In the name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority Head Office

General Department for Finance Companies Control Ref No: ................................. Enclosures: .............................

Ref No: 420191224 Date: 1442/03/24 Enclosures: None

Circular

Dear Sirs,

Peace, mercy and blessings of Allah be upon you,

Subject: Guidelines for Allowing Acceptance of Time Deposits

Based on the powers granted to the Saudi Arabian Monetary Authority under the Finance Companies Control Law, promulgated by Royal Decree No. (M/51) dated 13/8/1433H, and its Implementing Regulation issued by the Governor's decision No. (2/Sh T) dated 14/4/1434H, and based on the provisions of Paragraph (7) of Article Eleven of the Finance Companies Control Law, which stipulates that "A finance company is prohibited from the following: 7- Accepting time deposits, or non-bank deposits, or opening accounts for its customers in all forms, unless licensed to do so by the Authority", and on the provisions of Article Sixty-Five of the Implementing Regulation of the Finance Companies Control Law, which stipulates that "A finance company shall not accept time deposits, or non-bank deposits, or similar items, or open accounts of any type for its customers, except after obtaining a letter from the Authority stating no objection thereto".

You will find enclosed a copy of the guidelines for allowing finance companies to accept time deposits. The Authority emphasizes the necessity of compliance with the provisions contained in the guidelines for companies wishing to obtain the Authority's no-objection in this regard, after fulfilling the following requirements:

1. The minimum capital must be one billion Saudi Riyals.
2. Total shareholders' equity must not be less than the paid-up capital as a minimum (no accumulated losses).
3. The company's NPLs (more than 90 days) must not exceed 5%.
4. The company must have achieved stable profits for the last three years.
5. Any other requirements deemed necessary by the Authority.

Accept my highest regards,

Fahad bin Ibrahim Al-Shathri Deputy Governor for Supervision

Distribution Scope:

• Finance companies operating in the Kingdom

Al-Owais P.O. Box 2992, Riyadh 11179, Tel: +966 1 6772020, Fax: +966 1 6772488

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Saudi Arabian Monetary Authority Deposit Taking Finance Companies (DTFCs) Regulations 2020 November 2020

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Table of contents 1 PART I: APPROACH AND CORPORATE GOVERNANCE ...........................................2 Chapter 1: SAMA Approach to Deposit Taking Finance Companies (DTFC) Regulation ..................................................2 Chapter 2: SAMA Authorization of DTFCs ...........................................................2 Chapter 3: Corporate Governance and Risk Management......................................4 2 PART II: PRUDENTIAL REGULATIONS ............................................................6 Chapter 4: Capital Requirements .......................................................................6 Chapter 5: Liquidity Requirements.....................................................................8 Chapter 6: Asset Quality ...................................................................................9 Appendix A: Capital to Risk Weighted Assets Return ..........................................11 Appendix B – Liquidity Statement ...................................................................20 Appendix C: Asset Quality ...............................................................................27 3 PART III: ACCOUNT OPENING AND OPERATING RULES AND REGULATIONS ...........29 Chapter 7: Definitions .....................................................................................29 Chapter 8: General Requirements for Opening General Accounts .........................34 Chapter 9: Specific Rules for opening General Accounts for Juristic persons: ..........38 Chapter 10: General Requirements for Opening Term Deposit Accounts: ..............44 Chapter 11: Freezing and Updating of the Accounts...........................................45 Chapter 12: Inactive and Dormant Accounts: ...................................................47 Chapter 13: Know Your Customer (KYC)...........................................................48 Chapter 14: Disclosing of account data and blocking balances: ..........................51 Chapter 15: Accounts Operating Rules.............................................................52 Chapter 16: Closing of the Account: ................................................................56 Chapter 17: Statement and Audit Confirmation .................................................57 Chapter 18: Final Provisions ...........................................................................58

Deposit Taking Finance Companies Regulations 2020 Page 1 of 58

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1 Part I: Approach and Corporate Governance Chapter 1: SAMA Approach to Deposit Taking Finance Companies (DTFC) Regulation Introduction

