The Banking Control Law in Saudi Arabia

The Banking Control Law in Saudi Arabia

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In light of the extra precautions the Saudi government is taking to mitigate financial crimes, it is necessary to shed more light on the Banking Control Law.
First, the law clearly states that no bank shall undertake any of the following actions: Granting a loan or extending credit facilities, issuing a guarantee, or incurring any other financial liability on the security of its own shares.
A bank should also not grant without security, a loan, or credit facilities, issue a guarantee, or incur any other financial liability in respect of:
a. A member of its board of directors or its auditors
b. Establishments not taking the form of joint-stock companies in which any member of its board or auditor is a partner or a manager or has a direct financial interest
c. Persons or establishments not taking the form of joint stock companies in cases where any of the bank’s directors or auditors is a guarantor
Banks are also not allowed to grant without security, a loan, or a credit facility or give a guarantee, or incur any other financial liability in favor of any of its officials or employees for amounts exceeding a four-month salary of any such concerned person.
The bank is also not allowed to engage in wholesale or retail trade, whether for its own account or on a commission basis. This includes the import or export trade or having any direct interest, whether as a stockholder, partner, owner or otherwise.
A bank should not engage in any commercial, industrial, agricultural or other undertakings unless within the limits referred to in the law. Except when such interest results from the satisfaction of debts due to the bank, provided that all such interests shall be disposed of within two years or within any longer period as may be determined in consultation with the Saudi Arabian Monetary Authority.
The bank is not allowed also to purchase, without the approval of SAMA, stocks and shares of any bank conducting its business in the Kingdom.
The bank is also not allowed to own stocks of any other joint-stock company incorporated in the Kingdom in excess of 10 percent of the paid-up capital of such a company, provided that the nominal value of these shares shall not exceed 20 percent of the bank’s paid-up capital and reserves; the above limits may, when necessary, be increased by SAMA.
In addition, the bank is not allowed to acquire or lease real estate except in so far as may be necessary for the purpose of conducting its banking business, the housing of its employees or for their recreation, or in satisfaction of debts due to the bank.
On top of the above, each bank shall provide SAMA by the end of the following month with a consolidated monthly statement of its financial position relating to the previous month, which shall be true and correct and be in the form prescribed by SAMA. Each bank shall also provide SAMA within six months of the close of its financial year with a copy of its annual balance sheet and profit and loss accounts certified by its auditors in the form prescribed by SAMA.
Finally, awareness is the key to ensuring that the message is well delivered to the public, the experts and the sector’s game players to ensure a healthy and compliant experience.

Dimah Talal Alsharif is a Saudi lawyer and legal consultant. Twitter: @dimah_alsharif

 

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