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SAUDI ARABIAN MONETARY

AGENCY(SAMA)

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PREPARED FOR

SYEDA MAHRUFA BASHAR

ASSISTANT PROFESSORINSTITUTE OF BUSINESS ADMINISTRATION

UNIVERSITY OF DHAKA

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OUR TEAM

GROUP 14, BBA 21st BATCH

MUHTASIM SAROWAT RAYED (ZR-61)

A.T.M HASIBUL ISLAM (ZR-62)

MD. SAAD SIKIDER(ZR-68)

SARWATH HAFIZ MUMU(RH-70)

ISHMAM MALIHA RAISA (RH-72)

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01 02 03 04

INTRODUCTIONBRIEF

TIMELINEMISSION AND

VISIONFUNCTIONS

OF SAMA

OUTLINE

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05 06 07 08

SNAPSHOT OF SAMA’S GENERAL CREDIT

CONTROLS

EFFECT ON SAUDI ECONOMY

CASE STUDY: USE OF GENERAL

CREDIT CONTROL

TAKEAWAYS

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INTRODUCTION

The Central bank of the Kingdom of Saudi Arabia, SAMA was established in 1952, designed to serve within

the confines of Islamic Law. SAMA is not a profit-making institution and can neither pay or receive interest.

SAUDI ARABIAN MONETARY

AGENCY(SAMA)

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A BRIEF TIMELINE

Prior to the establishment of the Saudi Monetary Agency, the Saudi Hollandi Bank, a branch of the Netherlands

Trading Society from 1926 acted as a de facto central bank. It kept the Kingdom's gold reserves and received oil

revenues on behalf of the Saudi Arabian government.

1926

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First Independent Currency

The Saudi Hollandi Bank assisted in establishing the Arabian Riyal, commissioned by King Abdulaziz. At this point, foreign currencies were still the primary medium of exchange .

1928

SAMA is Established

As a response to the need for monetary control, the SAMA is

established with a charter from the King. The first head, George

A. Bowlers, is an American.

1952

SAMA’s Charter is Amended

The Amendment increased the autonomy of SAMA by appointing a board of directors to supervise its work and ensure its sound management.

1957

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The Saudi Riyal is Created

This created the first exclusive monetary system for Saudi Arabia, as banknotes of 1,5,10,50 and 100

Riyals were put into circulation.

1961

Banking Control Law is Issued

This strengthened SAMA's role in regulating the banking system and started the process for issuing new bank licenses.

1966

General Credit Controls

Service charges on lending to commercial banks were introduced, along with statutory

and marginal reserve requirements. The Bankers' Security Deposit Account (BSDA)

became the first money market instrument.

1980s

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Money Exchange is Regulated

The issue of new licenses for money exchange businesses is banned, limiting the market to existing businesses only.

1984

Committee for Regulating the Stock Market

The committee was set up from the Ministry of Finance, the Ministry of Commerce and Industry and SAMA, with SAMA assuming the tasks of operating and regulating the

market daily business.

In 2004, this role was transferred to the Capital Market Authority (CMA).

1984-2004

Treasury Bills Are Introduced

The first treasury bills were short-term, usable for both liquidity management and government deficit financing, and designed gradually to replace the BSDAs.

1991

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11

Money Exchange is Deregulated

Due to greater demand of foreign currencies, the ban on issuing new licenses for money exchange businesses is lifted.

2009

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MISSION

MISSION AND VISION

VISION

To promote

macroeconomic

stability as an essential

condition for sustained

growth.

To concentrate on

encouraging sound

monetary, fiscal and

exchange rate policies.

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ORGANISATIONAL STRUCTURE

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FUNCTIONS OF SAMA

Issuer of the national

currency, the Saudi Riyal

Banker to the

government

Supervises commercial

banks and NBFIs

Manages the Kingdom’s

foreign exchange reserves

Conducts monetary policy

for promoting price and

exchange rate stability

Promotes the growth and

ensures the soundness of

the financial system

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SNAPSHOT OF GENERAL CREDIT CONTROL IN 2014

RESERVE REQUIREMENTS

(Left Unchanged)

REGULAR SERIES

TREASURY BILLS

ISSUED PER WEEK

REPO AND REVERSE REPO RATES

(Left Unchanged)

SLR

20%

For Demand Deposits

7%

REPO

0.2%

REVERSE RP

0.25%

Billion

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EFFECTS ON SAUDI ECONOMY

151BILLION SAR

26.8BILLION SAR

1.73TRILLION SAR

6.1%0.94%

AVERAGE DAILY REPO

TRANSACTIONS

Gre

w b

y 1

3.2

%

M3 MONEY

SUPPLY

Gre

w b

y 1

0.5

%

MONETARY

BASEG

rew

by 1

0.4

%

MONEY

MULTIPLIER

Gre

w b

y 1

.6%

3- MONTH INTER-BANK

OFFERED RATE (SAIBOR)

Fell

by 1

.6%

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CASE STUDY: USE OF GENERAL CREDIT CONTROL

2%

1.50%

0.75%0.50%

0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%0.50% 0.50%

0%

1%

1%

2%

2%

3%

SAUDI ARABIA REVERSE REPO RATE

After leaving the Reverse Repo Rate unchanged for the last six years, SAMA finally hiked up the rate by 25 points from 0.25% to

0.50% in December 2015 following a landmark decision by the US Federal Reserve to hike its own rates, to signify that the

economic recovery was largely successful after the 2008 recession.

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WHAT IS THE REVERSE REPO RATE?

Reverse Repo rate is the rate at which the central bank borrows money from the commercial banks. An increase in the

Reverse Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow

money and will encourage them to deposit.

An increase in Reverse RP rate causes a temporary reduction of reserves held by depository institutions.

CENTRAL BANK

(SAMA)

DEALER

DEALER’S BANK

SECURITIES

RESERVES

RESERVES

SECURITIES RETURNED

Later On:

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REASONS FOR THE CHANGE

RIYAL PEGGED TO US DOLLAR

LOW GOVERNMENT REVENUE

The SAMA follows FED

interest rate changes in

order to reduce exchange

rate fluctuations with the

US Dollar.

Government Revenue has

declined due to a costly

war in Yemen and the

price oil reaching the

lowest point since 2008.

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INTENDED EFFECTS OF THE CHANGE

To increase

government deposits,

the SAMA raised the

Reverse RP rate while

leaving the RP rate

unchanged.

This will incentivize

commercial banks to

lend more funds to

SAMA through Reverse

RP transactions.

This will temporarily

reduce the level of

deposits in the

financial system.

The added funds

will allow the

government to

finance the budget

deficit.

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SIDE EFFECTS OF THE CHANGE

!

Removing funds

temporarily from the

financial system has

tightened liquidity even

more.

This may suppress economic

growth, which was down to 3.6% in

Sept. 2015 from 4.55% in July, and

was forecasted to go down to 3.1%

by the end of 2015 and 1.2% in

2016.

Growing financial pressure may

eventually cause Saudi Arabia to

abandon dollar peg, as following Fed

interest rate changes might be too

detrimental to the sluggish Saudi

Arabian economy.

3-month SAIBOR

increased to 2.004% in

April 2016, reaching the

highest point since

January 2009

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TAKEAWAYS

01

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The SAMA was

founded in 1952 to

unify and stabilize

the monetary

systemIts various

important functions

are overseen by the

board of directors

and Governor

Over time its

powers and

involvement with

the financial system

has increased

Expansionary

monetary policy has

helped stimulate

economic growth

for the last 6 years

However, increase in

reverse RP rate may

further worsen the

current sluggish

economy

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THANK YOU!