Saudi banks’ capital adequacy above 18% in H1

Saudi banks’ average capital adequacy ratio (Tier 1) increased to 16.4 percent by the end of the first half of this year, from 15.9 percent in the same period last year, a survey conducted by Argaam showed.

Banks’ Tier 2 ratio rose to 18.3 percent by the end of H1-2016, from 17.8 percent in H1-2015.

Under rules set by Saudi Arabian Monetary Agency (SAMA), the kingdom’s central bank, banks are required to maintain a minimum capital adequacy ratio of 8 percent. Saudi banks’ capital adequacy also exceeded the 8 percent requirement under Basel III, a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.

Since the global financial crisis 2008-2009, banks in the country have gradually increased their capital adequacy ratio due to strong profitability and the increased reserves in their coffers. The listed lenders’ positions have been also strengthened by the issuance of a series of Tier 2 capital in the form of traditional and Sharia-compliant bonds.

Tier 1 capital is the core capital that includes equity capital, disclosed reserves, long-term loans, and bonds and sukuk to support the bank’s Tier 2 capital and operations.

Samba Financial Group, Al Rajhi Bank, and Alinma Bank have the highest capital adequacy among Saudi listed banks, with ratios exceeding 20 percent. Arab National Bank (ANB) and Bank Albilad recorded the lowest ratios of 15.44 percent and 15.51 percent, respectively, by the end of H1.

The Basel III framework will come into effect starting in 2019. The capital and liquidity rules were introduced to prevent another financial crisis so that banks would have enough cash to survive market crises without bailouts.