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abroad. By September 1990, the pressure had eased. SAMA had ensured the availability of foreign currency to meet customer demands and by providing more liquidity through Repo arrangements and placing of foreign currency deposits with the banks. Banks also coped well by liquidating their foreign assets. By end of 1990, the banking system-wide deposits had returned almost to its beginning-of-1990 level and the year to year decline was only 1.6%.

The Economic Boom and Bank Recapitalization. Following the resolution of the Gulf crisis there was a mini boom in the economy. During 1991 there was a massive surge of about 20% in the deposit of the Banking System. Banks domestic loans and advances grew 90% during the period 1990-95 and all other banking indicators including Rate of Return on Equity and Average Assets continued to be highly positive, with many banks making record profits during this period. Despite difficult international conditions, the banks continued to show solid and stable growth and strong profitability during the second half of 1990’s.

Strengthening of Capital Base of the Banks. The Saudi Banks under guidance of SAMA used the bullish sentiments in the stock market to raise substantial amounts of capital. As noted earlier, 6 of the 12 banks increased their capital during 1991-92 period. The trend to increase the banks’ capital base continued during the second half of the 1990’s, and 3 Saudi banks went to the market during the 1993-1997 period. The objectives of the capital increase have been as follows;

  • 1.

    To strengthen the capital base of banks. This was to ensure that banks continue to meet the capital adequacy standards required by the Banking Control Law and the Basel Risk Assets based Standard introduced by SAMA in 1992.

  • 2.

    To increase the deposit-raising potential of the banks.

  • 3.

    To broaden the base of shareholders as more small investors entered the market. The floatation of bank shares provided an attractive opportunity for them to hold shares.

  • 4.

    To permit banks to use their additional capital to increase their provision for doubtful accounts and to ensure that they were all provided against non- performing loans.


To help banks with funds to invest in computers and information technology and development of new products and services.

These objectives were largely achieved and Saudi banks with a Risk Asset Ratio of about 20% (19.2% in September 2003) were highly capitalized by international standards.

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