SAUDI ARABIAN COMMERCIAL BANKS’ MARKET-RISK SENSITIVITY: DATA AND METHODOLOGY

SAUDI ARABIAN COMMERCIAL BANKS’ MARKET-RISK SENSITIVITY: DATA AND METHODOLOGYThis analysis was conducted on daily historical stock prices and indices collected from the Saudi Stock Exchange (Tadawul). The data consist of stock prices of 11 banks, the Tadawul Banking Financial ServicesIndex (TBFSI), and the Tadawul All Shares Index (TASI), covering the period June 3rd2008 to October 5*2011. A total of 832 daily usable observationswere collected. The risk free rate in this paper is proxied by the Saudi Inter Bank Offering Rate (SIBOR) for three months of the same period and was obtained from Reuters.There were six mismatches between the daily closing stocks prices dates and the three months SIBOR dates. The mismatches were adjusted as follow: if a mismatch was recorded, one day for three months SIBOR before that date was selected, if not available, then one day for three months SIBOR after that date was selected; if that was not available, the closest date for three months SIBOR wasthen selected. Click Here

Initially June 1st2006 was chosen as the start date for several reasons. The market had reached its peak by 25thFebruary 2006 (20,634.86 points), after that the bubble burst. Stock par values were reduced from 50 Saudi Riyals (SR) to SR10. This was implemented through four phases in April 2006. The Banking and Communication Sectors stocks par value wasreduced from 8thApril 2006. Thursday trading was cancelled from 15thJune 2006. Trading time was also changed from two shifts per day to one shift. The new trading time is now 11:00 am to 3:30 pm for all months (including Ramadan). Trading in the Saudi Stock Market starts on Saturday through to Wednesday.
All data was extracted from the Thompson-Reuters Datastream database. The data for non-tradingdays as a result of weekends and national holidays were adjusted by setting the daily return tozero.The data was collected from 1st June 2006 up to 5th October 2011. Finally another adjustment had to be made. Due to the establishment of a new bank, the Alinma Bank, on the 3rdJune 2008, the starting date of the data set for all banks was further refined from 3rdJune 2008. Alinma Bank has one of the highest numbers of shares, 1.5 billion shares, and represents 1.1%proportion of the market capitalization and 4% of the banking sector. Due to this importance the starting date was revised. Table 3 identifies the dates and number of the daily data for each observed climate. These periodscapture: the global financial and economic collapse in late 2008 to early 2009; the gradual recovery of global markets in 2010 associated with wide-spread Central Bank quantitative easing activities; and 2011, a period dominated by unrest in the Middle East, the so-called: Arab Spring. Descriptive statistics of daily share returns by banks between 2008 and 2011 were calculated. Table 4 shows 11 banks in addition to the TBFSI, all have negative average daily returns. Al-Rajhi bank has highest average daily return (-0.01) and Bank Al-Jazira has the lowest (-0.08). The standard deviations are relatively high, reflecting wide fluctuations of bank share prices. Islamic banks are positively skewed (Al-Rajhi Bank, Alinma Bank, Al-Bilad Bank) except Bank Al-Jazira.
Conventional banks are mostly negatively skewed (Banque Saudi Fransi, Saudi British Bank, Arab National Bank, Saudi Hollandi Bank and Saudi Investment Bank). The TBFSI is positively skewed. Movements at the right tail of the return distribution reflect higher percentage returns and can be construed as beneficial to market investors.

Table-2.Banking sector shares, prices, and weight in TASI

Bank Name No. of Shares Close Price % weight in index as of Dec. 2011
Alinma Bank 1,500,000,000 9.35 1.10
Al-Rajhi Bank Samba Financial 1,500,000,000 69.5 8.20
GroupThe Saudi British 900,000,000 46.6 3.30
Bank 750,000,000 40.7 2.40
Riyad Bank 1,500,000,000 23.3 2.75
Banque Saudi Fransi 723,214,300 42.1 2.40
Arab National Bank 850,000,000 27.5 1.84
The Saudi Investment Bank 550,000,000 16.15 0.70
Saudi Hollandi Bank 330,750,000 29.8 0.78
Bank Al-Jazira 300,000,000 16.95 0.40
Bank Al-Bilad 300,000,000 19.85 0.47

Table-3.The threecycles and number of observations

Period Date DailyObservations
Cycle 1 Global Financial Crisis 3/6/2008 – 9/3/2009 189
Cycle 2 Recovery 10/3/2009 – 29/12/2010 451
Cycle 3 Arab Spring 1/1/2011 – 5/10/2011 192
Overall Phase 3/6/2008 – 5/10/2011 832

Table-4.Descriptive statistics of daily shares for all Saudi banks listed on TASI

Bank Name Mean % change of share price StandardDeviation Kurtosis Skewness Number of Observation
Al-Bilad Bank -0.07 1.98 7.90 0.30 832
Alinma Bank -0.05 1.90 8.16 0.43 832
Bank Aljazira -0.08 2.24 5.18 -0.03 832
AlRajhi Bank -0.01 2.08 6.11 0.20 832
Saudi Hollandi Bank -0.07 2.27 9.52 -0.51 832
Saudi 832
Investment -0.06 2.24 8.88 -0.64
Bank
Riyadh Bank -0.04 2.03 7.52 0.31 832
Saudi British Bank -0.07 2.43 14.00 -1.02 832
SAMBA Bank -0.05 2.33 4.47 0.18 832
Banque Saudi Fransi -0.06 2.46 10.50 -0.59 832
Arab National Bank -0.07 2.53 12.94 -1.06 832
TBFSI -0.05 1.74 7.33 0.07 832

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