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Assignment 1

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Finance
School
Saudi electronic university
Type
Homework
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College of Administrative and Financial Sciences
Case Study
Deadline: 13/12/2021 @ 23:59
Course Name: Risk Management
Student’s Name:
Course Code: FIN301
Student’s ID Number:
Semester: I
CRN:
Academic Year: 1440/1441 H
For Instructors Use only
Instructor’s Name:
Students’ Grade: /7
Level of Marks: High/Middle/Low
Instructions PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

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Question(s): (Marks: 7)
Source: Research article:
Ishtiaq Ahmad Bajwa, 2019 vol:23 issue:5, Assessment of credit risk management of Saudi banks.
Go through the attached research paper and answer the following questions. (Answer should be
approximately in 1200 words.)
1. Discuss Exposure of Saudi banks to credit risk (1.5 marks)
2. As per the article do you think that Saudi banks capital adequacy is sufficient to meet the Basel III
requirement? Discuss your points (1.5 marks)
3. The researchers of the paper have applied financial ratio analysis to analyze 12 Saudi banks. Suggest
the researchers any other approach/method to measure credit risk and discuss why this method should
be used? (2 marks)
4. In the light of present COVID pandemic, which has liquidity impact on Saudi economy, discuss on
the basis of your understanding of Saudi financial system, strength and weakness of Saudi banks to
fight the upcoming challenges. (2 marks)
Answer:
1. Saudi banks have been exposed to credit risks. Just like any other banks, the bankruptcy of
these banks can happen due to a rise in the number of the non-performing loans. With time
the Saudi banks have experienced an increase in non-performing loans with a total of
22,421.01 million SR in 2017, from 17,588.86 million SR in 2013. Table 5, shows the non-
performing loans to the Total loan ratio which considered as the principal scale of asset
quality across the banking system. The average for all Saudi banks was at 1.48 and at 1.3
in 2017 and 2013 respectively. Figure 2 compares the non-performing loans to the total
loan ratios of Saudi Banks to other GCC countries. The graph shows that Saudi banks are
doing well comparatively. On the non-performing loans to the total asset ratio, the mean
for the Saudi banks was at 0.81 between 2013 and 2017, from table 6-7. From Figure 3 it
shows that this ratio is relatively low as compared to world’s bank. Table 8, shows that
Saudi banks have a lot capital to absorb losses without likelihood of bankruptcy. This
means that Saudi Banks are financially steady and have the ability to resist credit risks. To
ensure banks are able to reduce their exposure to banking crisis, prevent insolvency and
promote financial efficiency, the Basel III requirements was established. The required
average capital adequacy ratio was set at 10.5%, the Tier Capital ratio at 6% and the average
Common Equity ratio at 4.5%. From the analysis, the Saudi banks are doing well, with
these ratios in 2017 being at 20.2%, 17.8% and 15.4% respectively. Table 9 ranks Saudi
Banks second after Qatari banks, in terms of return on equity in GCC region in the period
between 2011 and 2016. This guarantees the financial stability of Saudi banks, regardless
of having high capital reserve ratio. In a nutshell, the financial ratio analysis done on Saudi

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College of Administrative and Financial Sciences Case Study Deadline: 13/12/2021 @ 23:59 Course Name: Risk Management Student’s Name: Course Code: FIN301 Student’s ID Number: Semester: I CRN: Academic Year: 1440/1441 H For Instructor’s Use only Instructor’s Name: Students’ Grade: /7 Level of Marks: High/Middle/Low Instructions – PLEASE READ THEM CAREFULLY • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT ...
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