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 To visit the ABA website, please click here. For ABA membership details please click here |
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The Spring 2003 issue of Arab Banker will include a
focus on The Levant and Turkey together with articles on
Islamic Banking and Finance and IT & Security.
Our usual round up of news and views on the Arab banking and finance scene will
feature along with our regular items on art & culture and book reviews.
Plus much more. |
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The suffering of the people of Palestine is being graphically
illustrated on our television screens and in our newspapers and we hear daily
examples of the stress, trauma and tragedy that has become the norm for so many
Palestinians. Conscious of the concerns of Arab Banker readers and their
desire to do what they can to help the people of Palestine the Arab Bankers
Association has established the ABA Emergency Palestine Relief Fund. All
monies donated to this fund will be distributed on an equal basis between the
following well-respected UK-registered charities that work in Palestine.
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Sounding out - Options for Saudi Arabia
Why the doom and gloom? During a summer visit to the Kingdom, I found many of the Saudi bankers and businessmen comporting themselves with an air of calm yet angry resignation, as if their economic and political fate was not in their hands. There was also a feeling of considerable hurt in their demeanour, and a sense they were being judged harshly by some of their best friends in the West. To many of them, it seemed that all the goodwill they had shown on both the energy and military fronts had gone unappreciated. Crown Prince Abdullah's generous peace offer to the Israelis on behalf of all the Arab nations, announced amid great optimism at the Arab League meeting in Beirut last Spring, appeared to have been eclipsed by a tide of rhetoric from elsewhere and the war cry on Iraq. This was not helped by comments attributed to a Rand Corporation report on Saudi Arabia received by the Pentagon, which plumbed new depths of gratuitous invective directed at the Kingdom. Would cooler heads prevail? Only time could tell. But the long-standing relationship between the biggest oil producer in the world, until recently credited with policies of economic and political moderation, and the United States are certainly under considerable strain. Foregrounded by all those developments, Arab Banker embarked on this special issue on Saudi Arabia and the GCC to provide some perspective on the banking and financial sector. The result has been a series of exclusive, insightful interviews. The Governor of the Saudi Arabian Monetary Agency (SAMA), HE Sheikh Hamad Al Sayari, provides us with in-depth observations on highly topical issues, ranging from the practical application of monetary policy and control in the Kingdom, including measures adopted in the aftermath of 9/11, to the emerging role of the euro as a reserve currency and the on-going preparations for the launch of the Dinar as a common currency for the GCC. Anti-terrorism measures Arab Banker would also like to draw readers' attention to his response on what the Kingdom has accomplished during the past 10 years combating money laundering and the financing of terrorist activities. "Saudi Arabia has already been engaged in significant efforts to combat such activities," he told us. The Governor also comments on the Kingdom's opening up to banks from other GCC member countries, as well as an imminent Capital Market Law which, as he puts it, is "expected to relieve SAMA of the responsibility of supervising mutual funds and asset management activities and regulating the stock exchange." Arab Banker believes that the Governor's replies, together with those of the senior bankers interviewed for this issue, provide us with valuable insight on recent developments and future trends in the banking and capital markets of the Kingdom. It was with great sadness that, while preparing this issue, we learnt about the passing away of Suliman Olayan, undoubtedly one of the pillars of the banking and business community in the Kingdom. Challenge of opportunities All of the decision-makers interviewed by Arab Banker agreed that the main challenges and opportunities to emerge for the Kingdom in the coming months would depend on the price of crude oil, combined with new legislation, especially related to capital markets, and the government's policies on privatisation, including the opening up of the gas sector to overseas investors. If all those determinants turn out positively, the bankers agreed, the opportunities will outweigh the challenges facing the Kingdom. Those interviewed also believed that new opportunities could be on the horizon. According to David Hodgkinson, of the Saudi British Bank, for example, the new capital markets to be created in Saudi Arabia would facilitate "... the development of the equity and commercial paper/bond markets." As might have been expected all the bankers interviewed believe they must continue to develop consumer/retail banking, hitherto the mainstay of their profitability. According to