1. These SAMA regulations are applicable to all Deposit Taking Finance Companies (DTFCs) operating in the Kingdom of Saudi Arabia (KSA).
2. Subject to the provisions of Finance Companies Control law, promulgated by Royal Decree No. M/51 dated 13/8/1433H and its Implementing Regulation, these Rules determine the requirements of exercising deposit-taking activity, and shall govern finance companies that are authorized to mobilize savings and time deposits from non-individual customers and to grant loans, credits and advances out of such deposits.
3. In addition to these DTFC-specific prudential requirements, DTFCs are also required to comply with the Finance Companies Control Law, SAMA regulations for Finance Companies (FCs), and other relevant laws and regulations as applicable to all Finance Companies (FCs). Deposit Taking Activities / Products and Services
4. DTFCs are authorized to mobilize savings and time deposits from non-individual customers and to grant loans, credits and advances out of such deposits while observing liquidity ratios with regard to its liquid assets vis-à-vis total deposit liabilities and other prudential regulations as prescribed for DTFCs.
5. DTFCs shall maintain one or more records of specified particulars in the case of every depositor such as name, address of depositor, types of deposit, date of receipt/date or renewal, date of maturity and profit rate payable. The registers are required to be kept at the place of business and preserved in good order for five calendar years following the financial year in which the latest entry was made of the repayment or the renewal of the deposit. Chapter 2: SAMA Authorization of DTFCs
6. No Finance Company (FC) shall carry out deposit taking business without prior SAMA written approval to designate it as Deposit Taking Finance Company (DTFC).
7. An application for a SAMA approval to carry out deposit taking business shall be accompanied by the Feasibility study and three-year business plan of the proposed deposit-taking business, detailing the mission, vision, scope and nature of business operations, profitability analysis and internal controls and monitoring procedures, including but not limited to: i. the proposed organizational structure; ii. the market to be served by the FC; iii. a schedule of all the preliminary expenses including the FC costs, all expenses relating to the establishment or transformation of the FC;

Deposit Taking Finance Companies Regulations 2020 Page 2 of 58

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iv. projected balance sheets, income and expenditure statements and cash flow for three years supported by: a. projected deposit mobilization and profit payable, stating separately anticipated sources of deposits; b. forecasted lending and advances to be made and profit receivable, stating major areas of lending including the intended sectoral lending composition; c. forecasted cash and other liquid assets to be maintained; d. the required provision for bad and doubtful debts and loan write-offs, including the policy and procedures manual; e. projected operating expenses including rents, salaries, employee benefits, and director’s remuneration, etc.; f. proposed levels of fixed assets, including business premises and equipment; g. other income, including commissions, fees and discounts etc. h. profit rate sensitivity analysis on the projections submitted or other similar analysis, providing necessary levels of scenario planning should economic conditions change or when business expectations fall short; assumptions underpinning the pro-forma financial statements, the sensitivity analysis and scenario planning must be fully elaborated; i. statistical data and other market information, which may have been collected and analyzed covering economic activities and the planned areas of operation, where revenue and expenses will be incurred, including detailed competitive analysis; and j. the planned scope of operations including services and products to be offered, the capability to provide these services, the projected demand for the services, and different groups of customers or market segments the FC wants to serve; k. the FC’s risk-management policies and internal control systems including, among others, board and senior management oversight, internal controls, physical infrastructure, use of information technology, including but not limited to the following: — l. deposit mobilization strategies or plans and marketing methodologies; m. lending and credit administration policy manual; n. human resource development manual; o. assets manual; p. liquidity and funds management policies and procedures; q. management information system and Information Security; r. capital, planning and budgeting; s. accounting procedures manual; and t. internal audit and control manuals (including compliance and AML/CTF controls); v. evidence of sources and availability of capital including copies of bank statements, Treasury Bills, or other forms in which the capital is held.

