Saudi Arabia

The Banking Control Law, issued by Royal Decree M/5 in 1966 and implemented by the Saudi Arabian Monetary Agency (SAMA), forms the main legal basis for the regulation of the country's commercial banking system. The law requires that national banks be organized as local joint-stock companies with the cash capital of at least SAR 2.5 million and regulates foreign banks' branches very strictly. In order to ensure stability and liquidity, it requires high financial ratios, limiting a bank's liability for deposits to 15 times its capital and reserves, requiring a statutory deposit reserve of at least 15% with SAMA, and limiting single borrower's liabilities to 25% of the capital structure of the bank. In addition, the law prevents any conflict of interest and risk by absolutely prohibiting insider loans to board members and forbidding banks from conducting their business in retail or wholesale trade. With an extensive scope of regulatory power, the law gives SAMA broad rights to inspect banks, require transaction transparency, and impose strict punishments on violators.