Too foreign? An inside look into the struggles of foreign banks in Saudi Arabia
Local lenders in Saudi Arabia are dominating the market, prompting overseas banks to surrender their licenses as they struggle to compete, the chief executive officer of Standard Chartered Plc in the country said.
“International banks have found this market more challenging to find their edge and differentiate themselves enough to build a viable business,” Boutros Klink, chief executive officer of Standard Chartered Capital Saudi Arabia, said in an Aug. 14 interview in Dubai. The bank is focusing its business on the kingdom’s debt markets, he said.
Some international banks have started shrinking in Saudi Arabia even as the kingdom plans to open its $577 billion stock exchange to direct international investment. Barclays Saudi Arabia canceled its license to conduct securities business in June, the same month that Goldman Sachs Group Inc. ended its license for custody, underwriting and dealing as an agent.
Saudi Arabia’s 12 domestic lenders benefit from being able to offer a full range of banking services, while most foreign banks are licensed to conduct limited activities by the kingdom’s Capital Market Authority.
“If you look at other companies that have ventured into the equities space, for example, they’ve found it extremely difficult to compete with the investment banking arms of local banks,” Klink said. These “provide the whole platform of cash accounts, custody, brokerage – they have everything in one place.”
Nine of the top 10 brokerages on the Saudi Stock Exchange this year are the units of local banks, and six of the top 10 bond underwriters are local, according to data compiled by Bloomberg. HSBC Plc and Credit Agricole SA hold majority stakes in local lenders, enabling them to operate as local banks.
Nomura Holdings Inc. also canceled its licenses to conduct dealing, managing investment funds and custody services in June, while Standard Chartered ended its license to conduct dealing as an agent and investment fund management in March.
The opening of the Tadawul All Share Index to foreign investors will probably attract only a limited number of new international banks into the country, Klink said. Most interested in Saudi Arabia are already there, he said.
Standard Chartered is focusing on the Saudi debt market and has no plans for equities business, in line with its strategy for the Middle East and North Africa, Klink said. The bank has about 12 bankers in the kingdom and is planning to hire more people for senior investment banking roles, he said.
Last year the bank was one of four lenders that helped arranged a 15.2 billion riyal ($4.05 billion) sukuk for the General Authority of Civil Aviation, the largest ever sukuk sale in the country, according to data compiled by Bloomberg. This year it worked on deals including a 2 billion riyal sukuk for Saudi Telecom Co.
“Our strategy is to connect Saudi Arabia with our footprint in Asia, Africa and other countries of the Middle East and to contribute our experience and thought leadership,’’ Klink said.
Saudi Arabian companies and government entities issued 19.2 billion Saudi riyals of bonds in the first half of the year, compared to 14.1 billion riyals in the same period last year, according to data compiled by Bloomberg. “The debt capital markets will grow tremendously over the next few years,” Klink said. “This market is just scratching the surface of its potential.”
Next year there could be more dollar debt issuance by Saudi companies, which will benefit international banks with trading desks around the world. “Suddenly issuances in the dollar market have become cheaper than issuance in the local currency, despite the significant liquidity in the local market, which will encourage some more clients to tap the international markets,” he said.
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