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Riyadh Bank

Riyadh Bank is one of the largest financial institutions in Saudi Arabia and the Middle East as a whole. It is third in position in terms of the assets it possesses. The bank has a strong corporate and retail banking franchise. The bank has been in establishment since 1957. The government of the kingdom of Saudi holds up to half of the firm’s shares (Chapra and Khan, 2007, Hassan and Dridi, 2011). The company is under the supervision of the Saudi Arabian Monetary Association (SAMA). The paper is going to explore the contributions of Riyadh Bank in light of the contributions of the foreign exchange market to Saudi’s economy. The relationship between Riyadh Bank and the SAMA is also going to be evaluated. The performance and stability exhibited by the Riyadh Bank will be discussed as indicated by the income statements and balanced sheets.

Riyadh Bank has been operating since 1957 ( ). This is 5 years after SAMA was established. The Bank has developed overtime and is now functioning under four primary financial services sectors. These include personal banking, corporate banking, treasury, and international banking. Riyadh Bank has grown its assets, which currently is valued at SAR 186,450 billion as at March 31, 2013. The Net income is worth SAR 3,466 million as at December, 31, 2013. The major activity that is at the forefront of this bank is offering a full portfolio of banking and investment services for both its customers and its own account.  This cuts across both Saudi Arabia and abroad. They are active in offering a comprehensive diverse banking and related services to their customers both at a retail and corporate level.  They also finance all types of trade and industrial projects and activities (Hassan and Dridi, 2011).

Research questions

The researcher is going to respond to the following questions which will be helpful to his study:

  1. Is Riyadh Bank a foreign bank and does it has Islamic window?
  2. What are the effects of SAMA on your Riyadh Bank?
  3. What are the impacts of your Riyadh Bank on the Kingdom of Saudi Arabia (KSA)?
  4. What are the effects of KSA’s changing of its weekend on Riyadh Bank’s operations and performances?

Comparative Methodology

            The researcher is going to utilize comparative methodology where he examine information from various secondary sources. He will be very selective with the information since his main focus to study about Riyadh Bank. The researcher will then do a thorough analysis of the data and make a comparison of them in light of the subject of discussion. He will base his inference on the information that the sources reveal about the bank. He will also explore the bank’s website to get the financial information that relates to the bank.

History of banking in KSA

The Saudi Arabia Monetary Agency (SAMA) alongside the CMA are the authorities mandated to guide the banking sector and other financial institutions in Saudi Arabia. They are responsible for implementing rules and regulations they have made and the overall supervision of the activities of the financial institutions in the country.Banking started way before the SAMA was established. Before SAMA was established, the Saudi Hollandi Bank which was a branch of the Netherlands Trading Society acted as the temporal central bank. This was in 1926.  Hollandi was the store for the kingdom’s gold reserves and also responsible received the revenues of oil on behalf of the country’s government (Chapra and Khan, 2007).

In 1928, SAMA was very instrumental in the establishment of the new Saudi silver coin. It was King Abdulaziz that commissioned this currency, which made it the first independent currency. The Saudi Hollandi Bank had to surrender all its responsibilities to the new central bank to SAMA, immediately after SAMA’s establishment in 1952. This became a good model for all the foreign banks that existed in the kingdom (Joshi and Siduhu, 2010). AbdallahSulaiman was a confidant of King Abdulaziz played a major role of pushing and clearing way for the establishment of the Saudi Arabian Monetary Agency (SAMA).

Following the creation of SAMA, financial chaos emerged in Saudi Arabia. The United States embassy took advantage of this situation to convince Sulaiman and the king into accepting U.S consultants into the kingdom. They pushed the idea that this would help in restoring economic stability.King Abdulaziz was talked into the need of having a basic monetary and banking regulation. Young who was the U.S. spearheaded this talks and the king charged him to draw up a charter which very quickly transformed to become SAMA in a period of hours. SAMA got its income through the charges they imputed on the government for the services they offered to them.  The first head of this institution was an American who pushed the recruitment of staff from Lebanon (Samarsaud, 2011).

