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. another important subject relevant to banking supervision is the basle ii capital adequacy accord. sama has previously implemented the first basle capital accord in 1992. accordingly, saudi banks have maintained high capital adequacy ratios of more than 18 % throughout the period from 1992 to 2005. also it is worth noting that 90 % of the capital is of the tier - 1 quality. currently, banks are working closely with sama in the implementation of the basle ii capital accord. we expect all banks operating in saudi arabia to implement the standardized approach for credit risk by 1 january 2008 and then continue to move towards more sophisticated internal rating based approaches. for operational risk all banks are likely to move to standardized approach with one or two banks experimenting with the advanced management approaches. sama is also encouraging banks to consider a national data pooling initiative to help them in credit risk management. all in all saudi banking system is well on its way to the implementation of basel ii and we expect that banks will remain highly capitalized under the new standard. it is worth mentioning that sama's approach in applying basel ( ii ) accord is an integrated one aimed at raising the level of risk management in order to maintain

remarkable interest of the world top investors in the kingdom ’ s investment opportunities. your wise directives have emphasized that the development and investment efforts should cover all the kingdom ’ s regions, which were supported by your regional field visits around the kingdom to increase growth and investment capacities and expand the economic base. custodian of the two holy mosques, inflow of direct investments to various productive sectors is a strong evidence of the kingdom ’ s investment attraction and the interest of both local and foreign investor. part of these investments flow through the capital market which plays a very important role in the economy. it provides additional channels for project financing, and, at the same time, it offers to investors diverse investment instruments. your government has made strenuous efforts to develop the saudi capital market by utilizing state - of - the - art dealing technologies ; increasing the number of financial firms operating in the market and continued floating of joint - stock companies on the market for public subscription. these steps call for optimism as they would further stabilize and deepen the market and enhance investors'confidence and investment awareness. however, the need for boosting more awareness efforts of all categories of market participants on the market is still a challenge that has to be dealt with. custodian of the two holy mosques, in pursuance of mobilizing all efforts to accelerate the pace of economic development, you have issued your wise directives requiring timely dissemination of economic and other information and data with further transparency so as to be available to everyone seeking them as dissemination of accurate information reinforces creditability and helps in thoroughly identification of the economic situation. we are all confident that your continuous efforts in the restructuring process to improve and develop the structure of the domestic economy and continue expanding the private sector's activities will boost economic developments witnessed in the domestic economy. may allah guide your steps to greater success.