Michael de Graffenried of SAMBA "... the main challenge is the low-interest environment, which is generally good for the economy, but not helpful in sustaining profit growth". Judging by his assessment, and persistently low interest rates, the outlook for profitability will remain mixed for the foreseeable future. A way forward may be greater concentration on developing the small businesses sector. All the banks are active in extending loans to small businesses, and Abdulhadi Shayif's NCB also invests in them. E-banking two years on Most of the Saudi banks began their e-banking initiatives more than two years ago and have made significant headway adopting the new technologies. However, as almost everywhere else for banks, it is not yet a profitable line of business for financial institutions in the Kingdom either. However, according to Nemeh Sabbagh of ANB (the first bank to launch e-banking in Saudi Arabia and recently named the Best Retail Internet Bank in Saudi, the Middle East and Africa byGlobal Finance), "Internet use in Saudi Arabia is the lowest among all the GCC countries". Most of the banks cite high internet service and telecommunication charges as key constraints to a more rapid development of usage. But they are appreciative of SAMA's initiative to create a B2B marketplace alongside other banks. Despite low online usage, Saudi banks have fared well in the regional league of internet-savvy institutions vying for business on the Worldwide Web. The National Commercial Bank for the second year in a row received the Best Retail E-banking award, while Saudi Hollandi received accolade for its corporate SHB On-line. All Saudi banks are also expanding their role in Islamic finance and a variety of Sharia-compliant investment products, including charge cards, are now on offer from various conventional banks. (See separate article on Islamic banking). Mergers and expansion According to Nemeh Sabbagh "regional mergers are attractive conceptually ... but they occur only if there are synergies". In contrast, Abdulhadi Shayif avers that because of their relatively small size (compared to Citigroup!) "the case for consolidation in both the GCC and Saudi Arabia is obvious". David Hodgkinson believes the trend is more likely to be "linkages between banks and other financial service companies, such as insurer and leasing companies", but "there does appear to be a need for consolidation ... in the region". To be sure, consolidation will require regulatory approval. SAMBA's strategy so far has been no expansion in the GCC but possible expansion outside the GCC, " ... such as Lebanon and Egypt". Peter Baltussen, on the other hand, is more convinced about the opportunities "both within Saudi Arabia and the Gulf region". Like Hodgkinson, he believes that as a result of the new insurance law "it is conceivable that some insurance companies seek to develop association with the banks in order to secure their existence". While consolidation eludes the region, it would perhaps be useful to ascertain the additional economic costs borne by retail and corporate clients of the relatively smaller banks that characterise the GCC area. Markets and investment flows The reader will find a lively discussion of these topics by our participants in the following pages. Several believe that the high price of oil combined with the successful launch of SAMA's new trading platform, Tadawal (that supports complete straight though processing) have underpinned demand and stimulated activity on the Saudi stock market. Moreover, share valuations remain reasonable. Few participants believe that there has been a significant repatriation of funds under overseas management. Figures such as those mentioned in the financial press, citing outflows of many tens of billions, are not supported by the facts. However, both NCB and SHB believe there have been significant reflows into the Kingdom. But then it does not take much of an inflow to put upward pressure on the Saudi stock market. Inward investment and privatization All of the banks in our collective interview are able and willing to assist in promoting inward investment. As well, all believe that the Government is serious about economic reform. Equally, there is almost a consensus that more can be done and faster, especially in speeding up privatisation. This will "provide the private sector with more attractive investment opportunities" (Nemeh Sabbagh). Indeed "more delays in privatisation would obviously hurt consumers and industries, which would affect economic growth and hamper job creation efforts" (Abdulhadi Shayif). David Hodgkinson hopes "that both bureaucracy and tax levels will be reduced in the times ahead". And with a broad sweep, Michael de Graffenried thinks "much more can be done still in the areas of privatisation, capital markets liberalisation, tax code improvements, and the opening of more sectors to foreign investment". Quite a list of "to-dos" for the authorities! Peter Baltussen asserts that "the local capital markets will support the privatisation programme". On this upbeat note, readers are invited to proceed to the main section dealing with answers from individual bankers for this special issue. |
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