Reforms attract more foreign banks to Saudi Arabia

LONDON - Sumitomo Mitsui Bank is the first Japanese bank to open a branch in Riyadh. Observers said more international financial institutions are likely to follow suit as investment opportunities open in the Saudi market because of the country’s economic reforms and restructuring programmes.

Banks and foreign fund managers have been looking to expand into Saudi Arabia since it unveiled a privatisation plan aimed at large government institutions.

Several international banks have secured licences to operate in Saudi Arabia and other institutions have submitted requests encouraged by reforms, increasing government spending on strategic projects and the influx of investment to the country.

During the opening ceremony of the Sumitomo Mitsui branch, Japanese Ambassador to Saudi Arabia Tsukasa Imura said he hoped the bank would play a pivotal role in attracting Japanese investors to the Saudi market.

Sumitomo Mitsui Bank, one of the largest banks in the world, has extensive experience in the integrated financial and banking services, including deposit and settlement services in the business sector, Imura pointed out.

The Saudi Press Agency said Sumitomo Mitsui would provide a range of banking and consultancy services for Japanese companies in Saudi Arabia, in addition to contributing to increased opportunities for financing oil and gas projects.

Analysts said the willingness of foreign banks to work in Saudi Arabia has increased since reforms of financial regulations and accelerated economic growth. It has been spurred by increased government spending and oil revenues and the implementation of a programme to sell government assets.

Last year, Swiss bank Credit Suisse and US investment bank Moelis & Company applied for licences to operate in Saudi Arabia. Citigroup was granted a banking licence in April 2018, returning to the country after an absence of more than 13 years. Goldman Sachs received approval to trade in Saudi stocks in August 2017. Other international banks are racing to strengthen their positions in the country.

Saudi authorities require foreign financial services companies to obtain licences to conduct certain activities in the country’s financial markets, such as advisory roles in initial public tenders and mergers and acquisitions.

A series of other deals are expected because of Saudi Arabia’s planned privatisation of state-owned assets and the financing of private sector activities to help the country diversify its economy and reduce its reliance on oil revenues.

Last year, Riyadh unveiled a large-scale programme to sell government assets in sectors ranging from health care to airports and said it expected to reap revenues from that process of up to $200 billion in the coming years.

The government asserts that the administrative arrangements have been completed and that it plans to begin privatising some assets in sports, electricity, water and grain silos this year.

When implemented, the privatisation plan would help restructure the Saudi economy by involving the private sector in various categories and would help shore up the fiscal situation affected by the fall in oil prices.

Riyadh said it would show flexibility in choosing the structure that buyers prefer, including initial proposals, private offerings and direct investment deals.

The Saudi privatisation programme could ease the pressures on the country’s financial reserves, which had fallen sharply the past two years but have since returned to record highs after oil prices rose.

Reports indicate that foreign investors recorded net purchases in the Saudi stock market last year. Financial studies predicted a large inflow of investments after the easing of financial rules and the listing of the Saudi Stock Exchange on global indexes for emerging markets.

Riyadh has relaxed restrictions on market transactions by adjusting the time for settlement of securities transactions to within two business days after the date of execution of the transaction and allowing lending and borrowing of securities in addition to short selling.

Saudi Crown Prince Mohammed bin Salman bin Abdulaziz, during the recent laying of the foundation al-Ula projects in western Saudi Arabia, said there were major strategic projects to soon be announced.

Al-Ula projects aim to develop the region in a responsible manner to transform it into a World Heritage destination while preserving the natural and cultural heritage in extensive programmes to activate tourism and leisure industries in Saudi Arabia.

Salam Sarhan is an Iraqi writer.

This article was originally published in The Arab Weekly.