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	Saudi Arabia		Info-Prod Country Guide
JUDICIARY   BUSINESS FORMS & STRUCTURES   CURRENCY & BANKING   INTELLECTUAL PROPERTY TAXATION   INVESTMENT & TRADE   LABOR LAW   ENVIRONMENTAL LAW

Currency and Banking Foreign Currency Control There are virtually no currency exchange restrictions in Saudi Arabia. Exchange for payments abroad may be obtained freely, and there are no taxes or subsidies on purchases or sales of foreign currency. Officially, the Saudi Riyal (SR) is pegged to the International Monetary Fund's Special Drawing Rights. Since 1981, however, the Saudi Arabian Monetary Authority has instead chosen to peg the SR to the dollar. In order to minimize exchange risks for the private sector, to facilitate long term planning and to encourage repatriation of capital from abroad, the Saudi Arabian Government has maintained the exchange rate at SR 3.75/US$ 1 since 1987. The depreciation of the dollar relative to other world currencies suas the Yen and the Deutsch Mark have the effect of making U.S. imports even more competitive in the Saudi market. This depreciation has led to talks within the GCC countries concerning the possibility of moving their currencies to a trade weighted unit that would reflect Western European and Japanese imports. GCC finance officials met again in 1992 to discuss this issue, but have apparently postponed any changes. Banking Background Banking in Saudi Arabia is regulated by the Banking Control Law of 1966. The Saudi Arabia Monetary Agency (SAMA), established in 1952, is the country's central bank. Among other things, SAMA issues and controls currency, regulates the money supply, regulates and monitors commercial banks (including deposits, loans and investments) and manages foreign assets. The Banking Control Law provides for state owned and private banks. Public Banks Under the Banking Control Law there are nine public banks in addition to SAMA. The distribution of government subsidies and grants of loans to public and private sector projects are funneled through specialized public funds or banks. For example, Saudi Industrial Development Fund, which is linked to the Ministry of Industry and Electricity, is aimed at encouraging Saudis to establish small and medium size industrial projects in the private sector. The funds provide loans and advice on marketing, technical and financial matters. The Saudi Arabian Agricultural Bank, which is affiliated with the Ministry of Agriculture and Water, grants subsidies and makes loans to farmers for the purchase of machinery, feed and live stock. It also finances joint ventures in agricultural projects with foreign participation. The Real Estate Development Fund offers loans to Saudi individuals and entities for private and commercial housing projects. The Public Investment Fund, which is controlled by the Ministry of Finance is used as a medium to long-term financing vehicle for the petrochemical industry, and it acquires equity in companies and banks in order to subsequently sell the equity to low-income groups. Private Banks There are twelve commercial banks operating in Saudi Arabia, three of which are fully Saudi-owned and the remainder of which have a minimum 60 percent Saudi participation. Modern banking in the Kingdom began with branches of foreign banks. As of the mid-1970s, a process of "Saudiization" of foreign banks was undertaken that was completed in the early 1980s. Currently, foreign banks cannot operate directly through branches in the Kingdom and must rely on Saudi banks. Cooperation between foreign and Saudi banks may result in the foreign bank providing international offices, training and access to international networks. Under certain conditions, a foreign bank may issue bonds and guarantees certified by a Saudi bank.   Islamic Banking Generally speaking, Islamic law forbids the charging of interest. Many Saudi business-persons, who conduct their activities in accordance with Islamic law, use profit-and-loss sharing arrangements allowed under Islamic law to finance commercial projects. Banks in the Kingdom, therefore, generally provide facilities enabling finance by way of such arrangements. Financing Through Financial Institutions Saudi banks finance Saudi as well as non-Saudi entities. Saudi entities may also borrow from non-Saudi banks and often employ the services of offshore banking units in Bahrain, which is a major banking center for financing countries in the Gulf. Import Payment Process Most Saudi imports are received on the basis of an irrevocable letter of credit (L/C), although other arrangements such as open account, cash in advance and documentary collection are also permitted. Imports do not require mandatory, maximum or minimum credit terms. Typical turnaround time in local credit transactions ranges from three to four months. Previous Chapter Contents Menu Next Chapter

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