Riyadh - Mubasher: The International Monetary Fund (IMF) said is a recent report that most Saudi banks would be able to meet regulatory capital requirements in the event of severe economic shocks including a large drop in oil prices.
Saudi Banks are well regulated and supervised and remain liquid and resilient, including all systemically important banks, according to the IMF’s Financial System Stability Assessment (FSSA) Report, which also indicted that Saudi banks pass severe stress and liquidity tests.
The Saudi Arabian Monetary Agency (SAMA) has successfully managed emerging financial sector risks over the past year through a number of policy interventions to reduce liquidity pressures and support mortgage lending, the report noted.
SAMA also noted that it has enhanced risk-based supervision, introduced an aggregate large exposure limit, and is reducing single borrower exposure limits from 25% to 15% of capital by 2019.
A commercial bank-funded Deposit Protection Fund (DPF) has been introduced and a draft resolution law (DRL) for systemic banks that broadly corresponds to the Financial Stability Board’s (FSB) Key Attributes for Effective Bank Resolution is going through legislative approval.
The IMF report also pointed that SAMA supervises Islamic and hybrid banks under the Basel framework, using the same reporting requirements and standards.
“This has worked well but given the unique risk profile of Islamic products, SAMA should remain vigilant and continue to expand its toolkit for the prudential oversight of banks offering such products, including by providing closer guidance on the mapping of the risk profile of Islamic products to the Basel framework,” the IMF staff report stated.
“SAMA should continue to enhance its risk-based approach to supervision, particularly the integration of on-site inspections, risk profile assessment, and supervisory planning.
“SAMA should carefully monitor asset quality given the weak growth outlook. In line with international best practice, SAMA should require banks to classify loans that are restructured because of financial difficulties of the borrower as substandard or doubtful. SAMA said that loan classification standards will be changed once IFRS9 standards are implemented in 2019,” the report added.
The report has also presented some recommendation to the Saudi Arabian Monetary Agency, asking it to strengthen the supervisory approach by refining the determination of banks’ risk and control ratings, aligning the supervisory planning with banks’ risk profiles, and enhancing the documentation relating to the loan examination process. To develop a licensing manual for banks and publish guiding principles for bank licensing. To provide guidance to banks on mapping the risk profiles of Islamic products to the Basel framework, and finally to require banks to establish formal policies and procedures for loan rescheduling, refinancing, and restructuring and to submit prudential returns on such loans.
