Trade Financing

The Banking System
The Saudi Government endorsed the Capital Market Law on June 16, 2003.  The legislation will provide a legal and regulatory framework for a formal stock trading operation and bolster capital market formation.  A Stock Market Commission will organize the market until a Stock Market Board of Directors takes over.  The Saudi bourse, the most capitalized in the Arab World at more than $128 billion, reacted positively to the announcement.

Currently, 11 majority Saudi-owned banks and five GCC banks, the Bahrain-based Gulf International Bank (GIB) and National Bank of Bahrain, Dubai-based Emirates Bank International, Kuwait-based National Bank of Kuwait, and Oman-based Muscat Bank are licensed to operate in Saudi Arabia.  Of the GCC banks, only GIB has opened a branch in Saudi Arabia.  The maximum allowable foreign equity in a Saudi bank is 40 percent.

Consumer banking is a major area of focus and Saudi banks have showed more vigor in servicing retail lending.  Ample liquidity in the market has allowed banks to support the retail expansion without disregarding the corporate market.  This growing shift to retail lending has provided Saudi banks with comparatively higher margins and lower risk factors.  The extension of consumer credit was also directly enhanced by the developments in electronic banking, which facilitated direct-deposit of salaries and thus collections. 

Greater privatization in the Saudi economy, including the creation of partial savings accounts in the country's two major pension systems, would greatly boost stock exchange capitalization, and make it a more important engine for economic growth. 

The Saudi Arabian Monetary Agency (SAMA), the Saudi central bank, regulates the Saudi banking sector.  Financing is available to Saudi and non-Saudi businessmen and entities.  Offshore banking and trust operations do not exist in Saudi Arabia, and there is no legislation to permit the establishment of these operations.

The securities market continues to mature.  Banks are the sole entities that may act as stockbrokers for publicly traded shares or for joint stock companies, although the new Capital Markets Laws allows for non-bank financial advisors.