elimination of duplication of efforts and waste, development of a national infrastructure, etc. Significant changes were made to modernize the banking system, such as:
Introduction of an Automated Cheque Clearing System in 1986.
The linking of Saudi Arabia with the SWIFT payment network.
Introduction of a national Automated Teller Machine System which permitted customers access to their accounts from any machine in the Kingdom and from the major financial markets.
Introduction of debit, credit and charge cards.
Introduction of the Point-of-Sale terminals that link customers, traders and banks.
These modernization changes promoted efficiency and cost-effectiveness in provision of banking services. They also ensured enhanced competition as banks had to compete in developing and implementing technologically advanced systems. As SAMA led the development of national systems, it ensured efficiency, consistency, cost- effectiveness and a level playing field for all banks.
As a result of these arrangements and measures, a relatively stronger banking system emerged despite the tumultuous economic conditions during the 1980s. The number of branches, 247 in 1980, reached 1,036 by end of 1990. Three new banks – Al-Rajhi Banking and Investment Corporation, Saudi Investment Bank and United Saudi Investment Bank – were added to the list. Total employees also rose significantly from 11, 000 in 1980 and to about 25,000 by 1990. Another aspect of expansion was the opening of overseas branches of major Saudi banks with branches in UK, Bahrain, Beirut and Turkey. During the period 1988 to 1993, 7 of the 12 Saudi banks increased their capital through new share floatation. As a result, the capital and reserves for the banking system had doubled from SR 15 billion at end of 1988 to SR 30 billion by end of 1993. Subsequently, during the following decade Saudi banks have remained highly capitalized by international standards, and their average Risk Adjusted Capital Adequacy Ratio remained around 20%. Also, their capital was mostly in the form of Tier-1.
Challenges of the 90’s – Systemic Stability and Consolidation
The Challenge of the Gulf Crisis. By beginning of the 1990’s the Saudi Banking System had largely recovered from the difficulties of the mid-80’s. Banks had expanded their branch network, introduced stronger management methods and new technologies, raised new capital, improved their profitability and set aside large provisions for doubtful accounts. They were healthy and profitable and the 90’s augured well for the banking system. However, with the invasion of Kuwait by Iraq in August 1990, the Saudi banking system faced another challenge. The crisis affected the monetary situation profoundly. Customer withdrawals of domestic deposits during August 1990 were 11% of total customer deposits. These were largely converted into foreign currency and transferred