Saudi Arabia Trade and Project Financing
Author - U.S. Department of Commerce
Brief Description of Banking System The Saudi Arabian Monetary Agency (SAMA), the Saudi central bank, regulates and controls the Saudi banking sector. Financing is available to Saudi and non-Saudi businessmen and entities. Offshore banking and trust operations do not exist in Saudi Arabia, and there is no legislation that permits the establishment of these operations.
The securities market is still not highly developed, but continues to mature. The trading volume is moving upward as is the number of new mutual funds. Banks are the sole entities that may act as stockbrokers for publicly traded shares or for joint stock companies. The most significant recent development is SAMA's approval to allow foreigners to buy and trade shares of Saudi companies within a closed-end fund listed in the United Kingdom.
The major development in the banking sector in 1997 was the merger of two of the 12 local banks. The United Saudi Commercial Bank and the Saudi Cairo Bank merged into the new United Saudi Bank. The profits of Saudi Arabia's 11 commercial banks continued to rise in 1997, up 12 percent from the $1.32 billion earned in 1996. For the third year, the Al-Rajhi Banking and Investment Corporation had the highest net profits, $346 million. At the end of 1997, the cumulative size of the banks' balance sheets had grown by 6.5 percent over year-end 1996 to $101.8 billion. The net foreign assets of the commercial banks stood at $14.3 billion at year-end 1997, marking a decrease from the year-end 1996 level of $18 billion. Foreign assets of the banks were probably repatriated in 1997 to satisfy growth in domestic loan demand. Eight of the commercial banks are joint venture banks. The major foreign partners in the Saudi joint venture banks are Citibank, Arab Bank Ltd., Banque Indosuez, HSBC Holdings, and ABN Amro.
Commercial banks operating in Saudi Arabia ranked by total assets:
The National Commercial Bank Riyad Bank Saudi American Bank Al-Rajhi Banking and Investment Corporation Arab National Bank Saudi British Bank Saudi French Bank United Saudi Bank Saudi Hollandi Bank Saudi Investment Bank Bank Al-Jazira
Foreign Exchange Controls Affecting Trading Saudi Arabia imposes no foreign exchange restrictions on capital receipts or payments by residents or nonresidents, beyond a prohibition against transactions with Israel. Although officially linked to the IMF's Special Drawing Rights, Saudi Arabia in practice pegs its currency, the riyal, to the U.S. dollar.
Saudi Arabia last devalued the riyal in June 1986 when it set the official selling rate at SR 3.7450 = $1. The Saudi Arabian Monetary Agency and all residents may freely and without license buy, hold, sell, import, and export gold, with the exception of gold of 14 karats or less.
General Financing Availability and Terms of Payment Saudi policies facilitate the free flow of financial resources. Credit from the commercial banks is allocated on market terms, and foreign investors can obtain credit on the local market. The private sector has access to a variety of credit instruments.
Soft financing is available from specialized credit institutions: the Saudi Agricultural Bank, the Saudi Credit Bank, the Public Investment Fund, the Saudi Industrial Development Fund, and the Real Estate Development Fund.
The Saudi banking system is well capitalized and well provisioned. The Embassy is not aware of any "cross-shareholding" or "stable shareholder" arrangements being used by private firms to restrict foreign investment through mergers and acquisitions.
Nor is the Embassy aware of any laws or regulations which specifically authorize private firms to adopt articles of incorporation/association which limit or prohibit foreign investment, participation, or control. Foreign participation in the Saudi Arabian Standards Organization (SASO) is not possible.
Types of Export Financing and Insurance Available to U.S. Exporters, Including Bilateral, Multilateral and Local Sources The U.S. Export-Import Bank and other U.S. export credit agencies have been involved in Saudi Arabia supporting trade with private Saudi companies. The Government of Saudi Arabia may use the facilities of these export credit agencies to support major infrastructure projects.
The Islamic Development Bank fosters the economic development and social progress of member countries and Muslim communities. It participates in equity capital and grants loans for productive projects and enterprises, besides providing financial assistance to member countries in other forms for economic and social development.
Types of Project Financing Available, Including Facilities Available from Multilateral Institutions and Types of Projects Supported Project financing is available in the Kingdom from longer-term loans by the local commercial banks and Saudi specialized credit institutions such as the Saudi Industrial Development Fund or the Public Investment Fund. The Saudi Government does not receive project financing from multilateral institutions such as the World Bank. The Saudi Government is considering the possibility of project finance arrangement for the Shuaiba electric power plant; but no final decisions have been made. The U.S. Export-Import Bank has not, so far, engaged in any project finance activities in Saudi Arabia.
List of Banks with Correspondent U.S. Banking Arrangement Because of their ownership structure, Saudi American Bank (Citibank) and Saudi Investment Bank (Chase Manhattan) have direct correspondent relationships with U.S. banks. The Embassy assumes that the other Saudi banks also have correspondent relationships with the U.S. institutions, whether the home office in the United States or branches in Europe or Bahrain.
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