Complex Made Simple

Robust Finance Functions Key For Saudi Arabia’s Road To Recovery

Saudi Arabia’s financial institutions and government stretched out a helping hand to residents and business owners through numerous initiatives as ramifications from the COVID-19 pandemic grew.

One of the initiatives included a $13.3 billion injection into the economy by the Saudi Arabia Monetary Authority. The strong Saudi economy, a strong reserve, and liquidity within banks helped the financial sector during the crisis. Model and scenario planning have played a significant role in the sector’s readiness to face the pandemic.

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 organizations 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.

Saudi Arabia started taking preventative 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 that 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 Labor and Human Resources. Saudi banks also deferred loan payments for all public and private healthcare personnel for three months. 

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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 waved 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 who is 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 center 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.

The speakers concluded that their teams have and are still playing a vital role in supporting banks during this radical transformation in operations. Resilient finance functions are key for a successful implementation of the strategies set by the board. Finance departments are the eyes for their organizations and the role of a CFO has evolved significantly. CFOs are also pushing the transformation strategy across their departments and the organization to leverage the technology and make more informed decisions.

Read: Saudi Arabia’s swift intervention in pandemic pays dividends, new COVID-19 response report shows