RIYADH, 28 December — Despite being banned from operating as single ventures in the Kingdom, several international banks are nevertheless unofficially promoting their services in Saudi financial markets, particularly in financing small and medium investment projects in the real estate sector that have long been neglected by local banks.
Most international banks which have branches in Bahrain and United Arab Emirates offer loans at lower rates than local banks. Their strategy has been to lure banking executives in the Kingdom who are familiar with the local financial and investment environment to Gulf branches or European headquarters.
An official of a local bank said several European and American banks now appoint Arab speakers to contact medium level Saudi businessmen and investors to inform them about the foreign banks’ willingness to give them loans. A Saudi investor said he was surprised by certain Swiss and French banks which approached him recently and offered him loans for his medium and small building projects, with a budget of less than $10 million (SR37.5 million), at lower interests rates than Saudi banks are used to charging. The repayment period was also favorable, the businessman added. However, the only condition the banks laid down after they studied his project was to give a financial guarantee issued by a local bank.
The foreign banks are able unofficially to enter the Kingdom’s market because of the closed nature of banking in the Kingdom and because competition among local banks is restricted by internal regulations. In such circumstances, and in the face of growing financing needs, local investors are attracted by the offers of the foreign banks.
However, a local banking source ruled out the activities of foreign banks making any negative impact on the Kingdom’s banks. He said European banks insist on bank guarantees issued by local banks before they extend loans to customers in the Kingdom and the bank’s operations inside the Kingdom are unofficial because they have not been licensed by the Saudi Arabian Monetary Fund, which functions as the Kingdom’s central bank. He added that already several notable banking personnel in Saudi Arabia are working with European banks. They offer special services in investment and financing and contact potential Saudi investors to offer them consultative services on investments in European countries such as marketing and investment portfolios.