Deposit Taking Finance Companies Regulations 2020 Page 3 of 58

Chapter 3: Corporate Governance and Risk Management

Introduction

8. These regulatory requirements are relevant to all DTFCs. It sets out SAMA’s requirements for the internal governance and risk management of the DTFCs and how they should comply with these regulations. These regulations cover the following areas:

i. General requirements;

ii. Senior Management Function & Responsibilities;

iii. Segregation of Functions;

General Requirements

9. SAMA requires that the governance and risk management arrangements, processes and mechanisms implemented by a DTFC should be proportionate to the nature, scale and complexity of the risks inherent in its business and its activities.

Expectations in relation to the Senior Management and their responsibilities

10. SAMA requires a DTFC to have robust governance and risk management arrangements, which includes a clear organisational structure with well-defined, transparent and consistent lines of responsibility. All DTFCs are required to put in place a Job description (JD) for each member of the senior management. More specifically, JDs must:

i. Clearly set out the areas of the DTFC’s activities for which the senior manager is responsible;

ii. Be included in every application to SAMA for pre-approval as a senior manager as per SAMA’s fit and proper regulations; and

iii. Be updated and resubmitted if there is a significant change to the senior manager’s responsibilities as per SAMA’s fit and proper regulations.

11. A DTFC is also required to produce and maintain a Management Responsibilities Description Document (MRDD), which is a single, up-to-date document setting out the DTFC’s management, governance and risk management arrangements. The MRDD should be proportionate and include information about the business relationship with the head office and the group.

Board and Senior Management Responsibilities.

12. SAMA looks to the Board of the DTFC to oversee the activities of the DTFC, including matters of a corporate governance nature that relate to the DTFC. As such, SAMA requires that the Board will be accountable for the DTFC’s operations.

13. While the Board may not conduct all responsibilities or activities directly, SAMA requires the Board to retain its overall accountability for the operations of the DTFC. Regardless of who conducts the various functions, SAMA requires the Board to:

i. Ensure that business objectives, strategies, and plans set for the DTFC are prudent in the context of the DTFC.

ii. Be satisfied that appropriate policies and procedures (i.e. control systems) are in place to manage the risks regardless of where the controls may reside;

iii. Receive sufficiently comprehensive and frequent reports to understand and monitor the business of the DTFC; and

iv. Undertake or obtain, periodically, an independent assessment of the adequacy and effectiveness of the controls. Independent assessment may be obtained from individuals or groups designated with that role, such as internal audit or risk management (either at the DTFC or head office), or qualified third parties.

14. The Board is required to ensure that there are robust policies and procedures to manage the assets and liabilities recorded on the DTFC’s books and records and related accounts (e.g. deposit, loan, investment, etc.).

15. The Board should ensure the DTFC is in compliance with all applicable legislation and regulations, and is conducting its business and affairs in a manner that is consistent with applicable SAMA requirements.

16. While the Board may delegate responsibility for day-to-day management to management, SAMA requires the Board to be in a position to oversee the DTFC’s regulatory returns. Therefore, SAMA would expect the Board to have, or to ensure the individuals undertaking activities with respect to the DTFC have, a good understanding of applicable legislation, regulations and guidelines, as well as the activities and related records of the DTFC, including its assets, liabilities, revenues and expenses. SAMA would also expect the Board to be satisfied with any work performed by others (e.g., head office or another entity within the group) and should ensure any deficiencies are corrected.

Segregation of Functions

17. A DTFC should ensure that the performance of multiple functions by its relevant persons does not and is not likely to prevent those persons from discharging any particular functions soundly, honestly and professionally. The senior personnel within the DTFC should define arrangements concerning the segregation of duties within the DTFC and the prevention of conflicts.

18. A DTFC should ensure that no single individual has unrestricted authority to do all of the following:

i. Initiate a transaction;

ii. Bind the DTFC;

iii. Make payments; and

iv. Account for it.

19. Where a DTFC is unable to ensure the complete segregation of duties because the DTFC has a limited number of staff, it should ensure that there is adequate compensating controls in place such as frequent review of an area by relevant DTFC senior managers.

