foreign banks that linked Saudi Arabia firmly with the global financial markets. Some domestic banks were also licensed. The National Commercial Bank was licensed in 1953, while Riyad Bank started operation in 1957 and Bank Al-Watany in January 1958.
Introduction of Paper Money. During the period 1950 to 1956, there was a partial introduction of paper money in the form of Pilgrim Receipts which were supported by precious metals and foreign currencies. By 1960, the Riyal was officially pegged to US Dollar, foreign currency reserves had gone up, inflation was held down, and the government had issued paper currency to replace all Pilgrim Receipts. Nearly all government debt had been repaid, an accomplishment that lasted for years to follow.
The Growing 1960. Riyad Bank 1958 respectively, improper loans by
Pains. The first banking problem faced by Saudi Arabia took place in
and Al-Watany Bank, which had commenced operations in 1957
faced serious liquidity problems board members in both banks.
arising from mismanagement By 1960 Bank Al-Watany
and and was
technically insolvent and was unable to settle the claims of liquidated the Bank and merged its operations with Riyad Bank. Riyad Bank to reorganize, and with Government’s approval,
local depositors. SAMA By 1961, SAMA required SAMA, on behalf of the
38% of the to defend the
shares of stability
the Bank. These events tested of the nascent banking system.
Government not only took action requiring a merger, but also came shareholder to prevent the bank failure. This sent a clear signal that wanted to maintain and fully support a strong, stable and credible Notwithstanding government ownership stake, Riyad Bank continued private sector institution with no major interference from the authorities.
in strongly as a Saudi authorities banking system. to operate as a
Strengthening of the Regulatory Framework. These banking difficulties led to a new Banking Control Law in 1966, which gave SAMA broad supervisory powers to license and regulate all banks. Banks were required to meet stringent capital adequacy,
liquidity, lending ratios and reserve requirements.
A system of on-site and off-site
prudential supervision was introduced and SAMA strengthened its supervisory capabilities. The Law also supported the concept of a Universal Banking Model, which permitted banks to provide a broad range of financial services including banking, investments, securities, etc. through their branches. Consequently, banks became the primary licensed financial
institutions and expanded rapidly covering the entire country. important institutional development.
Clearly, this was an
Consolidation and Restructuring of the 1970’s
Consolidation of Banking Industry. The 1970’s was a period of rapid expansion of the banking system to keep pace with the significant rise in government revenues and expenditures and the need for financing major development projects aimed at establishing infrastructure and industry. There was a tremendous improvement in the financial position of the commercial banks between the period 1970 to 1980, with total assets increasing 35 times from US$ 720 million to US$ 24.8 billion and deposits increasing 42