Established in 1952, SAMA is Saudi Arabia's Central Bank. Designed to serve within the confines of Islamic Law, SAMA is unique in that it cannot in principle charge or pay interest. Prepared for a course, this presentation provides an introductory look at the development of the institution and the roles it plays in context of the Saudi Economy.

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SAUDI ARABIAN
MONETARY
AGENCY
(SAMA)

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PREPARED FOR
SYEDA MAHRUFA
BASHAR
ASSISTANT PROFESSOR
INSTITUTE 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
INTRODUCTION
BRIEF
TIMELINE
MISSION AND
VISION
FUNCTIONS
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
9

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EFFECTS ON SAUDI ECONOMY
151BILLION SAR
26.8
BILLION SAR
1.73
TRILLION SAR
6.1%
0.94%
AVERAGE DAILY REPO
TRANSACTIONS
Grewby13.2%
M3 MONEY
SUPPLY
Grewby10.5%
MONETARY
BASE Grewby10.4%
MONEY
MULTIPLIER
Grewby1.6%
3- MONTH INTER-BANK
OFFERED RATE (SAIBOR)
Fellby1.6%

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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
04
The SAMA was
founded in 1952 to
unify and stabilize
the monetary
system
Its 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!