Part II: Prudential Regulations

Chapter 4: Capital Requirements

Minimum Capital Requirements

20. Every DTFC shall, at all times-

i. maintain records including balance sheets and periodic statements of income and expenditure to enable proper computation of the institution's capital adequacy of 20%; and

ii. maintain the prescribed minimum capital requirements.

21. SAMA shall determine whether an institution is in compliance with the capital adequacy requirements in accordance with these Regulations.

Criteria for Higher Minimum Capital Ratios

22. SAMA may require higher minimum capital ratios for an individual DTFC based on, but not limited to the following criteria, if:

i. a DTFC has losses resulting in a capital deficiency;

ii. a DTFC has significant exposure to risk;

iii. a DTFC has a high, or particularly severe, volume of poor asset quality;

iv. a DTFC is growing rapidly without adequate capitalization and risk management system among other resource needs as may be determined by SAMA; or

v. there is a likelihood a DTFC may be adversely affected by the activities or conditions of its holding company (where DTFC is wholly owned by another institution).

On-Balance Sheet Items.

23. Every DTFC shall assess and provide for risks in the evaluation of their respective capital adequacy measurement.

24. Every DTFC shall classify and assign risk weight to credit exposures into four categories according to their relative risk exposures, in the following manner –

i. zero weight should be assigned to the on-balance sheet items including cash, balances with SAMA, claims on the government of KSA by way of investments in government of KSA securities, loans fully secured by cash and loans duly guaranteed by government;

ii. 20% weight, where deposits and balances due from commercial banks, financial institutions, DTFCs and claims (loans and advances) guaranteed by a multilateral development bank (MDB), a Regional Development Bank, or a development agencies;

iii. 50% weight where loans are fully secured by a residential property located within cities and municipalities in KSA that are either occupied by the borrower or rented and;

iv. 100% weight shall apply to all other claims on the public and private sector, which are not covered under the other categories and include- deposits in banks, financial institutions, mortgage finance companies and deposit-taking finance companies that are under statutory management; premises and other fixed assets, loans and advances, bills discounted and all other assets of these institutions.

Off-Balance Sheet Items

25. Every DTFC shall ensure that:

i. off-balance sheet items fully secured by cash or cash equivalent and those that are guaranteed by government of KSA shall be assigned 0% risk weight; and

ii. off balance sheet items with the maturity exceeding a year are assigned a risk weight of 50%, including performance bonds and bid bonds.

Returns to SAMA

26. Every DTFC shall prepare and submit to SAMA at the end of every month to be received by the 15th business day of the following month, returns on Capital to Risk Weighted Assets in the form set out in Appendix A to these Regulations.

Chapter 5: Liquidity Requirements

Liquidity Risk Management Plan

27. Every DTFC shall plan and fund its liquidity requirement over specific time periods as set by the DTFC.

28. Every DTFC is required to put in place a Board (or its delegated authority) approved liquidity risk management plan. A liquidity risk management plan shall, as a minimum, address the following:

i. management structures and information systems;

ii. measuring and monitoring net funding requirements;

iii. contingency funding planning; and

iv. internal controls for liquidity management.

Statutory minimum.

29. Every DTFC shall maintain a minimum holding of liquid assets of twenty per cent (20%) of all its deposit liabilities, matured and short-term liabilities.

30. Every DTFC shall also maintain with SAMA at all times a statutory deposits of a sum not less than 4% of deposit liabilities. SAMA may, if it deems it to be in the public interest, vary the aforesaid percentage.

31. The deposit liabilities of a DTFC shall not exceed 15 times its total capital. If the deposits liabilities exceeds this limit, the DTFC must within one month of the date of submission of its liquidity information as per Appendix B, either increase its total capital to the prescribed limit or deposit 50% of the excess deposits with SAMA.

Returns

32. Every DTFC shall prepare and submit to SAMA at the end of every month to be received by the 15th business day of the following month, liquidity information to SAMA as set out in Appendix B to these Regulations.

33. Where the date of submission falls on a weekend or a holiday, the deadline shall be the Thursday or the day before the holiday.

Chapter 6: Asset Quality

Loan review function of DTFCs.

