Regional and religious context
The financial sector of the Gulf Cooperation Council region has also grown during this period with assets of commercial banks worth 2.3 trillion U.S. dollars and a total of 573 billion non-bank institutions.One main aspect of the financial market in Saudi Arabia is the Islamic banking sector. The Kingdom of Saudi Arabia is a Muslim country in which Shariah law is the guideline for many rules and regulations for life and business. One main factor of the Islamic banking system is that it operates as non-interest banking since taking interest on loans is forbidden according to Islamic law. Profits for Islamic banks are generated through equity participation. This means that a borrower gives the bank a share of its profit. Further, Islamic banking differentiates itself from other conventional financial institutions by abstaining from investments in fields contrary to Islamic morals such as business involving alcohol, pork, and gambling. Over 30.6 percent of global Islamic banking assets are held in Saudi Arabia, making it an important hub for this market.
Commercial banking
The value of traded shares amongst the 12 leading commercials banks in the traditional capital markets in Saudi Arabia totals about 195 billion Saudi Riyals. The National Commercial Bank alone generated almost 10 billion Saudi Riyal in its trade in shares.Commercial Banks in Saudi Arabia generate about 70 percent of their revenue through net special commissions. Almost 60 percent of their loans are given to businesses and only 24 percent to consumers. Real estate loans, such as mortgages, are only 16 percent of this business field.
In the Arab region, on average, the ratio of private sector credits to total deposits is about 69 percent. Whereas in the Kingdom of Saudi Arabia the leading commercial banks operate on a loan to deposit ratio of 89.5 percent.
