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What next for Saudi banks?

Private banking, project finance and mortgages are replacing brokerage and payroll lending as the main drivers of Saudi Arabian banks’ revenue growth. That is the view of Faisal Al Sakkaf, the CFO of the country’s largest financial institution, National Commercial Bank in Jeddah.

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.

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