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Saudi Oil-Led Growth Attracts Standard Chartered, Barclays

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Source: Bloomberg

Standard Chartered Plc, the UK bank that depends on Asia for most of its profit, and Barclays Plc are expanding in Saudi Arabia as oil above US$100 a barrel and record bond sales bolster earnings in the biggest Arab economy.

“We’d be crazy to limit ourselves to a handful of bankers when we can see oil prices are going to sustain the Saudi economy for the foreseeable future,” Rory Gilbert, the head of Middle East and North Africa at London-based Barclays’s wealth management unit, said in an interview this week in Dubai. “In four or five years, we’ll have a much broader presence in Saudi Arabia.”

Barclays is expanding operations to target more millionaires, according to Gilbert. Standard Chartered, also based in London, started a capital markets office in Saudi Arabia, Viswanathan Shankar, the bank’s chief executive officer for the Middle East, Europe, Africa and the Americas, said in an interview at a Bloomberg conference in Doha, Qatar Monday.

The government’s US$500-billion spending plan to upgrade infrastructure and create jobs is encouraging companies to invest in the world’s top oil exporter, pushing sales of Islamic bonds from the country this year to a record US$6.55 billion, or about 43 per cent of total bond offerings in the Persian Gulf, data compiled by Bloomberg show. Bank lending to consumers and private businesses rose at the fastest pace since 2009 in February, helping boost first-quarter profits of the kingdom’s banks above analysts’ estimates.

The banks join Paris-based Credit Agricole SA, which owns a stake in Banque Saudi Fransi (BSFR), and London-based HSBC Holdings Plc, owner of a stake in Saudi British Bank.

JPMorgan Chase & Co named Abdulaziz Al Helaissi in Riyadh, Saudi Arabia to head of its global corporate bank in the region this month.

Bank of America Merrill Lynch, HSBC and Standard Chartered raised their 2012 economic growth forecasts for Saudi Arabia since March. Gross domestic product may expand more than 6 per cent this year, Finance Minister Ibrahim Al-Assaf said in January. The economy grew 6.8 per cent in 2011. Crude oil has climbed 4.4 per cent in New York this year and has traded at an average US$103.03.

HSBC cemented its position as the region’s top bond underwriter, leading the 15 billion-riyal (US$4 billion) sukuk sale of the state-run General Authority of Civil Aviation in January. The bank was also a manager of Saudi Electricity’s US$1.75 billion dollar-denominated sukuk.

Of the US$7.47 billion worth of bonds HSBC has arranged so far this year, 74 per cent, or US$5.54 billion, have been from companies based in Saudi Arabia, data compiled by Bloomberg show. Saudi sales helped HSBC edge out Standard Chartered in 2011 to remain the region’s top bond underwriter for a fourth year in five, the data show.

Banks and financial institutions are also gearing up for the possibility that Saudi Arabia will allow foreign investors to directly access its stock market. The process will be gradual and will not have a negative effect on trading, the official Saudi Press Agency reported on April 3, citing Capital Market Authority Chairman Abdulrahman al-Tuwaijri.

Non-resident foreigners are permitted to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first exchange-traded fund in March 2010. The government allowed citizens of neighbouring Gulf countries to buy and sell local shares in 2007.

The benchmark Tadawul All Share Index has risen 15 per cent this year after losing 3.1 per cent in 2011.

“Saudi has been a target for many banks for a number of years,” Leichtfuss said. “If you want to build a position in the Middle East, Saudi is the number one in terms of market size.”