King Abdulaziz and Sulaiman has been sweet talked and agreed to the need that existed of building the banking institution in this strategic sector.The charter that was given to SAMA and the involvement of expatriates encouraged the body to act independently (Gadam et al, 2009). The SAMA body was shaken by the Ministry of Finance in 1957 which succeeded in sidelining it for a while. The governorship was handed over yet to another expatriate, Pakistani Anwar Ali, who had entered the country leading a mission of an International Monetary Fund. Ali was the confidant of King Faisal until his death in 1974. The efforts of Abdulaziz and Faisal resulted into SAMA institution becoming one of the best central banks in the Middle East.

According to Gadam et al (2009), before the establishment of SAMA in 1952, the banking sector of Saudi Arabia Kingdom was pathetic. They did not have a monetary system of their own. Therefore, they relied on foreign currencies which were greatly depended upon as a medium of exchange, along with Saudi silver coins. At this time, Saudi bank notes had not yet been issued. The banking services were offered by foreign bank branches that were in the kingdom. This founded the first mission of the SAMA after its establishment, to develop a Saudi currency. The SAMA also emphasized on the need of developing and cementing the national banking system. They were so keen to push procedures that would take them towards that direction and thus a growth in the banking sector was achieved.

In March 1961, Saudi Arabia changed its focus to the Saudi Riyal, as guided by the Article VII of the Articles of Agreements of the International Monetary Fund. Between the 1970s and early 1980s, the SAMA intensified a project that was very key in controlling inflation in the nation. This was because the economy of the kingdom had picked up very intensively.The banking system in Saudi Arabia expanded and the banking sectors were capable of managing foreign exchange reserves. As from 1985, SAMA turned their attention in beefing up new financial market reforms (Joshi and Sidhu, 2010).

Roles of Saudi Arabia Monetary Agency (SAMA) in development of healthy indigenous and Islamic banks in KSA

            SAMA is the central bank of the kingdom of Saudi Arabia currently. It therefore has the major role of supervising other financial institutions and the banking sector as a whole in the kingdom.The activities that are orchestrated by the commercial banks must have a direct scrutiny from the SAMA bank. They banks in the country are allowed permission to carry out their initiatives to the nationals (Chapra and Khan, 2007). SAMA has the responsibility of issuing the national currency, the Saudi Riyal that is embraced in the entire nation.This very key as it prevents the nation from using foreign currencies that are always limiting in a big way. For instance, the kingdom may stand a risk of being exploited since they do not have a currency of their own. SAMA operates numerous cross bank electronic financial systems, for example, SPAN, SARIE and SADAD.

            SAMA is responsible for the management of foreign exchange reserves. This involves the central bank doing a summary and publications that draws the objectives and institutional framework which regulate its foreign exchange reserves management. SAMA creates platforms of interactions and relationships with the foreign exchange by creating investment policies for decision making. They state the composition of these foreign exchange reserves in line with the international standards. They offer links to foreign exchange reserves statistics that are published by the Central Bank regularly. SAMA also promote stability as far as price and exchange rate are concerned. They also monitor the growth and soundness of the financial system. The stability of the financial system is linked to the state of the economy a country holds (Gadam et al, 2009). Riyadh Bank is among the 12 national licensed banks at Saudi market according to SAMA. Riyadh is not a purely Islamic Bank, though it has a plan or rather its trend suggests that it will very soon convert to a fully-fledged Islamic bank (Samarsaud, 2011).

Differences between conventional and Islamic banks

            Islamic banks have many products that are not different from those presented by the conventional banks. The difference comes in when the two categories of banks are viewed from the angle of conceptual outlook. One outstanding factor about conventional banks is that they earn their money through the interest contributed to them and the services they offer (Joshi and Sidhu, 2010). On the other hand, the Islamic banks get their earning through the profits they accrue as well as sharing losses. The Islamic banks charge fees on the services they render and leasing out of their products. The Islamic bank have a sharia board who have a body that give opinions on Islamic business contracts. This board also a supervisory role when it comes to commercial banks. The board is the backbone of an Islamic bank as it makes the establishment and operation of the bank possible.

            Conventional banks charge interests while the Islamic banks do otherwise. They are quite different in terms of the fundamentals that are laid down to guide their operations. Conventional banks emphasize on making profits and they are not bound by any religious principles. The Islamic banks are much into encouragethe values of the Islamic principles. They operate based on Islamic banking law. Islamic banks in Saudi Arabia follow the financial laws and regulations stated by the SAMA. That said, earning money is also an objective of Islamic banks because they can hardly run without money (Chapra and Khan, 2007).

