Branch Network Regulations

Page 1 of 14 Branch Network Regulations May 2022

Page 2 of 14 Table of Contents Table of Contents Page

• 1. Introduction 3
• 2. Definitions 3
• 3. Objectives of the Regulations 5
• 4. Scope of Application 5
• 5. Branch Network Policy 5
• 6. Branch Licensing 7
• 7. Opening of Branches 8
• 8. Closing of Branches 9
• 9. Communication with Customers 10
• 10. Reporting 11
• 11. Appendix (1) 12
• 12. Appendix (2) 13
• 13. Appendix (3) 14

Page 3 of 14 Branch Network Regulations

• 1. Introduction: The Saudi Central Bank issued these Regulations pursuant to the powers granted to it under its system issued by Royal Decree No. (M/36) dated 04/11/1442H, and the Banking Control System issued by Royal Decree No. (M/5) dated 22/02/1386H (06/11/1966M). These Regulations aim to establish regulatory procedures for banks regarding the planning to open, close, and relocate their branch networks. These Regulations take effect from the date of issuance and supersede SAMA Circular No. 351000126713 issued on 10/11/1435H (07/08/2014M).
• 2. Definitions: 1-2 Saudi Central Bank: The Central Bank of the Kingdom of Saudi Arabia established pursuant to Royal Decree No. (M/36) dated 04/11/1442H. 2-2 Regulations: Branch Network Regulations. 3-2 Bank: Any bank licensed to conduct banking activities in the Kingdom in compliance with the provisions of the Banking Control System. 4-2 Branch Network: Includes branches, self-service centers, and transfer centers. 5-2 Branches: Includes full-service branches that provide all banking services, as well as small branches of various types that provide basic banking services such as account opening, cash deposits and withdrawals, money transfers, issuing and collecting payment orders and demand drafts, and others. 6-2 Self-Service Centers: Includes outlets dedicated to facilitating service delivery to customers and providing marketing and sales services and other similar activities.

Page 4 of 14 7-2 Transfer Centers: Financial service centers specialized in local and international financial transfers (sending and receiving funds) in accordance with the SAMA-issued Guide for Regulating the Operations of Bank-Attached Financial Transfer Centers. 8-2 Cash Dispenser: Refers to the Automated Teller Machine (ATM), including ATMs, cash deposit machines, interactive teller machines, and self-service devices that provide cash deposits and withdrawals. 9-2 Zones: For the purpose of these Regulations, the branch network will be classified according to the following zones (based on the latest population census data published by the General Authority for Statistics): a- Zone 1 (Large Cities): Includes cities with a population of one million or more. b- Zone 2 (Medium Cities): Includes cities with a population of half a million to one million. c- Zone 3 (Small Cities): Includes cities with a population of 100,000 to half a million. d- Zone 4 (Remote Areas): Includes villages, hamlets, and centers with a population of less than 100,000. 10-2 Priority Zones: Includes Zone 3 (Small Cities) and Zone 4 (Remote Areas). 11-2 Digital Channels: Channels used to conduct transactions via electronic media, technological interfaces, virtual models, or through the internet network. These models include the use of ATM cards, credit and prepaid cards, internet and mobile banking services, smartphone wallets, digital payment applications, etc. 12-2 Customer: Any natural or legal person who obtains banking services or products, or to whom such services or products are provided by the Bank or its affiliates. 13-2 Inactive License: A license previously issued by the Saudi Central Bank to open a branch, but the relevant branch is currently non-operational due to delayed commencement of operations or suspension of activities for any reason.

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• 3. Objectives of the Regulations: The Regulations aim to achieve the following regulatory objectives: a- Enhance financial inclusion and increase access to financial services in priority zones. b- Establish regulatory and supervisory frameworks specific to the branch network. c- Encourage geographical diversification of the branch network. d- Ensure customer protection. e- Facilitate banks' ability to increase the flexibility of their branch network operations.
• 4. Scope of Application: These Regulations apply to all local banks and branches of foreign banks licensed and operating in the Kingdom of Saudi Arabia. These Regulations apply to branches of foreign banks only if they plan to expand to more than three branches.
• 5. Branch Network Policy: 1-5 Banks must prepare a branch network policy concerning the opening, closing, and relocation of branches, self-service centers, and transfer centers. The bank's branch network policy must include several points, including: a- The bank's general strategy for serving customers (including the elderly and persons with disabilities) and the service channels used (including digital platforms). b- Identification of the bank's target market. c- The bank's approach to enhancing financial inclusion and increasing access to financial services.

