Sophisticates at the gate The mortgage sector in Saudi Arabia contributes only a low-single digit percentage to the country’s GDP. Real estate finance grew by almost 7% in the first half of 2007, in part thanks to an increase in home loans. But banks are still awaiting what they hope is an imminent mortgage law to tighten the regulatory and legal framework for home finance before securitizations of existing and future pools of loans can become a possibility. Indeed, in evidence of the desperate need for such a law, Brad Bourland, economist at Jadwa Investment, has found figures that suggest a near 30% default rate on loans given by the government’s Real Estate Development Fund.
Upcoming projects to be financed, on the other hand, could hardly be said to be wanting. They will cost about $500 billion in the next five years, many funded by oil-rich government sources such as the Public Investment Fund. Local banks NCB, Samba, Al Rajhi and Riyad Bank are all among the bidders for the $5 billion Landbridge rail project between Jeddah on the Red Sea and Dammam on the Gulf coast, for example.
Meanwhile, although the lion’s share of Saudi Arabian private banking custom has traditionally been taken up by offshore global brands, local banks have been fighting back. Fears that their accounts would be frozen after September 11 2001 ignited a will among Saudis to bring their funds closer to home, just as a similar flow-back, some say, might occur because of the sub-prime crisis. At the same time, younger, more western-educated and newer millionaires, some of whom made their fortunes through the more sensible (or more lucky) end of the Saudi stock market bubble, are eroding a previous tendency among Saudi private banking clients to leave money dormant in current accounts.
More management fees are up for grabs as clients move over from retail and the next generation of millionaires demand better financial advice and more innovative funds. But the newly arrived global firms the Saudi Capital Market Authority has been licensing also covet those fees. It may come as no surprise, then, that NCB has more than doubled its private banking staff over the past year.
