First, I would like to thank H.E. Dr. Khaled Saleh Al-Sultan, Rector of King Fahd University of Petroleum and Minerals for this kind invitation to speak with you. I also thank the Center of Research Excellence in Islamic Banking and Finance at the university and the head of the center Dr. Abdullah bin Mohammed Al-Mansour and the organizers of this Islamic Banking and Finance Research Conference in the Kingdom. I would also like to praise the university initiative to hold this outstanding event, which brings together professionals and those interested in the economy and Islamic banking from various international universities and organizations which will contribute to the enrichment of knowledge and development of expertise to improve financial services and Islamic banking.
Ladies and gentlemen,
Islamic banking has gained growing international attention since several decades due to its large growth and resilience to financial crises as well as the nature of Sharia-compliant finance models that focus on the principles of investment in real assets and risk-sharing. The Islamic finance model has contributed to the spread of real-asset-based finance principles and led to their adoption at a G20 summit as an ideal option for the finance of infrastructure projects in many countries. In this context, Sharia-compliant financial product assets have reached over $2 trillion internationally and are offered by more than 2,000 financial institutions, 37 percent of which are in the GCC countries. In addition, the Sukuk volume has reached $300 billion, GCC countries' share of which is nearly one-third. Assets of Islamic investment funds have reached more than $75 billion, 45 percent of which is in GCC countries. Cooperative insurance sector has exceeded $20 billion, more than 40 percent of which is accounted for by the GCC countries.
Dear audience,
Sharia-compliant banking in the Kingdom has witnessed a rapid growth during the past years. Sharia-compliant banking products in the Kingdom currently account for around 20 percent of total Islamic banking products in the world. At the local level, most of Saudi banking sector assets are Sharia-compliant. In addition to banks, there are 30 finance companies in the Kingdom offering Sharia-compliant retail and corporate finance products, as well as 35 cooperative insurance companies offering Sharia-compliant insurance products.
SAMA uses a standard model to control and supervise both traditional banking and Islamic banking in accordance with the Banking Control Law. This model allows all commercial banks to offer banking services and finance products of all kinds to their clients. It also enforces international banking standards on all banks, allows the forces of supply and demand in the domestic market to determine the types and volume of financial products, and encourages competition among all banks in the provision of such products. It also helps in introducing more finance and banking products, and provides advanced methods for risk management exercised by banks.
Recognizing of the importance of Sharia-compliant banking products and services, we ,at SAMA, have encouraged banks and finance and insurance companies to meet the market needs pursuant to the best principles and standards in this regard. In general, SAMA performs the functions of control, supervision, and regulation over banking activities in accordance with the standards, regulations, and instructions it issues, which are based on international principles such as the principles issued by Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) regarding corporate governance standards, capital adequacy, liquidity, risk management, banking finance, discipline and other supervisory and regulatory requirements. Such actions have had a significant role in withstanding successive global financial crises and achieving stability in the Saudi banking system.
In this context, Saudi Arabia, thankfully, has an active presence in international forums, especially the G20, IMF, World Bank, BCBS, FSB, and Bank of International Settlements (BIS), as SAMA participates in their periodic meetings, various committees and task forces working on setting international standards. This in turn gives the Kingdom an influential role in setting standards and forming international practices, as well as the ability to request from these bodies to take into account the particularity of the Muslim world regarding Sukuks and Islamic financial products when setting banking and insurance standards. Saudi Arabia is assuming the role of an influential regional player through co-chairing the FSB Regional Consultative Group for MENA that plays an important role in transferring all international practices and standards to our partners in the region. SAMA is also an active member in the Islamic Financial Services Board (IFSB), which started operations in 2003 in Malaysia in order to set prudent and technical standards and guidelines to promote the soundness and resilience of all Islamic financial products and services, including banking, capital markets, and cooperative insurance. The IFSB has issued 17 standards so far, some of which are regarding Islamic finance, capital adequacy, risk management for Takaful companies, stress testing, and collective investment schemes, in addition to six guidelines on Quantitative Measures for Liquidity Risk Management. SAMA urges all financial institutions under its supervision to follow-up with and seek guidance from the IFSB standards, principles and technical notes when conducting their business and providing sharia-compliant banking and financial products in accordance with the banking standards issued by SAMA.