Page 6 of 14 d- The main channels that will be used to deliver financial services. e- Board of Directors' metrics or criteria for opening, closing, and relocating branches, self-service centers, and transfer centers. f- Plans to encourage the use of digital channels. g- Plans to provide any other financial services in branches (such as banking insurance) or contracting with a banking agent to provide the bank's services. h- Customer service plans in priority zones as part of the bank's social responsibility. 2-5 The branch network policy does not cover ATMs, which will continue to be handled separately in accordance with the SAMA's current rules and regulations. 3-5 Banks must submit a draft of the branch network policy to their Boards of Directors (or the delegated committee) for review and approval. For branches of foreign banks, Board approval may be substituted by obtaining approval from the Branch Chief Executive or an authorized senior executive. 4-5 Banks must provide the Saudi Central Bank with the branch network policy after its approval by the Board of Directors (or the delegated committee) within four months from the date of issuance of these Regulations, accompanied by the following information: a- Details and volume of financial services provided via digital channels during each of the past three years. b- Number of branches, self-service centers, and transfer centers opened, closed, or relocated (by zone) during each of the past three years. c- Number of new ATMs (including mobile and temporary ATMs) commissioned during each of the past three years.

Page 7 of 14 d- Results of any field studies and/or mystery shopping visits to evaluate customer satisfaction and the quality of provided banking services. e- Any other measures taken to increase the penetration of financial services and provide basic banking services to the public. 5-5 The Saudi Central Bank will review each bank's branch network policy to issue a no-objection letter. During the policy evaluation, the Saudi Central Bank will review several matters, including: a- The bank's plan to provide financial services via digital channels and its timeline. b- Results of any customer preference field studies or mystery shopping visits to evaluate customer satisfaction and the quality of provided banking services. c- Any other measures taken to increase the penetration of financial services and provide basic banking services in priority zones. 6-5 Banks must review and update the approved branch network policy every three years or more as needed to ensure consistency with relevant regulatory procedures and prevailing market dynamics. The updated policy must be submitted to the Saudi Central Bank after review and approval by the Board of Directors (or the delegated committee). For branches of foreign banks, Board approval may be substituted by obtaining approval from the Branch Chief Executive or an authorized senior executive. It must be submitted within 30 calendar days from the date of its approval.

• 6. Branch Licensing: 1-6 Banks must obtain the Saudi Central Bank's approval to obtain a new license for a branch, self-service center, or transfer center (within or outside the Kingdom). Approval from the Saudi Central Bank to open a branch abroad must be obtained before contacting the relevant supervisory or regulatory authority in the host country to obtain any approval.

Page 8 of 14 2-6 Banks must submit an application for a new license for a branch, self-service center, or transfer center to the Saudi Central Bank in accordance with their approved branch network policy. The application must contain all relevant information about the requested branch, self-service center, or transfer center, including the city name, initial location, location zone, reasons for selecting the city and location, and a feasibility study (including expected branch performance and financial impact). 3-6 Banks must utilize inactive licenses for branches, self-service centers, and transfer centers before submitting an application to the Saudi Central Bank for new licenses. 4-6 Approval from the Saudi Central Bank is not required to open a new branch, self-service center, or transfer center if it is opened within the same zone using previously inactive licenses for branches, self-service centers, or transfer centers. Prior approval from the Saudi Central Bank is also not required in the case of opening a new branch, self-service center, or transfer center in any smaller zone using a previously inactive license for a branch, self-service center, or transfer center in a larger zone. In such cases, banks must contact the Saudi Central Bank two months prior to opening to modify the inactive license for opening the branch or center at the new location. 5-6 Banks are not required to submit an annual branch expansion plan to the Saudi Central Bank after the Saudi Central Bank approves the branch network policy under these Regulations. 6-6 Banks are expected to play their role in increasing the penetration of financial services in priority zones as part of their social responsibility.

• 7. Opening of Branches 1-7 After obtaining the Saudi Central Bank's approval for a new branch license, banks must finalize the branch location, obtain necessary approvals from relevant government authorities, establish the branch, and make all other arrangements for its opening.

Page 9 of 14 2-7 Upon completion of the branch's readiness, banks must obtain an official opening license (branch signboard) from the Saudi Central Bank. The application for this license must contain all relevant information regarding the bank's readiness to open the branch, and this application must be submitted after making all necessary arrangements for opening the branch (as detailed in Point 3-7 below). 3-7 All applications for opening licenses for new branches must be submitted along with relevant information including the following: a- Exact branch location. b- Safety and security arrangements for the branch and customers (including arrangements for serving the elderly and persons with disabilities). c- Status of IT infrastructure and internet connectivity capacity. d- Number of branch staff. e- Necessary approvals from relevant government authorities. f- Municipal license. g- Certificate from the bank's internal audit department confirming that the new branch complies with all relevant requirements of government authorities and the Saudi Central Bank. 4-7 Once the Saudi Central Bank issues an official opening license for the branch (branch signboard), the bank must carry out all necessary procedures to operate the branch within six months from the date of issuance, while complying with all license conditions. 5-7 Banks must notify the Saudi Central Bank in writing within 14 calendar days from the commencement of operations of the new branch.

• 8. Closing of Branches: 1-8 Banks must obtain prior approval from the Saudi Central Bank to close or relocate a branch or self-service center. The Saudi Central Bank must also be notified in the event of any forced closure or relocation of a branch, self-service center, or transfer center due to force majeure, stating the reasons for doing so.

