Learning to survive the shocks

In theory, banking in Saudi Arabia should be a straightforward and immensely profitable business. The Saudi population is affluent, saves a lot and, because of Sharia (Islamic) law, does not expect interest on its bank deposits. And on the asset side of the balance sheet, Saudi banks are first in line to lend to the government of a country sitting on over a quarter of the world's proven oil reserves.

In addition, Saudi Arabia's banks have been protected in recent years not only from foreign competition but also from new domestic rivals. The central bank, the Saudi Arabian Monetary Agency (Sama), has not issued a new banking licence since 1988 - and even that was a one-off.

The downside to this easy existence is that Saudi banks are highly exposed to fluctuations in the Saudi economy, which, in turn, is extremely vulnerable to any fall in the price of oil -...