Ladies and gentlemen,
Since its inception, SAMA has been conservative and prudent in its supervision by applying the best principles and standards of effective banking supervision, which has led to a strong financial sector that interacts dynamically with local, regional and international economic developments. It should be noted that the financial sector in the Kingdom includes a wide range of financial institutions, including SAMA, Capital Market Authority (CMA), commercial banks, finance companies, cooperative insurance companies, Saudi Stock Exchange (Tadawul), investment companies, and specialized government funds. The banking and financial sector strongly supports economic growth and stability by offering adequate credit facilities, and modern financial and banking services for the different sectors of the economy and for individuals and corporates. There is also a correlation and double effect between the banking and financial sector and other economic sectors. Therefore, its resilience and development are the cornerstone of comprehensive and sustainable development, and the optimal allocation of national economic resources. Hence, continued professional, administrative, and regulatory development of this sector is important in order for it to keep abreast with current aspirations and economy needs; and to be able to compete locally, regionally and globally. The stability of this sector is a pillar for the financial stability, domestic and foreign investment attraction, development of savings and preservation of funds of citizens and residents, which will be reflected on the economic performance in general.
One of the most important elements of any economy is the saving behavior. Sharia-compliant banking products are a great opportunity to attract and develop the savings volume in the Muslim community, as they provide a decent return that is consistent with the risk born.
Dear audience,
The Kingdom's monetary policy aims at maintaining the stability of the national currency, ensuring a robust and resilient banking sector, and promoting the monetary and financial stability that is conducive to the national economic growth. In a historical review, we find that the national economy has enjoyed great stability in domestic prices and riyal exchange rate, with a notable growth in the banking and financial sector. We also find that the kingdom's monetary policy and the strength of domestic commercial banks have positively and clearly contributed to the stability of economic growth, attraction of local and foreign investments, and mitigation of the negative effects of fluctuations in economic cycles and international financial crises. I would like to highlight that SAMA will continue to manage the monetary policy to achieve stability in the riyal value and exchange rate at 3.75 riyals per dollar, and to promote financial and monetary stability using all available tools and resources.
Ladies and gentlemen,
I would like to briefly address the most prominent economic developments in our national economy. Despite the oil price plunge and the conditions in the region, real GDP grew 3.4 percent in 2015 and the private sector also registered a growth of 3.7 percent. The banking sector also witnessed a growth in most of its financial position items. It is expected that the good performance of the national economy will continue in light of the directives of the Custodian of the Two Holy Mosques, Crown Prince, and Deputy Crown Prince. The economy will benefit from the great development in infrastructure and Saudi human resources in the past years, in addition to the recent structural reforms in the preparation of the national budget. We look forward to the national transformation program, which is expected to contribute to the achievement of balanced and sustainable economic and social development in the Kingdom, in order to achieve a quantum leap in the economy to a broader range of diversity in production base and national resources and optimization of the available resources.
Dear audience,
In conclusion, I would like to praise the topics, working papers and scientific research, presented at this conference by experts from prestigious international universities and organizations, and I am confident that they will serve the Islamic banking and finance development. I look forward to the findings and recommendations of this conference. I am sure it will come up with unconventional perceptions about Islamic banking.
Because I am speaking today among a group of experts and researchers in the field of Islamic banking and finance, I would like to focus on the expected role of universities, research centers and Sharia committees domestically and internationally. This expected role is to examine challenges, meet various and changing needs of clients that are consistent with the society developments, unleash creativity and diligence that is based on Sharia provisions; professional, technical and financial knowledge; and international banking standards. The scarcity of research and studies and the limited number of researchers specialized in Islamic banking legislation are among the impediments to the growth and development of Islamic finance industry.
In addition, the limited training may indirectly contribute to the emergence of financial practices and products that may contradict Sharia provisions and regulatory, financial, and economic environments, which might expose the financial sector and clients to financial risks and, subsequently, causes loss of trust in Sharia-compliant banking and saving products. I am pleased with the interest of Saudi universities to develop this vital sector in our economy. I especially extend my sincere thanks to King Fahd University of Petroleum and Minerals, Umm Al Qura University and King Saud University for their initiatives and efforts in holding conferences and establishing dedicated scientific centers for the development of the science and products of the Islamic banking and financial industry for the best in the Kingdom and the Muslim world.
Dear audience,
I would like to thank again H.E. Dr. Khalid Al-Sultan, King Fahd University of Petroleum and Minerals, and the Center of Research Excellence in Islamic Banking and Finance for the studies, research, workshops, and advanced academic programs, prepared since its inception in 2012, for the development of Sharia-compliant financial sector and banking industry. Also, I extend my thanks to the university for its planning and support of applied research activities in specialized professional and technical fields. This has effectively contributed to providing its students with the knowledge and skills necessary for leaders and academics who will be able to make a quantum leap in engineering, science and business administration needed by various sectors of the national economy. I wish that the conference will enrich knowledge and provide expertise for the development of finance services and Islamic banking. We look forward to see more contributions from all Saudi universities and research centers for the support of Islamic banking industry, development of its products, and support of its national human resources.
Thank you. I wish you all success.