Page 10 of 14 2-8 Banks may plan to close or relocate branches, self-service centers, or transfer centers, or convert a branch into a self-service center in Zones 1 and 2, provided that the bank has taken the necessary measures to enhance the use of digital channels. 3-8 Closing of branches or self-service centers in Zones 3 and 4 (priority zones) is not permitted, but relocation within the same city or governorate is permitted. 4-8 Banks are permitted to merge two nearby branches in the event of a bank merger, or merge nearby branches in other justified cases, provided that a branch of the same bank remains within a maximum distance of 10 kilometers. 5-8 Banks are not permitted to terminate the employment of any employee upon the closure or relocation of a branch, self-service center, or transfer center. 6-8 Banks are permitted to close and relocate transfer centers in accordance with their approved branch network policy. The Saudi Central Bank must be notified no less than 30 calendar days prior to any closure or relocation of a transfer center.

• 9. Communication with Customers: 1-9 Banks must notify customers via SMS and email at least two months prior to the closure or relocation of any branch, self-service center, or transfer center. 2-9 Banks must post a notice regarding this on their websites as well as on the branch building/entrance, along with contact numbers for further information. 3-9 Banks must clarify alternative options for customers to utilize banking services in their communication with customers, including information on the nearest bank branch or self-service center or any other available channels.

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• 10. Reporting: Banks must submit the following data to the Saudi Central Bank quarterly within 30 calendar days from the end of the quarter: 1-10 Data on the opening, closing, and relocation of branches, self-service centers, and transfer centers (according to the format attached in Appendix [1]). 2-10 Data on channels used to serve customers (according to the format attached in Appendix [2]). 3-10 Data regarding customers obtaining services in person at branches and centers, and through self-service devices, ATMs, and banking agents (according to the format attached in Appendix [3]).

Page 12 of 14 Appendix (1) Bank Name: -------------------------------- Data on Opening, Closing, and Relocation of Branches, Service, and Transfer Centers for the Quarter Ended on ----------

1. Branch Data: | Serial No. | Zones | Branches Opened During Quarter | Branches Closed During Quarter | Branches Relocated During Quarter | Branches Operational at Quarter End | Inactive Branch Licenses | |---|---|---|---|---|---|---| | 1 | Zone 1 | | | | | | | 2 | Zone 2 | | | | | | | 3 | Zone 3 | | | | | | | 4 | Zone 4 | | | | | | | 5 | Outside Kingdom | | | | | | | 6 | Total | | | | | |

2. Self-Service Center Data: | Serial No. | Zones | Centers Opened During Quarter | Centers Closed During Quarter | Centers Relocated During Quarter | Centers Operational at Quarter End | Total Inactive Self-Service Center Licenses | |---|---|---|---|---|---|---| | 1 | Zone 1 | | | | | | | 2 | Zone 2 | | | | | | | 3 | Zone 3 | | | | | | | 4 | Zone 4 | | | | | | | 5 | Outside Kingdom | | | | | | | 6 | Total | | | | | |

3. Transfer Center Data: | Serial No. | Zones | Centers Opened During Quarter | Centers Closed During Quarter | Centers Relocated During Quarter | Centers Operational at Quarter End | Total Inactive Transfer Center Licenses | |---|---|---|---|---|---|---| | 1 | Zone 1 | | | | | | | 2 | Zone 2 | | | | | | | 3 | Zone 3 | | | | | | | 4 | Zone 4 | | | | | | | 5 | Outside Kingdom | | | | | | | 6 | Total | | | | | |

Page 13 of 14 Appendix (2) Bank Name: -------------------------------- Data on Channels Used to Serve Customers for the Quarter Ended on -----

Serial No.	Zones	Number of Active Bank Customers at Quarter Start	Number of Customers Served During Quarter	Number of Customers Served In-Person at Branch or Center During Quarter	Number of Customers Served via Digital Channels During Quarter	Number of Customers Served via Self-Service Devices During Quarter	Number of Customers Served via Any Other Means During Quarter
1	Zone 1
2	Zone 2
3	Zone 3
4	Zone 4
5	Outside Kingdom
6	Total

Note: In the last column, the number of customers obtaining services through any means other than in-person service, digital channel, or self-service devices must be entered.

Page 14 of 14 Appendix (3) Bank Name: -------------------------------- Data on Customers Obtaining Services In-Person at Branches and Centers, and Self-Service Devices or ATMs for the Quarter Ended on -------------

Serial No.	Customer Categories (Average Daily Number of Customers Served During Quarter)	Number of Branches	Number of Self-Service Centers	Number of Transfer Centers	Number of Self-Service Devices	Number of ATMs	Number of Banking Agent Branches	Total
1	0-10
2	11-20
3	21-30
4	31-50
5	51-70
6	71-100
7	101-200
8	201-300
9	301-400
10	401-500
11	More than 500
12	Total