Although Saudi Arabia is in recession, its economy and banking sector remain fundamentally sound. Richard Groves, managing director of Saudi British Bank (SABB), says business volumes in the sector are holding up well because of the underlying strength of the economy.
SABB, which is 40%-owned by HSBC and 60% by Saudi nationals, reported a profit of $383m for the first half of 2009, down only 7.5% compared with the same period last year. Operating income rose 5.8% to $712m.
"In common, we believe, with a number of banks in the Kingdom of Saudi Arabia, we increased our general provisioning in the light of some difficulties in the corporate sector," says Mr Groves. Top level operating income, however, is up year on year for the first half of 2009, not just at SABB, but across the sector. Costs in Saudi banks are also being maintained, or reduced, even though inflation is running at about 5%. Equity capital has been on the slow side but there are signs now that this side of the business is beginning to pick up.
Open to new business
Mr Groves says SABB is still "very much open for new business". "High liquidity levels across the sector, generated in large part by SAMA's [Saudi Arabian Monetary Agency] policies and low interest rates, are encouraging us to drive for new business," he says. "But we continue to maintain our traditionally conservative stance, seeking quality assets.
"We have been further strengthening our efforts to maintain customer loyalty - and it is paying dividends. We believe strongly in supporting our customers through difficult times, helping them find fresh ways of managing their balance sheets through, for example, payments and cash management, which can make a vast difference if a customer experiences a downturn."
In response to the global financial crisis, SABB introduced a new three-year strategy at the end of 2008. Mr Groves says it is working well. "Any strategy requires constant fine tuning, but our objective - to become 'the bank of choice' - is firmly embedded. This implies that our focus is on customer care, on striving to meet ever-changing customer requirements and expectations, concentrating on developing those products and services where we score highly with customers."
Fine-tuning services
Since becoming managing director in March, Mr Groves has looked closely at SABB's private banking and personal financial services - where it is already among the market leaders - to see how they can be further developed. The bank has also increased investment in staff development and IT. It is continuing with its programme of branch openings and ATM installations and now has five 'Global Premier Centres' around Saudi Arabia serving both local and HSBC Premier customers.
Mr Groves believes the bank is well positioned for the economic upturn when it comes. "We continue to look to refine the businesses in the group, but I do not see any wholesale changes being necessary at this time. We are, however, participating in the OneHSBC programme, which aims to create a global operating platform for HSBC Group and its associates, including SABB. The objective is for the whole of HSBC to be able to offer a seamless service with uniform systems, procedures and processes in place across the world."
Sales of SABB's Islamic financial products are booming. Customers are increasingly converting to sharia-compliant financing, even on large loans and export credit. "In the personal banking area in particular, there is strong demand, while our investment banking arm, HSBC Saudi Arabia, is experiencing a rapid upward trend in demand for sharia-compliant solutions," he says.
SABB Amanah, the bank's Islamic finance division, introduced a sharia-compliant overdraft solution, called 'Sciolah', in August and earlier in the summer launched a sharia-compliant margin lending product. Meanwhile, HSBC Saudi Arabia's 'Amanah-first' strategy is a major reason for the rising demand for sharia-compliant solutions. "This demand is rising at both ends - the 'pull' end, by investors and bank customers, and at the 'push' end, by borrowers and issuers, especially from the latter category where financings are more visible in nature," says Mr Groves. "To put this in context, 75% of all the debt capital market financings in 2008 in Saudi Arabia were in the sharia-compliant format."
