Saudi Arabia’s economy is ‘very strong, very resilient’ | Saudi Hollandi Bank

Transcript

Saudi Arabia is the largest economy in the Gulf Corporation Council, and with stable outlooks from the major ratings agencies such as Fitch, Moody’s and Standard & Poor, its growth looks only set to strengthen. World Finance speaks to Bernd van Linder, Managing Director of Saudi Hollandi Bank, and Khalid Al-Muammar, CEO of Saudi Hollandi Capital, to find out more about developments in the region.

World Finance: Well Bernd, if I might start with you, Saudi Arabia is of course known for its oil wealth. Is this still the driving factor behind the country’s economy today?

Bernd van Linder: The Saudi government has set out on a very ambitious diversification programme, under its vision 2020. The aim of this programme is to turn the economy into a knowledge-based one, away from pure oil. Under this programme, there have been very substantial investments in research and development, such as the set-up of one of the top research universities in the world, King Abdullah University of Science and Technology. But there are other research centres throughout the country. In time, these investments will result in the economy becoming more diversified, a knowledge-based one. If you look a the economy today, it is obviously benefitting from massive government investments in infrastructure, such as universities, schools, hospitals, roads, public transportation, but there’s more. There is substantial investment from the private sector. The fast-growing Saudi middle class are demanding all kinds of products, and there’s a growing population, very strong demographics in the country. If you combine all of this, you see an economy that is very strong, very resilient. The non-oil private sector is growing 4-6 percent every year, and I expect that to continue, so on the whole it’s government investment, private sector investment, growth of the middle class, growth of the population, all of these driving a very strong and resilient economy.

Since 2010, we have been able to grow our assets at a 14 percent cumulative annual growth rate, and our net profits at a 24 percent growth rate

World Finance: Now there is a government drive to focus on SMEs. Why is this, and what initiatives are in place?

Bernd van Linder: When you look at SMEs over the world, they are a main generator of jobs. In Saudi Arabia, we have a young and growing population, and there is a need to create jobs, and I believe SMEs have an important role to play in creating those jobs. All of the players in the economy, the government, private sector, the banks, they’re all focusing on developing this sector. There are initiatives like training days for SMEs at the chambers of commerce. There are private sector companies supporting SMEs in their development and growth, and there is a very important initiative, a joint initiative of the government and the banks called Kafala, which is a guarantee programme. Under this programme, banks are able to obtain government guarantees for up to 80 percent of their exposures on SMEs, and this is of course a great benefit to the banks, and helps to turn this into a very important business for the banks.

World Finance: Saudi Hollandi bank was the first operating bank in the kingdom, but how has it performed over the last few years considering the global financial crisis, and what do you see driving its growth in the future?

Bernd van Linder: Since 2010, we have been able to grow our assets at a 14 percent cumulative annual growth rate, and our net profits at a 24 percent growth rate. This has also resulted in our share price more than doubling over the same period, so we’ve been doing very well. Traditionally we have been a bank that is strong in dealing with large corporates, and we want to continue to be strong in dealing with those corporates. But we’ve also expanded our business with mid-size corporate customers, with SMEs as we discussed, and with retail customers. We are considered a leading bank in dealing with SMEs. We are one of the leaders in home finance, we are one of the fastest growing banks in the home finance segment, and we want to continue to be strong players in those. We believe that SME banking and retail banking will be the main drivers of our growth. So in future you will see large businesses, mid-size corporate businesses, SMEs and retail customers all contributing to our future growth.

World Finance: Well Khalid, over to you now, and let’s look at the Saudi stock market. How do you see this as performing, and how does it compare to other markets?

We are one of the leaders in home finance, we are one of the fastest growing banks in the home finance segment, and we want to continue to be strong players in those

Khalid Al-Muammar: The Saudi stock market is the largest stock market or stock exchange in the region, with a market value of over 2tn Saudi riyals, or $500bn. Since the beginning of 2014 the performance has been very positive. That has been boosted further in the last few weeks, when the government has announced the acceptance of foreign institutional investors to come in and directly invest in the market. This has boosted the performance to 24 percent since the beginning of the year. Comparing this to the other GCC markets, we see that, as compared to Qatar for example is 28 percent growth. Dubai continues to lead the GCC markets, with about 45 percent growth since the beginning of the year.

World Finance: Well what upcoming IPOs are the ones to watch?

Khalid Al-Muammar: The most anticipated IPO is the National Commercial Bank, NCB. This is the second largest bank in Saudi Arabia, it has a total of $100bn worth of assets. It had a profit of $2.1bn in 2013. The government, which owns the majority of the bank is looking at selling 15 percent, which has a value of around $4bn. This will make it the largest IPO since that of STC bank in 2003. Other IPOs to watch are those of Al Habib, which is the largest private healthcare provider in the region. Also ACWA Power, which is a water and power company, and CPC which is part of the Binladin Group, and it’s specialising in construction and building materials.

World Finance: Well finally, how advanced is the sukuk market, and how do you see it developing the future?

Khalid Al-Muammar: The sukuk market has developed tremendously in the last few years. We’ve seen in 2007 through 2009 on average three or four issues per year, with a value of around 8bn SR. This has grown to 11 issues last year with a value of over 40bn SR, making it the second largest sukuk market in the world after Malaysia. Now the expectation for the future is for this market to develop further, with corporations as well as banks tapping into the alternative markets, basically, to grow their assets further.

World Finance: Bernd, Khalid, thank you.

Both: Thank you.