Bankers call time on Saudi Ara­bia

Life was much eas­ier when oil was the fu­ture; now for­eign lenders seem to be lin­ing up to exit, not en­ter

Muscat Daily - - BUSINESS -

Lon­don, UK - The oil-rich Gulf monar­chy of Saudi Ara­bia is a money mag­net for global fi­nance.

Its sov­er­eign wealth fund is bar­rel­ing tens of bil­lions of dol­lars into for­eign as­set man­agers. Its al­liance with SoftBank Group Corp is buy­ing into star­tups and sky­scrapers.

A much-hyped list­ing of oil gi­ant Saudi Aramco has Lon­don and New York at its feet.

A scheme to di­ver­sify the econ­omy away from hy­dro­car­bons and open the doors to for­eign cap­i­tal will un­leash a tor­rent of cash.

But while Wall Street in­vest­ment bankers sniff deal op­por­tu­ni­ties - Cit­i­group Inc, for one, is try­ing to re­build its lo­cal busi­ness a decade on af­ter los­ing a cru­cial li­cense - those tak­ing on ac­tual credit risk in the lo­cal econ­omy are less en­thralled.

For­eign lenders seem to be lin­ing up to exit, not en­ter, Saudi Ara­bia. France’s Credit Agri­cole SA is sell­ing part of its stake in Banque Saudi Fransi, which pur­ports to have 83 full-fledged branches and 18 ‘ ladies’ sec­tions’, to Saudi bil­lion­aire Al­waleed bin Talal for US$1.5bn.

It could sell more. Royal Bank of Scot­land Group Plc, mean­while, has been try­ing to off­load its lo­cal Alawwal unit for years. Saudi Ara­bia hasn’t seen a big bank merger in 20 years.

That’s a re­flec­tion of how what’s good for cap­i­tal mar­kets a coun­try look­ing to bor­row more and spend more - doesn’t al­ways mean a health­ier econ­omy. Oil prices have stag­nated be­low US$60 since 2014, crimp­ing Saudi’s state fi­nances and its gen­er­ous cra­dle-to-grave sub­si­dies, and the scourge of over- sup­ply is ex­pected to last for years. Saudi growth will flat­line this year, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund.

The earn­ings of lo­cal banks fell five per cent last year and they posted the slow­est loan growth rate in five years, ac­cord­ing to Al­bi­lad Cap­i­tal. In­vest­ment bankers are be­ing asked to fight a slump, not ex­tend a win­ning streak.

Yes, Saudi Ara­bia is promis­ing an am­bi­tious re­form plan spear­headed by 32 year old Crown Prince Mo­hammed bin Sal­man. But this is a coun­try that moves in decades, not years. The full plan’s de­liv­ery is slated for 2030 and is vul­ner­a­ble to ton­ing down in the face of po­ten­tial op­po­si­tion from more con­ser­va­tive forces wor­ried about change.

The House of Saud has had its share of vi­o­lent han­dovers in the past, with kings ei­ther mur­dered or forced out. MBS is tak­ing brave, but risky, steps.

All in, it’s prob­a­bly sen­si­ble for a bank like Credit Agri­cole to put it­self on track to exit its in­vest­ment in OPEC’s big­gest pro- ducer. True, the sale would come at a cost to profit, with the French bank de­riv­ing about 8 per­cent of its earn­ings from Banque Fransi, ac­cord­ing to Deutsche Bank. But it could also lead to a slightly more ro­bust bal­ance sheet and a sim­pler ge- ographic foot­print.

Its home econ­omy of France out­paced Saudi's last year and will do so again this year, ac- cord­ing to Bloomberg In­tel­li­gence. In such an en­vi­ron­ment, you could for­give bankers a dose of nos­tal­gia for the old days when the king­dom was a closed shop that got by on petrodol­lars alone.

This file photo shows an eques­trian em­ployee train­ing an Ara­bian pure breed horse at the stud farm of Prince Sul­tan bin Ab­du­laziz al Saud, in Riyadh, Saudi Ara­bia

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