Saudi Arabia is exploring the possibility of granting more licenses to foreign banks and easing restrictions on their operations to boost growth in the private sector, people with knowledge of the matter said.
The Saudi Arabian Monetary Agency, or SAMA as the central bank is known, is weighing proposals that would allow foreign banks to open more branches and offer products including mortgages and small-business loans in the kingdom, the people said, asking not to be identified as the information is private. The Boston Consulting Group has prepared a report for SAMA on the proposed changes and their potential impact, according to the people.
Saudi Arabia is seeking to increase the role of the private sector in the economy to 65 percent of output by 2030, up from 40 percent, as it undertakes an unprecedented set of reforms driven by Deputy Crown Prince Mohammed Bin Salman. The kingdom intends in part to achieve this through increased bank lending for small businesses and home buyers, according to details of the country’s economic transformation program released in June.
“Saudi Arabia is very eager to attract foreign investors and build trade and financial ties as part of a plan to diversify the economy away from oil,” Aqib Mehboob, a senior analyst at Saudi Fransi Capital, said by phone from Riyadh. “Given the volume of deals that are set to occur across government debt sales and privatizations, many international banks will want to establish a presence in the kingdom.”
Loosening restrictions on foreign lenders would increase competition among the 25 banks licensed to operate in Saudi Arabia, the Middle East’s largest economy and second most populous nation. The 13 international lenders licensed by SAMA, including JPMorgan Chase & Co., BNP Paribas and Deutsche Bank AG., currently face limitations on what products they can offer and how many branches they can open.
SAMA and BCG didn’t immediately return calls seeking comment.
Credit Suisse Group AG is seeking to secure a banking license in Saudi Arabia as part of plans to expand in the kingdom, Iqbal Khan, head of the bank’s international wealth-management business, said in an interview earlier this month. A SAMA license allows banks to operate branches in the country and take deposits in local currency.
The government forced foreign banks to sell majority stakes in their local operations to Saudi entities in the 1970s, though a 2003 capital-market law opened the door for foreign banks to apply for licenses. Some foreign banks still have holdings in Saudi lenders, including HSBC Holdings Plc’s 40 percent stake in Saudi British Bank, and Credit Agricole SA’s 31 percent holding in Banque Saudi Fransi. Citigroup Inc. lost its presence in Saudi Arabia when it sold its stake in Samba Financial Group in 2004.
Saudi banking stocks have slumped as economic growth has slowed, liquidity has tightened, and the government ordered them to reschedule consumer loans of clients affected by public sector pay cuts.
The price-to-book ratio for a stock index comprised of the country’s 12 local banks fell to 1.016 on Sunday, the lowest level since Bloomberg started tracking the data in 2006. The price to book ratio was 1.0603 on Wednesday.