Doing Business in Saudi Arabia - International Franchise Association

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Chapter 7: Trade and Project Financing
• How Do I Get Paid? (Methods of Payment)
• How the Banking System Operates
• Foreign-Exchange Controls
• U.S. Banks and Local Correspondent Banks
• Project Financing
• Web Resources
How Do I Get Paid? (Methods of Payment) Return to top
An irrevocable letter of credit (L/C) is the instrument normally used for Saudi imports. Open
account, cash in advance and documentary collections are also acceptable if both parties
agree. Maximum or minimum credit terms are not required. Export Credit Insurance for political
and commercial risk is available from the U.S. Export-Import Bank in Washington, D.C.
Through an initiative of the local banks, the Saudi Credit Bureau (SIMAH) is Saudi Arabia’s first
comprehensive consumer credit bureau. Established in 2003, SCB will only extend its services
to members in the banking industry. The current laws of Saudi Arabia do not allow sharing of
financial information with non-banking institutions.
Debt collection is usually undertaken by a number of law firms. A representative list of lawyers
is available through the U.S. Commercial Service.
How the Banking System Operates Return to top
An important development in the Saudi financial scene was the Royal Directive (May 9, 2006)
that established the King Abdullah Financial District in Riyadh, which will house major financial
institutions, the Capital Market Authority, the Stock Exchange, and other service providers.
The Saudi banking system remains one of the strongest and most profitable in the region.
Lacking financial information from two banks, net income registered $6.85 billion in 2009,
relatively unchanged from $6.88 in 2008. In 2008, net income for the 12 banks was at $7.98
billion, and industry sources expect it to stay at that level in 2009. In contrast, total assets of the
Saudi banking sector went up more than 5.2%, from $347.3 billion in 2008 to $365.4 billion in
2009. Similarly, consumer lending grew 3.6% during the first nine months of 2009, from $46.40
in 2008 to $48.10 billion in 2009. Aggregate private sector borrowing, however, contracted by
about 1%, from $195.90 billion in 2008 to $194.16 billion in 2009.
The difficulty in obtaining a banking license to operate in Saudi means that only 12 Saudi and
Saudi-foreign joint venture banks operate, dominated by Al-Rajhi bank, the country’s most
profitable and one of the world’s largest Islamic banks, and the National Commercial Bank the
largest by asset size in both Saudi Arabia and the whole GCC. A number of international banks
have entered the market by taking stakes in domestic firms, such as HSBC’s 40 per cent stake
in Saudi British Bank (SABB) and ABN Amro’s 40 per cent stake in Saudi Hollandi Bank, which
could soon be up for sale. Five GCC banks are licensed to operate in Saudi Arabia, and