            In terms of relationships, a conventional bank maintain a creditor to debtor relationship when one deposits a paycheck. The bank has the obligation to return the money with or void of interest as per the terms of the contract (Hassan and Dridi, 2011). The relationship between the customer and the Islamic bank on the other hand, is determined to terms of that relationship. As for the investments, Islamic banks do not guarantee principal and returns even being that the customer deposited the money to earn extra income for her savings. The bank is not liable to pay back the client’s income in cases of business failure. Conventional banks have the responsibility to pay back the money they owe their customers.

Rules and regulations governing the activities in the financial institutions in KSA

            The banking sector in the Kingdom of Saudi Arabia have a number of hiccups surrounding it. But still, there are rules and regulations that guide important areas of the financial institutions in the kingdom. The SAMA performs the central bank role in KSA of supervising financial institutions both at local and foreign level. SAMA have been mandated the function of issuing the rules and regulations that guide all local and foreign licensed banks in KSA. Financial institutions have to comply with these regulations. For any bank to operate in KSA, it is required of it to acquire a license from SAMA which will permit it to conduct any business in the country.There are rules and regulations that controls, regulate and provide a legal framework for electronic transactions and signatures (Hassan and Dridi, 2011).

            Locally registered banks must provide a notification to KSA before they involve in any facility arrangement. This is true especially for those if the arrangement is being provided by a non-resident entity in KSA. It is a legal offense for a foreign financial institution to provide funding to local entities in KSA without notifying SAMA (Hassan and Dridi, 2011).Shariah compliant products are offered to Islamic institutions and any of their transactions must be approved by the Shariah committee. The negotiable instruments regulation covers the legal treatment of various payment instruments, for instance cheques, foreign exchange and drafts. There is a regulation that declares illegal any money laundering activity. The regulation does not support financing terrorism acts (Joshi and Sidhu, 2010).

Stock Market Data Collection

Table 1: The Income statement of Riyadh Bank

Currency in Millions of Saudi Arabian Riyals As of Dec 31 2010 Dec 31 2011 Dec 31 2012 Dec 31 2013 Dec 2014
TOTAL REVENUES 5,038.7 5,614.1 5,746.6 6,468.6 7,111.7
GROSS PROFIT 5,038.7 5,614.1 5,746.6 6,468.6 7,111.7
Selling General & Admin Expenses, Total 2,378.1 2,490.2 2,334.4 2,562.0 2,759.9
EBT, EXCLUDING UNUSUAL ITEMS 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4
EBT, INCLUDING UNUSUAL ITEMS 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4
Earnings from Continuing operations 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4
NET INCOME 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4
NET INCOME TO COMMON INCLUDING EXTRA ITEMS 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4
NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 3,094.2 3,149.4 3,466.0 3,947.1 4,352.4

Table 2: Balance sheet for Riyadh Bank

Currency in Millions of Saudi Arabian Riyals As of Dec 31 2010 Dec 31 2011 Dec 31 2012 Dec 31 2013 Dec 31 2014
Cash and Equivalents 6,863.3 7,655.7 5,483.7 6,141.0 7,277.9
Trading Asset Securities 1,837.3 2,958.9 2,398.4 365.3 419.1
TOTAL CASH AND SHORT TERM INVESTMENTS 16,041.2 17,442.6 24,407.1 16,374.3 21,192.0
Other Receivables 2,178.9 3,018.4 1,400.7 2,489.0 929.0
TOTAL RECEIVABLES 2,178.9 3,018.4 1,400.7 2,489.0 929.0
Restricted Cash 6,082.2 6,963.6 6,896.8 7,573.8 8,269.0
TOTAL CURRENT ASSETS 28,278.6 27,865.5 33,163.0 26,874.5 30,781.6
Gross Property Plant and Equipment 3,903.3 4,217.2 4,426.1 4,607.9 4,901.4
Accumulated Depreciation -2,392.7 -2,410.3 -2,688.2 -2,945.2 -3,194.7
NET PROPERTY PLANT AND EQUIPMENT 1,510.6 1,806.8 1,737,9 1,662.7 1,706.7
Other Long-Term Assets 1,094.3 1,286.2 1,145.2 1,538.4 1,178.9

