Saudi Arabia has a strong financial system, with 24 institutions being licensed to carry out banking services as of August 2013, according to Saudi Arabian Monetary Agency. Twelve of these were classified as Saudi institutions, with the rest designated as branches of foreign banks.
The banking sector is also fairly concentrated; with the seven largest banks having a combined share of assets of approximately 85percent. The sector has undergone significant changes in recent years, including the opening of the banking and insurance sectors to foreign investors, the rapid expansion of branch and Automated Teller Machine (ATM) network, the introduction of new products/-services and distribution channels, and the increased roll out of Islamic banking services. The rapid economic growth and real estate developments in Saudi Arabia have resulted in banks expanding both their branch and ATM networks.
The rise in household income in Saudi Arabia as well as the ongoing infrastructure expansion initiatives undertaken by the government is expected to further boost expansion of the branch and ATM network. This expansion will also result in a subsequent investment in the technology backbone. Digital is the new normal. And as far as Banks are concerned the sooner they adapt to technology, the sooner they shape it as well.
The Saudi banking sector is characterized by adequate lending practices and underwriting standards, and possesses a good track record in maintaining strong asset quality indicators. This makes it one of the safest banking systems in the world, according to a recent global assessment published by Standard & Poor’s. The Saudi Arabian Monetary Agency (SAMA), which supervises the local financial markets, has successfully introduced many international regulations including international accounting and auditing standards like IFRS and ISA, Anti Money Laundering (AML) regulations, as well as Basel standards. After implementing the Basel II regulations, which mandates to maintain specific capital adequacy ratios, Saudi Arabia is currently in the process of introducing the Basel III regulations. To comply with the regulations the financial institutions will have to make significant investments in technological solutions that can offer robust reporting, improved modelling, and strong predictive analytical capabilities.
With the household broadband penetration reaching 35 percent and the mobile penetration touching 177 percent, Saudi Arabia is one of the most promising internet and mobile banking markets in the Middle East region. Currently all the top ten banks (by assets) operating in the country offers online and app based mobile banking services. According to IDC, Smartphone sales in Saudi Arabia amounted to 4.7 million units in 2012 and are expected to grow rapidly and reach 6.6 million units by 2014.Going forward, more banks in Saudi Arabia are expected to jump onto the online and mobile banking bandwagon, while those already using such channels are expected to significantly enhance their capabilities, adding more services and making them available across various platforms.
According to a Wipro- IDC study 2013, the businesses in the country are expected to gain significantly from the economic growth and infrastructure advancement. But this will also result in unprecedented levels of competition, a situation in which only agile organizations will turn out to be winners. Many organizations in Saudi Arabia are constrained by their legacy systems which lack the flexibility for integrating the data, applications, and services needed to take advantage of Internet-enabled business processes. Will organizations understand this change in operational dynamics and be able to gain significant advantages?
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