Imminent changes in capital markets and insurance legislation will give the kingdom’s banks the chance to expand their capabilities.
The imminent implementation of Saudi Arabia’s new capital markets law and new insurance law is likely not only to cause a revolution in the kingdom’s financial services sector, but also to cause a considerable stir in the neighbouring financial centres of Bahrain and Dubai. For decades, the authorities in the Gulf’s richest market have operated a tight, well-run banking sector but the products and services available have been limited, especially in the investment banking arena.
Needless to say armies of “briefcase bankers”, many based in institutions in Bahrain and Dubai, have journeyed to Saudi Arabia to fill the financial services gap. Fortunes have been made by such bankers – but the game is now changing significantly.
The new laws not only give Saudi banks the opportunity to spread into new areas, from private placements to IPOs and corporate bonds, but also provide a regulatory infrastructure that forces the ‘briefcase bankers’ to adhere to local Saudi rules.
Sea change ahead
While these new laws have taken decades to come into being, and implementation may still be lengthy, banks are gearing up for a sea change in Saudi financial services. With estimates exceeding $500bn in private wealth, a private sector hungry for investment opportunities at home and a desperate need to provide jobs for a youth-dominated population, the new laws cannot come too soon. Both local and foreign banks are bullish about the potential and many are expected to follow the lead of Deutsche Bank and HSBC in setting up investment banking vehicles. Insurance also represents an untapped market with huge potential.
The coming months are likely to see a slow but steady transformation in the kingdom’s financial capabilities. Cynics may express doubts but there is a huge demand for services and huge liquidity, the new laws help provide the bridge between the two. The question then is, if needs are to be provided from inside the kingdom, what use are Bahrain and Dubai? And if the neighbouring states’ financial sectors depend on the kingdom, as some say they do, then they may need to find new strategies as players go directly to the biggest market.
