It is expected that the financial market will both broaden and deepen, and the competitive edge will be with banks that can innovate and harness new technologies. The great expansion in demand for investment services will tempt international institutions to compete domestic banks in the provision of such services to the various economic sectors. 2. Shariah compliant banking services have recorded continued phenomenal growth in the area of retail, corporate services, and assets management. This area is demand driven and banks that offer new Shariah compliant solutions in response to the market need will benefit which will boost their growth and competition. There is also room to innovate and develop adequate products that would meet customer various financing and investment needs. Domestic banks are playing a leading role in this sector and will continue to maintain their leadership role. 3. In view of the present and expected growing demand, commercial and residential housing financing is poised for exponential growth. This constitutes a great opportunity for banks to develop products that provide a balance between risks and rewards, and meet customers' needs. This will be a very satisfactory development. 4. Company’s issuance of bonds and SUKUKs which is a financing tool not yet implemented by Saudi companies. It has a potential for banks and companies that offer and issue it. These are the opportunities, but banks will also face many challenges. The most significant are the following: 1.

Another important development has been the rapid growth in the provision of Islamic Shariah compliant services to cater to the increasing demand by customers for such services. All Saudi banks offer a range of Islamic products including Murabaha, Mudaraba, Musharaka, Baie Ajel, etc. The significant growth, diversification and profitability of the Saudi banking system has been underpinned by a strong and and advanced regulatory system. Over the past two decades SAMA has introduced many modern supervisory standards compliant with international standards including risk based capital adequacy, liquidity, large exposures, risk management and others. In the past two years alone, SAMA has developed regulations relating to market risk, loan classification and provisioning, controls of consumer lending and updated the requirements for appointment in senior posts of banks. On the corporate governance front there is a heightened awareness in the world with standards emanating from OECD, Basle Committee and others. SAMA has been since the early 1980s inculcating these concepts in the Saudi Banks. In 1981, it issued a guidance document to the Directors of Saudi Banks defining the general framework of their roles and responsibilities. This was followed by regulations on Internal Controls in 1989, Prevention of Fraud (1994), Prevention of Money Laundering (1995) and the Role of the Audit Committee (1996). Furthermore, SAMA has promoted proper accounting standards to be followed by the Saudi banks in order to ensure more transparency in their financial statements. Saudi Arabia was among the first countries in 1992 to adopt the International Financial Reporting Standards by the Banking Industry.