34. Every DTFC’s loan review function shall ensure that:

i. the loan portfolio and lending function conforms to a sound written lending policy, which has been approved and adopted by the board or its delegated authority;

ii. management and the board are adequately informed regarding credit risk, among other risks and risk management control effectiveness;

iii. problem accounts are identified properly and on a timely basis and internally classified in accordance with the classification criteria in these regulations; and

iv. appropriate and adequate level of provisions for potential loss are made and maintained at all times.

Review and classification of Loans.

35. Every DTFC shall review, classify and appropriately make provisions for its loan portfolio at least once every three months.

36. Every DTFC shall classify loans and advances in the manner set out in Appendix C to these Regulations.

37. Where a DTFC has granted multiple loans to a single borrower, and any one of such loans is non-performing, the DTFC shall evaluate every other loan to that borrower and place such loans on non-performing status accordingly.

Classification of Renegotiated or Restructured Loans

38. Every DTFC shall classify a renegotiated or restructured loan in the Substandard category unless-

i. all past due principal and profit is repaid in full at the time of renegotiation, in which case it may revert to ‘Normal’ classification.

ii. All past due profit is repaid in full at the time of renegotiation in which case it may revert to ‘Watch’ classification.

39. A renegotiated or restructured loan classified as doubtful or loss shall continue to be classified as doubtful or loss unless –

i. all past due principal and profit is repaid in full at the time of renegotiation, in which case it may revert to ‘Watch’ classification or;

ii. all past due profit is repaid in full at the time of renegotiation in which case it may revert to ‘Substandard’ classification; and

iii. all past due principal and profit is repaid in full at the time of renegotiation and there has been consistent repayment of three instalments in which case it may revert to ‘Normal’ classification.

40. No DTFC shall restructure or renegotiate any loan or credit facility more than twice over the life of the original loan or credit facility.

41. Any loan or credit facility restructured for the second time shall be classified as substandard if all past due principal and profit is repaid in full at the time of renegotiation: Provided that if all past due profit is repaid in full at the time of renegotiation, the loan or credit facility shall be classified as doubtful.

42. Where a loan is classified as non- performing every DTFC shall suspend any profit on such loans and advances and - (a) the profit in suspense shall not be treated as income; and (b) all profit in suspense shall be taken into account in the computation of provisions for non-performing accounts; and (c) reverse any profit on non-performing loans or credit facilities accrued into income but uncollected and credit into the profit in suspense account until paid in cash by the borrower.

43. Every DTFC shall ensure that a non-performing loan or credit facility is returned to accrual basis only when all outstanding dues and unpaid obligations have been paid up to date.

44. Every DTFC shall ensure that all profit on nonperforming loan or credit facilities previously accrued into income but uncollected is reversed and credited into the profit in suspense account until paid in cash by the borrower.

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45. In determining the amount of potential loss in specific loans or in the aggregate loan portfolio, every DTFC shall be guided by the following minimum provisioning percentages:

i. For loans classified “Normal”, 1%; ii. For loans classified “Watch”, 5%; iii. For loans classified “Substandard”, 25%; iv. For loans classified “Doubtful”, 75%; and v. For loans classified “Loss”, 100%.

46. Where the impairment charges computed under International Financial Reporting Standards (IFRS) are lower than provisions required under these Regulations, the excess provisions shall be treated as an appropriation of retained earnings.

47. Where the impairment charges computed under IFRS are higher than provisions required under these Regulations, the IFRS impairment charges shall be considered adequate for the purposes of these Regulations.

48. The DTFC shall comply with SAMA provisioning rules, requirements specifying regulatory credit risk exposure and any changes thereof.

Write-off of loans.

49. A DTFC shall write-off a loan or a portion of a loan from its balance sheet when- i. the institution loses control of the contractual rights over the loan; ii. all or part of a loan is deemed uncollectible or there is no realistic prospect of recovery; iii. the borrower becomes bankrupt; or iv. efforts to collect debt are abandoned for any other reason.