   TOTAL ASSETS                               169.356.6      180,887.4 190,180.8           205,246.5                 214,589.3


Accounts Payable 1096.3 1,115.2 1,510.4 1,690.4 1,894.6
Accrued Expenses 211.3 218.5 245.4 311.6 238.1
Short-Term Borrowings 1,634.9 1,757.4 1,823.6 1,243.7 1,030.8
TOTAL CURRENT LIABILITIES 142,652.2 147,537.5 154,456.9 162,870.6 170,272.8
Long-Term Debt 4,000 4,000
Other Non-Current Liabilities 3,073.6 3,191.5 3,760.4 4,505.6 4,679.4
TOTAL LIABILITIES 150,054.3 150,729.0 158,217.3 171,376.2 179,052.2
Common Stock 15,000.0 15,000.0 15,000.0 15,000.0 30,000.0
Retained Earnings 12,647.3 14,622.6 15,838.7 17,685.8 4,498.2
Comprehensive Income and other 873.0 535.7 1,124.9 1,184.6 1,038.9
TOTAL COMMON EQUITY 29,368.3 30,158.4 31,963.5 33,870.3 35.537.1
TOTAL EQUITY 29.368.3 30,158.4 31,963.5 33,870.3 35,537.1
TOTAL LIABILITIES AND EQUITY 179,422.6 180,887.4 190,180.8 205,246.5 214,589.3

Data Analysis

Using the data collected above, the researcher determined the following financial ratios:

  1. Current ratio =  Current Assets/Current Liabilities

2010 = (28,278.6/ 142,652.2) = 0.19823,      

2011 = (3,018.4/147,537.5) = 0.02046

2012 = (1,400.7/154,456.9) = 0.00907          

2013 = (2,489.0/162,870.6) = 0.01528                                  

2014 = (929.0/170,272.8) = 0.005456

  1. Net Profit margin: Net Income/ Net sales

2010 = (3,094/ 5,038.7) = 0.614413

2011 = (3,194.4/5,614.1) = 0.5690

2012 = (3,466.4/5,746.6) = 0.60321

2013 = (3,947.1/6,468.6) = 0.6102

2014 = (4,352.4/ 7,111.7) = 0.61201s

            The SAMA offers supervisory role to Riyadh Bank. The bank must be keen on adhering the rules and regulations set by the central bank to guide its operations. The profits of the bank went down when the SAMA introduced new regulations that restricted the bank imputing some fee income from customers (Joshi and Sidhu, 2010). The effects though are short-lived since the bank expects a drop in fee income growth for only this year. Some regulations favor the bank while some have negative impacts on it. SAMA has laid down clear laws and guidelines that encourage a smooth relationship between the bank and the foreign exchange markets. The new regulatory reforms that SAMA has come up with has increased its effectiveness in terms of their monitoring and supervisory role to the Saudi Banks. Therefore, a good relationship that enhances the growth of Riyadh Bank has been established between them and SAMA.

            Riyadh bank has contributed greatly to the kingdom’s economy. This is so because the Saudi’s money supply has increased since money is being generated by this institution. Virtually all other sectors of economy in the country find their financial footing from this bank. They can borrow funds and facilitate their operations in the country to run just because of Riyadh. The bank also work very closely with SAMA to fund huge projects that the government spearheads occasionally. The GDP of the nation is increased since the bank has opened doors for jobs for most individuals in the country. The individuals who are the employees are put on the pay roll. Riyadh bank also creates investment opportunities for the nationals of the kingdom. The changing of the weekend by the government impacts negatively the operations of the bank. The bank cannot operate under the normal regime it was used to and in that way loses some cash that could have been saved (Hassan and Dridi, 2011).

Conclusion             The bank is very pivotal as far as other areas of the economy are to be examined. Riyadh is like a support to the different sections in terms of offering both advisory and banking services to them.More revenues that boost the economy of the country are also generated through this self-same bank. Riyadh bank is very instrumental in helping other financial institutions in KSA to run and carry out their projects. The government should consider offering rules and regulations that are flexible and ones that favors the bank.  The   good performance realized in the bank depends so much on the supervisory relationship they have with SAMA, which represents the government. If the company performs well, then the overall   benefits is connected to the kingdom which shall have its economy boosted as a result.

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