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19 Sep

Banking in Saudi Arabia

19 Sep 2021 Banking

As technology advances and competition increases, banks are offering different types of services and products in order to attract more clients. To illustrate the difference between types of banks as follows:

  • Central Bank

The central bank is the basis of any country's banking system. It is responsible for issuing funds and keeping the value of the country's official currency from depreciating against foreign currencies. It also controls market liquidity to address inflation and deflation by raising interest rates, raising the tax rate, etc.

All banks whether governmental or private work together in an integrated system under the supervision of the Central Bank. It is responsible for organizing them to maintain the flow of money in the local market.

The Central Bank most important functions is to issue money, both paper and metal, and to determine monetary policy. 

The Saudi Arabian Monetary Authority (SAMA) is the Saudi Arabian central bank which oversees the operations of all commercial banks and government banks in Saudi Arabia. 

 

  • Government banks

Government banks majority stakes are owned by the Government or the central bank of the country.

All financial institutions owned by the government are focused on the development of various sectors such as Saudi Industrial Development Fund (SIDF), Tourism Development Fund (TDF) and others.

These banks provide financial support and loans that contribute to the development and revitalization of the country's economy, such as support for the commercial, industrial, agricultural and education sectors.

 

  • Private banks

Private banks are mainly owned by a private company or an individual or a group of individuals. Private banks are driven by profits and can be categorized as follows:

  1. Corporate Banking

Corporate banking, also known as business banking, typically serves a diverse clientele, ranging from small- to mid-sized local businesses with a few million in revenues to large firms with billions in sales and offices across the country. Corporate banking works directly with businesses to provide them facilities which are specifically designed for companies rather than for individuals to support their business requirements.

  1. Individual  Banking:

Individual banking is a type of banking service and product line offered by banks to retail customers, that is consumers rather than businesses. Banks worldwide offer personal banking products such as opening current account for personal deposits and withdrawals, saving accounts, in addition to providing debt facilities such as loans, mortgages and credit cards.

The customers of individual banking are commonly the public that includes adult individuals, retirees, students, residents, and non-residents depending on the requirements of the bank. While wealthy individuals may also use individual banking services, they may also be offered private banking services which can include more sophisticated services and investments.

  1. Investment Banking:

Its functions include providing investment consulting and negotiation on behalf of the investors and acting as an intermediary in large and complex financial transactions when a client is engaged in merger and acquisition activities or when a startup company prepares for its launch of an initial public offering (IPO).

The investment bank is responsible for analyzing and evaluating a company’s financial statements for accuracy and publishing all related details to investors before the securities are available for purchase.

Investment bank clients include corporations, pension funds, other financial institutions, governments, and hedge funds.


Saudi and non-Saudi banks in Saudi Arabia

Currently Saudi Arabia has an estimated 30 banks licensed by the Saudi Central Bank, 13 local banks, and 17 branches of foreign banks.

Local banks in Saudi Arabia are banks that operate in the Saudi market and are owned and managed by Saudi citizens, or the majority of shares are owned by Saudi citizens. 

On the other hand, a large number of foreign investors have opened several branches of foreign banks in Saudi Arabia and it contributed to the development of the quality of financial services at all levels.

Oldest and latest banks in Saudi Arabia

Alawwal Bank, formerly known as the Saudi Hollandi Bank and it was the first bank established in Saudi Arabia in 1926 as a branch of the Netherlands Trading Society. While Alinma Bank is the latest Saudi bank founded in 2006 that practices the banking business. It provides a comprehensive range of Shariah-compliant retail and corporate banking and investment services.