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times from US$ 426 million to US$ 18.1 billion. The demand for commercial credit lagged the increased liquidity available in the banking system as low cost medium to long- term credit was easily available from the government lending institutions. Consequently the foreign assets of the commercial banks grew rapidly from 19% of total assets in 1972 to 44% at end 1980. This period further strengthened the link between the Saudi financial system and the global financial markets. This was driven by the need of SAMA and the Saudi banks to place their excess liquidity in the global market. As a result, there evolved a significant and important relationships between local and foreign banks. SAMA itself became an important player and in 1983 entered the General Agreement to Borrow (GAB) with the IMF.

Role of Money Changers. By 1979, of the 12 banks in operation, only 3 were non- Saudi, and the total number of bank branches had almost doubled to 140. However, many major cities, which were frequented by pilgrims and many small remote communities were also served by over 250 branches of money changers who provided currency exchange and other minor financial services.

Establishment of Special Purpose Government Funds. In addition to the banks and money changers, during the 1970’s the Government created five major lending institutions namely; Saudi Credit Bank, Saudi Agricultural Bank, Public Investment Fund, Saudi Industrial Development Fund and the Real Estate Fund. These institutions provided medium-term and long-term development finance to supplement the short-term funds

provided by medium and

commercial banks. These institutions played a key role in long-term capital needs of the nascent industrial sector. They



also freed


the banks to pursue less risky short and medium-term essential at the early stage of development when infrastructure and a trained human resource base.

financing. This was the economy lacked

considered a modern

Restructuring Related to Foreign Banks. The Government had always encouraged foreign banks to open branches within the Kingdom and consequently, by 1975, 10 international banks with 29 branches were present. However, with the Second Five-Year Plan, commencing in 1976, the Government promoted a policy of converting foreign banks’ branches into publicly-traded companies with participation of Saudi nationals. This policy had a number of objectives. The incorporation and floatation of shares of these banks encouraged broad based public participation that also contributed greatly to the development of a stock market in the Kingdom as bank shares had particular attraction for investors. Also it promoted banking activities and the formation of banking habit among the population. By encouraging foreign banks to take large shareholdings in the newly incorporated banks and by offering them management contracts, the foreign partners’ position was strengthened. They could not only exercise significant management control but could also benefit fully from national treatment accorded to banks fully owned by Saudis. By 1980, of the 12 banks in operation 3 were non-Saudi while 7 had substantial foreign ownership, and the total number of bank branches had risen to 247.

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