50. Every DTFC shall, at least every year, review its assets and make necessary provisions as need arises, if an actual loss of an asset occurs or when the recoverable amount of the asset is less than it’s carrying value.

51. Every DTFC shall submit a copy of the review report to SAMA within fifteen business days from the date of review.

Appendix A: Capital to Risk Weighted Assets Return

Name of DTFC
Period

	CAPITAL COMPONENTS	Amounts (all amounts in SAR)
1.	CORE CAPITAL (TIER 1)
1.1.1	Paid-up ordinary share capital
1.1.2	Non-repayable share premium
1.1.3	Retained earnings/Accumulated losses
1.1.4	Net after tax profits, current year to-date (50% only)
1.1.5	Capital Grants
1.1.6	Non-cumulative irredeemable preference shares
1.1.7	Other reserves
1.1.8	Sub-Total (1.1.1 to 1.1.7)
	LESS DEDUCTIONS
1.1.9	Investment in subsidiary institution
1.1.10	Goodwill
1.1.11	Intangible assets
1.1.12	Total Deductions (1..1.9 to 1.1.11)
1.1.13	CORE CAPITAL (1.1.8 Less 1.1.12)
1.2	SUPPLEMENTARY CAPITAL (TIER 2)
1.2.1	Revaluation reserves (25%)
1.2.2	Cumulative irredeemable preference shares
1.2.3	Convertible notes and similar capital investments
1.2.4	Perpetual subordinated debt
1.2.5	Limited life redeemable preference shares
1.2.6	Term subordinated debt
1.2.7	Statutory Loan Loss Reserve
1.2.8	Total supplementary capital (1.2.1 to 1.2.7)
1.2.9	Supplementary Capital/Core Capital (%)
1.3	TOTAL CAPITAL (1.1.13 + 1.2.8)
1.4	Total shareholder's funds
1.5	Difference (1.4 Less 1.3)

2.	ON - BALANCE SHEET ASSETS	Amount (all amounts in SAR)	Weight	Weighted Asset Value
2.1	Cash in domestic currency		0
2.2	Balances with SAMA		0
2.1	KSA Government Treasury Bills		0
2.2	KSA Government Treasury Bonds		0
2.3	Lending fully secured by cash		0
2.4	Advances guaranteed by the Government of KSA		0
2.7	Cash in foreign currency		0
2.8	Deposits & balances Due from local institutions		0.2
2.9	Deposits & balances Due from foreign institutions		0.2
2.10	Foreign Treasury Bills and Bonds		0.2
2.11	Claims guaranteed by Multilateral Development Banks		0.2
2.12	Loans & advances secured by residential property		0.5
2.13	Other Loans and Advances ( net of provisions)		1.0
2.14	Other Investments		1.0
2.15	Fixed Assets ( Net of Depreciation)		1.0
2.16	Other Assets		1.0
2.17	TOTAL (2.1 to 2.16)
2.18	Total Assets
3.	OFF-BALANCE SHEET ASSETS
	Counterparty/Security	Credit Risk Equivalent	Weight	Weighted Asset Value
3.1	Transaction secured by cash
3.2	Government of KSA
3.3	Local financial institutions
3.4	Foreign banks and foreign governments
3.5	Performance Bonds, Bid Bonds, Standby letters of credit, and other commitments with an original maturity exceeding one year
3.6	3.6 Others
3.7	3.7 TOTAL (3.1 to 3.6)

4.	CAPITAL RATIO CALCULATIONS
4.1	Core Capital as per 1.1.13 above
4.2	Total Capital as per 1.3 above
4.3	Total Risk Weighted Asset Value of on- balance sheet items as per 2.18 above
4.4	Total Risk Weighted asset value of off-balance Sheet Items as per 3.7 Above
4.5	Total Risk weighted assets (4.3 + 4.4)
4.6	Total deposits
4.7	Core capital to risk assets ratio (4.1/4.5)%
4.8	Minimum core capital to risk assets requirement
4.9	Excess (Deficiency) (4.7 less 4.8)
4.10	Core capital to deposits ratio (4.1/4.6)%
4.11	Minimum core capital to deposits requirement
4.12	Excess/(Deficiency) (5.0 less 5.1)
4.13	Total capital to risk assets ratio (4.2/4.5)%
4.14	Minimum total capital to risk assets requirement
4.15	Excess/(Deficiency) (5.3 less 5.4)

