The banking sector in Saudi Arabia is regulated by Saudi Arabia’s central bank, the Saudi Arabian Monetary Authority (“SAMA”). In order to carry on banking business (a term that is widely defined by SAMA and include deposit taking, foreign exchange transactions, and “other banking business”) in the Kingdom of Saudi Arabia, an entity must be licensed by SAMA and be either a local joint stock company or a branch of a foreign bank.

Banking business further includes investment banking activities, which constitute securities business under Saudi regulation and are therefore separately governed by the Capital Market Authority (the “CMA”), but excludes insurance and finance company activities, which are separately regulated and licensed by SAMA. These investment banking activities must be carried on by a non-bank joint stock company that is licensed by the CMA.

There are currently 12 Saudi-incorporated banks, including The Saudi British Bank (“SABB”) (29% owned by HSBC), Banque Saudi Fransi (16% ownership for Credit Agricole Group), and The National Commercial Bank (“NCB”). Banks from the United Arab Emirates, Bahrain, Kuwait, Oman, Germany, France, the United States, Pakistan, India, China, Qatar, and Japan are currently licensed to operate in Saudi Arabia.

Recent years have seen, for the first time, a number of consolidation transactions between banks operating in the Kingdom of Saudi Arabia. In June 2019, for example, SABB and Alawwal bank completed its merger, with SABB being the successor entity in a transaction that created the third largest bank in Saudi Arabia by assets. Additionally, in December 2018, it was announced that NCB has begun preliminary discussions to merge with Riyad Bank (both these banks have a common shareholder in the Saudi sovereign wealth fund—“The Public Investment Fund”—which owns 44% of NCB and 22% of Riyad Bank).

It is common practice for foreign banks that are licensed in foreign jurisdiction to lend from offshore to Saudi projects or corporations. This appears to be permitted by SAMA, provided the foreign banks concerned do not carry on deposit-taking or marketing activities in Saudi Arabia or otherwise have any form of presence in the Kingdom of Saudi Arabia.
The Z&Co. team’s experience with Linklaters’ market-leading team on banking matters includes:

  • Licensing of banks and foreign ownership;
  • Bank lending, including bilateral and syndicated loans;
  • Projects, including sponsors, lenders, equity financiers, borrowers, and export-credit agencies; and
  • Islamic finance.