A stress test conducted by the Saudi Arabian Monetary Agency (SAMA) on commercial banks says that the Saudi banking system is very sound and resilient. The test was to ensure Saudi banks have sufficient reserves to cope with shocks such as the 2008 credit crunch that led to massive unemployment in Europe and America. The report says that the country benefited by rising demands in the global oil market, increased spending on development projects and development of the banking sector. SAMA seeks to build a strong banking sector based on the best international standards, to safeguard depositors' funds, meet the recent increased demand for credit and provide modern banking services to society. The central bank seeks to maintain financial and price stability by monitoring local and international economic developments, responding to local and international liquidity demands and guaranteeing that banks can meet the demand for credit by businesses and citizens. Precautionary measures taken by SAMA to protect the Saudi banking system during the world economic downturn protected local banks and allowed them to weather the crisis with minimum damage. These measures enhanced liquidity in the banking sector. During the fourth quarter of 2008, SAMA lowered the required reserve ratio several times to reach seven percent and lowered the repurchase agreements rates gradually to two percent. It also set prices of treasury bills on the basis of 80 percent of deposit interest rates, aiming to encourage banks to direct liquidity toward lending. SAMA implemented review committees at banks and continued to pay attention to risk management. As a result of the reduction made on the repo ratio, and given the general tendency of interest rates in international financial markets, three-month term deposit interest rates declined gradually from a high of 5.02 percent in 2006 to just 0.66 percent by the second quarter of 2011.