Completion Instructions on Capital to Risk Weighted Assets Return

1. Capital Components 1.1 Core Capital (Tier 1) 1.1.1 Paid-up Ordinary Share Capital This is the nominal value of the ordinary shares issued and fully paid. 1.1.2 Non-repayable Share Premium/ (discount) This is the difference between the nominal price and purchase price of shares, which is not refundable/ recoverable. 1.1.3 Retained Earnings/ Accumulated losses These are retained earnings or accumulated losses from the profits/losses of the prior years. They should however exclude reserves arising from revaluation of investment properties and cumulative unrealised gains and losses on financial instruments. 1.1.4 Current Year 50% Un-audited After Tax Profits This is 50% of the current year to date un-audited after tax profits. The DTFC must have made adequate provisions for loans and advances, depreciation, amortization and other expenses. In arriving at the applicable figure, any proposed or interim dividends have to be taken into account. This should however exclude reserves arising from revaluation of investment properties and cumulative unrealised gains and losses on financial instruments. In case of a loss, full amount should be included. 1.1.5 Capital Grants These are donations to be on lent to customers that are irredeemable or non-repayable. 1.1.6 Non-cumulative irredeemable preference shares These are shares, which have a standing claim on the company every year, but the claim is not carried forward in event of not being paid and they are not redeemable. 1.1.7 Other reserves These are all other reserves, which have not been included above. Such reserves should be permanent, unencumbered, uncancellable and thus able to absorb losses. Further, the reserves should exclude cumulative unrealised gains and losses on available-for- sale-instruments. 1.1.8 Sub-total Enter in this line the sub-total of all the items from 1.1.1 to 1.1.7.

1.1.9 Investments in subsidiary institutions and equity instruments of other financial institutions To prevent multiple use of the same capital resources in different financial institutions, the DTFC should deduct any investment in subsidiaries conducting banking or FC business and equity instruments of other such institutions. 1.1.10 Goodwill This is the difference between the value of the business as a whole and the aggregate of the fair values of its separable net assets at the time of acquisition. 1.1.11 Other intangible assets These are assets without physical existence, e.g. patents, copyrights, formulae, trademarks, franchise etc. However, computer software should not be deducted. 1.1.12 Total deductions This is the total of all the items from 1.1.9 to 1.1.11. 1.1.13 Core Capital Core Capital is the deduction of line 1.1.12 from line 1.1.8. 1.2 Supplementary Capital (Tier 2) 1.2.1 Revaluation reserves This is the revaluation reserves of fixed assets, land and buildings based on independent and professional appraisal as to the obtaining SAMA’s approval. 1.2.2 Cumulative irredeemable preference shares These are irredeemable shares with standing claim on the company and the claim is carried forward in event of it not being paid in the current year. 1.2.3 Convertible notes and similar capital investments Convertible notes are instruments that evidence a company promise to pay a loan on maturity, which can be converted, into shares any time before maturity date. Other similar capital investments are convertible debentures, bonds, loans etc. 1.2.4 Perpetual subordinated debt This is a debt equity or loan capital, which is not redeemable. 1.2.5 Limited life redeemable preference shares These are preference shares with limited life of at least five years and are redeemable.

# 1.2.6 Term subordinated debt

This refers to loan capital, bonds, commercial paper or debt equity with original maturity period of five years and above.

# 1.2.7 Statutory Loan Loss Reserve

These are provisions that have been appropriated from retained earnings (revenue reserves). This will only apply if provisions computed under quality requirements is in excess of impairment losses computed under International Financial Reporting Standards.

However, loan loss reserve qualifying as supplementary capital should not exceed 1.25% of risk weighted assets total value.

# 1.2.8 Total supplementary capital

This is the sub-total of the items in line 1.2.1 to 1.2.7.

