's performance, the governor said during the ten-year period (1996-2005), the banks' assets grew by 213 percent, deposits by 224 percent, capital and reserves by 248 percent. "During this period the profits for the banking system showed strong growth and the return on equity averaged well over 20 percent and return on assets was over two percent," he said.
Yet, despite the economic boom reflected in the buoyant trend in the banks' growth, inflation has remained very low averaging below one percent per annum over the past 20 years. "These stable conditions have contributed strongly to sustained growth in the overall economy with average real GDP growth of 3.2 percent per annum for the last decade," said Al-Sayari.
The governor said the Kingdom's economic reforms program has had a magnetic pull on investors, both domestic and foreign. The growth has been meteoric particularly during the last two decades, with the non-oil sector now accounting for 44 percent of the annual GDP.
By Javid Hassan
© Arab News 2006
