Saudi financial institutions help business owners, residents stem virus impact

Gulf Today Report

The financial services sector in Saudi Arabia has been a vital support to SMEs and the economy during the pandemic, and this has shown that resilient finance departments are critical when it comes to supporting organisations as they recover from the impact of COVID-19.

This topic was explored at length at an exclusive webinar hosted by Forbes Middle East in partnership with Oracle, which brought together some of the region’s most respected financial experts to discuss "Saudi On The Road To Recovery: The Importance Of Strong Finance Departments."

Speakers included: Talat Hafiz, Secretary General, Media & Banking Awareness Committee of Saudi Banks; Hisham Al-Akil, CFO at Bank Albilad; and Mathew Pearce, CFO at Saudi British Bank. The webinar was hosted by Aarti Mohan, Director ERP-EPM Cloud Applications Strategy at Oracle, and Daniyal Baig, CFO at Forbes Middle East.

The General Organization for Social Insurance (GOSI) further supported the private sector by covering up to 60% of salaries for individuals who were about to lose their jobs or would not receive their salaries because of the pandemic.

Saudi Arabia started taking preventive measures as soon as COVID-19 hit China at the beginning of the year. And, as the ramifications of the pandemic grew, the kingdom’s financial institutions and government stretched out a helping hand to residents and business owners.

For example, the Saudi Arabia Monetary Authority (SAMA) injected $13.3 billion into the economy, while banks offered loans to SMEs with negative cash flow. The General Organization for Social Insurance (GOSI) further supported the private sector by covering up to 60% of salaries for individuals who were about to lose their jobs or would not receive their salaries because of the pandemic. And the government postponed government fees for the private sector with a specific focus on SMEs and micro-lending.

Banks in Saudi Arabia donated approximately $42.8 million to the Health Endowment Fund to fight the pandemic, and an additional $26.6 million to the community fund for individuals affected by the pandemic that was launched by the Ministry of Labour and Human Resources. Saudi banks also deferred loan payments for all public and private healthcare personnel for three months.

During the lockdown, Saudi banks waived their fees for digital banking services to encourage people to stay home.

These incredible steps were possible because the financial services sector was prepared going into the pandemic. "What has helped us is the strong economy, the strong reserve we have, and also the liquidity within banks," said Hafiz. The banking sector in the kingdom has strong liquidity. The base capital requirement is 8%, but banks in Saudi Arabia are standing on more than 19%.

Model and scenario planning have also played a significant role in the sector’s readiness to face the pandemic. This is something that banks need to do frequently, keeping in mind that models rely on historical data. "We must have model-informed conversations, not model-led conversations. What matters is how well you prepare before going into a crisis," said Pearce. Some banks are revisiting and updating scenarios on a bi-weekly basis to better understand multiple possibilities.

2020 has been a learning curve for all sectors and a test for digital customer strategy. Now, to continue to survive during and after the pandemic, banks need to shift their focus to customer experience and digital banking. During the lockdown, Saudi banks waived their fees for digital banking services to encourage people to stay home. The role of technology in the finance sector will only increase. "Moving forward, we will pay more attention to technology. We have a generation which are very keen on technology," said Al-Akil.

Fintech is complementary to the banking sector. It enables banks to make more strategic business actions and, in future, will become more complex to be able to serve a wider variety of clients. In light of this, Fintech Saudi was launched in 2018 by SAMA to further improve and enhance financial technology in the Kingdom. However, with enhanced technology, comes the concerns of cybersecurity.

Data protection is now on the national agenda across the world and will only become more crucial. Cloud computing offers many possibilities and is rapidly increasing in popularity. But adopting it does pose some challenges. Not all vendors understand the regulations, culture, and restrictions of the country. Oracle has been in the kingdom for decades and has a good grasp of the regulations. "That's why we decided to have a local data centre in Saudi Arabia aligned with the regulators and working with them to ensure we follow all the local regulations in terms of data residency," remarked Mohan.