# 1.2.9 Supplementary Capital/Core Capital (%)

This is the percentage of the supplementary capital to core capital. Total supplementary capital should not exceed core capital. Where supplementary capital exceeds core capital, then qualifying supplementary capital is limited to the amount of core capital.

# 1.2.10 Total Capital

Total capital is the sum of core capital and supplementary capital, i.e. Total of lines 1.1.13 and 1.2.8

# 1.2.11 Total Shareholders’ funds

The figure reported in this line should agree with the total shareholders funds as reported in the monthly balance sheet.

# 1.2.12 Difference

Any difference between total capital and total shareholders’ funds should be reported in this line and a reconciliation of the same be attached.

# 2. On-Balance Sheet Assets

## 2.1 Cash

Enter in this line cash at hand (domestic notes and coins).

## 2.2 Balances with SAMA

This includes reverse repo with SAMA, reserve requirement and any other balances held by SAMA.

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# 2.3 KSA Government Treasury Bills

These are Treasury bills issued by KSA Government.

# 2.4 KSA Government Treasury bonds

These refer to the Treasury Bonds issued by KSA Government.

# 2.5 Lending fully secured by cash

Enter here all other debts that are fully secured by cash.

# 2.6 Advances guaranteed by KSA Government

This refers to all loans and advances duly guaranteed by KSA Government.

# 2.7 Cash in Foreign currencies

Enter in this line cash at hand (foreign notes and coins).

# 2.8 Deposits and balances due from Local Institutions

These are deposits and balances held with local banks, financial companies and mortgage finance companies including overnight balances.

# 2.9 Deposits and balances due from foreign institutions

These are balances held with correspondent banks and financial institutions abroad.

# 2.10 Foreign Treasury Bills and Bonds

These are bills and bonds issued by foreign governments, banks and other multilateral institutions.

# 2.11 Claims guaranteed by Multi-Lateral Development Banks (MDB’s)

These are loans, advances and capital market instruments such as commercial paper that are guaranteed by MDBs.

# 2.12 Loans secured by Residential Property

These are facilities secured by residential properties situated within cities and municipalities in KSA. Such facilities should only be those classified as normal under Asset Quality Return and are performing in accordance with the original terms and conditions specified in the letter of offer. In addition, the security should be perfected in all respects and its current forced sale value should, cover in full, the outstanding debt with at least a 20% margin. The 50% weight will not be specifically applied to loans to companies engaged in speculative residential building or property development.

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# 2.13 Other loans and advances

These refer to loans and advances that are not guaranteed by KSA government and not secured by cash. These also include commercial paper and corporate bonds and should be reported net of provisions. Provisions must be computed in accordance with Asset Quality Return. However, provisions appropriated from retained earning should not be netted off from loans and advances.

# 2.14 Other investments

These are investments in other companies other than financial institutions.

# 2.15 Fixed assets

These are assets acquired for use in the operation of the business or for investment purposes, e.g. furniture, computers, freehold and leasehold land and buildings. They should be shown net of accumulated depreciation, amortized cost, or at fair value.

# 2.16 Amount due from group companies

This is the claim of the reporting institution from other group companies that are not financial institutions.

# 2.17 Other assets

These are other assets, which have not been dealt with above.

# 2.18 Total on-balance sheet assets

Enter in this line total on-balance sheet asset i.e. total of line 2.1 to 2.17. Total deductions from core capital should also be deducted from the assets for the purposes of computing the risk weighted asset values. All profit bearing assets should be reported inclusive of profit earned.

# 2.19 Total Assets

Total asset figure should be indicated in this line.

# 2.20 Difference

This is the difference between total on-balance sheet assets and total assets. The difference should be explained in the form of reconciliation.

# 3. Off-Balance Sheet Items

DTFCs should compute credit risk equivalents for different categories of off- balance sheet transactions. The resulting amounts should be assigned 100% risk weight. Under line 3.4 of the return, foreign banks include the Multi-lateral Development Banks specified under item 2.10 of the completion notes. Under line 3.5, DTFC should include undelivered spot transactions.