Finally, another important supervisory development has been the adoption, in 2004, of a risk based supervisory approach by SAMA. This has significantly strengthened and made more efficient the onsite and off-site supervision practiced by SAMA. This approach is proactive and requires enhanced and frequent communication with banks at all levels. It brings SAMA supervision fully in line with the new international standards. In recent years, the strength of the Saudi banking system and SAMA’s sound banking supervision practices have been recognized by a number of important international institutions. One of the findings of the Financial Sector Assessment Program by an IMF/WB Team in 2005 indicated that the SAMA Banking Supervision, fully or largely met the 25 Basle Core Principles. On the other hand, external rating agencies including S&P, Fitch and Capital Intelligence in 2004 and 2005 have issued favourable reports on the Saudi Banking system. The recent external rating upgrade by S&P to A+ reflects the inherent strength of the domestic banking system. The developments of the banking sector have been reflected positively on the performance of the Saudi economy. Over the preceding three years, GDP (at current prices) have increased by an annual average growth rate of 18.1%, and private sector GDP by 6.7%. Money supply has grown by an annual average rate of 12.9%, providing adequate liquidity to growth requirements of the economy.
Over these decades, the economic environment has been characterized by freedom of capital flows, open investment climate, low inflation, stable financial system and availability of ample liquidity. This has encouraged the rise in both domestic and foreign investment in the country. Particularly in the past two decades, the growth has been rapid in the non-oil private sector which has almost doubled and now represents over 44% of the annual GDP, while the percentage contribution of the oil sector has declined to around 33%. As for SAMA’s other major objective of supervising and regulating the financial system, SAMA has followed prudent policies aimed at creating a sound, stable, solid and efficient financial system with a modern payments system. SAMA’s Charter and the Banking Control Law give it broad regulatory powers to ensure that banks are adequately capitalized, having efficient managements, run by fit and proper Directors and Managers who meet competence and integrity requirements, and that the banks have fit and appropriate operation and control systems. Over this long period, prudent supervisory policies and timely action have ensured that banks stayed strong and solid. This is a remarkable achievement in the face of global and regional economic uncertainties, political crisis, wars and volatilities of the oil market. Today, Saudi banks play a leading role in the financial system that also includes five large specialized government development financing institutions and leasing, investment and insurance companies and a few money changers.