Middle East debate: A bright future for the Gulf’s wealth managers

Delegate biographies: Learn more about the panelists 

AK, NCB Private banking in the region is quite young. We at NCB started in 1993, creating a separate private banking division and at the beginning it was simply normal banking but with a red-carpet treatment. Clearly it has evolved significantly since then so that now we provide solutions across multiple areas and introduce our clients to new products such as private equity, real estate funds, family trusts and so on.

Fortunately the relative youth of the industry here meant that we did not get into selling the more complex and very risky products that have turned sour, and indeed the reputation of the Saudi banks has risen. This is because previously we were compared unfavourably with the international banks and this has now changed. Remember that it is estimated that around 75% of the Kingdom’s private individuals’ wealth is invested abroad, and previously our more sophisticated customers dealt directly with the foreign banks which they perceived correctly to be larger and to have more developed private banking offerings. But now we have really noticed clients coming back to us and saying: "You did not sell us the products others did, and your products, although conservative, have turned out to be the ones that suited us best based on our profile and risk aptitude."

SD, HSBC For the international institutions it is quite a developed market. The likes of HSBC and others first had clients in the region as far back as the late 1970s, so they have seen the same cycle as in other parts of the world. Clearly, since that time, there has been a growing local sophistication and awareness of products and that has spilled over into what the local banks have been providing. The other key point is that the absence of any local income taxes, and the regional commitment to freedom from exchange controls, creates a very open environment and one therefore which makes doing business here more straightforward than elsewhere.

SS, NCB Private banks and family offices in the region are in transition. They are becoming more sophisticated, they are establishing professional boards, and in both cases the influences of families is being reduced in favour of these professionals.

SR, Euromoney Tim, you have worked at a big international bank and are now working at a regional player. Do you see a difference in the approach and the benefits?

TT, ENBD Western banks both in Europe and in the US felt that Gulf banks were somnolent for a long time – not just by being conservative, they had no products and no advisers – and this picture has certainly changed. The crisis has also moved things dramatically. When you look at the capital adequacy ratios, they are so much better nowadays in this region. And it is ironic that you are starting to see less government intervention and more deregulation of the banks growing here whereas in the US and Europe many banks are almost nationalized.

SR, Euromoney Describe the present client base in the region.

SD, HSBC I have been involved in this region for the past 20 years and I think people here have an aggressive investment approach in the sense that they are willing to invest in size in single transactions. However, they are very careful with regard to leverage.

AK, NCB Certainly here customers are not as leveraged as they are perhaps in other parts of the world, but there are a percentage of the customers who felt very good about the markets and they were overexposed. Let’s not forget that the local markets fell dramatically and caused a lot of wealth destruction. Some private individuals have been really hurt and they lost trust in international private institutions and wealth managers and they have lost confidence. I think it is going to take some time to get us back on track. This has increased the credibility of the local banks and private bankers.

AS, Al Subeaei Inv I agree with that and part of it is related to the culture of the region and by nature I think individuals are aggressive here, but they don’t really tend to do leverage and to do investments using credit lines and banks.

PT, BNP What differentiates this region from other parts of the world is clients’ interest in more tangible investments. Black boxes do not appeal to investors here – it is a cultural thing – and this has protected them. We are also very impressed by the sophistication level of this region, knowing that the wealth creation is the story of one generation. In Europe we have had several generations accumulating this wealth and still you can feel that most clients that you are dealing with are not close to the level of sophistication that you find here with the next entrepreneurial generation, the guys in their 40s and their 30s.

SA, Abraaj The level of sophistication in family businesses here is impressive. I have been covering the region for over 20 years and found that successful families are extremely sophisticated and don’t want to deal with just another suitcase private banker.

SD, HSBC I think we should also point out that the client base is evolving and there is segmentation, and some of this has to do with a coming generational change that will bring with it a significant transfer of wealth.

SA, Abraaj Exactly. In the Kingdom, the same 30 to 50 names have been on every banker’s "A" list for the past 20 or 30 years. That list is changing because the second generation have invested wisely and now the list is growing. But what happens with the third generation? That is where the opportunity lies today and the private banker needs to come in with new and innovative solutions to meet the challenges of the growing list of successful family businesses.