The “Robust” Saudi Banking Sector: A Conversation with Khaled AlKhattaf

Published: October 20, 2011

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[Courtesy of SBRIS]

EXCLUSIVE

Editor’s Note:

The Kingdom of Saudi Arabia was invited as the guest of honor at this year’s Flanders International Trade Fair, known as ACCENTA, billed as the largest such exhibition in Europe. The Riyadh-based Committee for International Trade (CIT) organized a one-day symposium, the Saudi-European Economic Forum, under the auspices of the Saudi Ministry of Commerce and Industry (MOCI), alongside the ACCENTA 2011 trade fair. The Forum brought together Saudi and European leaders from the public and private sectors to highlight the trade relationship between the Kingdom and the European community in general and Belgium in particular. The ACCENTA fair featured a pavilion, organized by MOCI, that combined Saudi culture and history along with displays by prominent enterprises and organizations in the Kingdom. The SBRIS special section on ACCENTA provides additional background material on the trade fair and the forum, and will serve as an index to further articles and interviews on these topics.

Flanders Expo Center in Ghent, Belgium is home to Accenta 2011 and the Saudi-European Economic Forum. (Photo: SBRIS)

In addition to covering the ACCENTA trade fair and the Saudi-European Economic Forum in Ghent, SBRIS had an opportunity on the sidelines to talk with the officials and business people who took part. Today we are pleased to present our exclusive interview with Mr. Khaled S. AlKhattaf, Managing Director & Chief Executive Officer, Nomura Saudi Arabia. He worked in the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank, in different positions starting in dispute settlements and later in the Investment Department. He was a member of the technical team representing Saudi Arabia during the WTO accession process, the G20 technical team, and in the Santiago Sovereign Wealth Funds Agreement. In 2000 he moved to Washington to work for the World Bank as an officer in the Multilateral Investment Guarantee Agency (MIGA) and afterward in the Bank treasury. By the end of 2005 he returned to Saudi Arabia to work in SAMA’s investment department. Afterward, he moved on to become the Saudi stock exchange CFO in 2008. Mr. AlKhattaf brought his considerable portfolio to service as the first CEO of Nomura Saudi Arabia, an arm of the Japanese investment bank. We started our conversation with Mr. AlKhattaf by asking about the current economic environment in the Kingdom.

Look for additional articles and interviews about ACCENTA 2011 on SBRIS which will provide reporting on European-Saudi developments as well as to serve as a chronicle of British-Saudi relations.

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Saudi-European Economic Forum
Accenta – September 10, 2011
Ghent, Belgium

The “Robust” Saudi Banking Sector: A Conversation with Khaled AlKhattaf

SBRIS: How well did Saudi Arabia weather the global recession?

Khaled AlKhattaf
Khaled AlKhattaf, CEO Nomura Saudi Arabia

Khaled S. AlKhattaf: The Saudi economy weathered the 2008 market crash and the recession afterward very well. The recession started in the banking industry globally and if you look at the banking industry in Saudi Arabia, I think it is regulated in a very active and sound fashion. The central bank has always been prudent and vigilant. There is an ongoing dialogue between the commercial banks and the central bank so at any moment the central bank is, to a large extent, very aware of the type of risk in the banking sector. Some observers used to accuse the regulator of being too conservative, for quite some time, however, the regulator stuck to its belief and way of doing business. Part of the reason for this conservatism is that most of the officials in the central bank and even those running the banks are students of the Western economy. They diligently implemented what they learned, while in some countries others fell into the trap of “this time it is different.”

SBRIS: Bending the rules?

AlKhattaf: I wouldn’t say bending the rules, but I think they believed the world was going through a different economic cycle or stage in history and that what happened in the past may not happen again. Meanwhile, the banking industry in Saudi Arabia played it by the book.

SBRIS : Was there an effect on banking as a result of the global problems?

AlKhattaf: Of course there was some effect but it was of the scale that the banks were able to manage it without the need for government intervention. At the same time banks in Europe and the United States were going through very different, chaotic situations. In Saudi Arabia the banks enjoyed a very good level of capitalization, very good levels of liquidity and the deposits basically were not at risk like what was taking place elsewhere. That’s the story, a success story of regulation and supervision.

SBRIS: How strong are the relationships between the banking sector in Saudi Arabia and those in Europe and the United States?

AlKhattaf: The banking sector benefited greatly from these long and strong relationships. For example, one of the leading banks, SAMBA, was created by a partnership between Citigroup and Saudi investors.

The beauty of the banking sector in Saudi Arabia is that it started with diverse foreign partnerships, started by a Dutch bank in the late 1920’s and then you have the HSBCs of the world, the Citigroup and others like BNP Paribas as well as regional banks like the Arab Bank of Jordan. So the participation was diverse. It wasn’t just one country that was giving its expertise.

The American banking system helped a lot as a player on the ground back then, and also for training. Training was in areas of the banking industry and other financial services like leasing and insurance, as well as on the regulatory level where connections with the Federal Reserve, the Bank of England and other major centers for central banking and commercial banking helped the banking in Saudi to reach the level that it is in now.

So the banking sector has always been very active and engaging with other parts of the world.

SBRIS: What impact does it have on the Saudi economy when American politicians can’t agree on the way ahead or troubles in the Euro-zone go unresolved? What is the spillover or contagion effect on the Kingdom?

AlKhattaf: Lets start with the last part, contagion. Our economy is based on the ability of the world to actually function because we sell oil and we sell petrochemicals. These are the keys to many industries. So if the United States and Europe go through a prolonged slowdown, we will be affected no doubt. Is it going to have a major spillover into our economy? Probably to some extent, but I don’t think it will last for long. Because again we are students of the American and European economy and if you read the history of recessions, it is one of those things that takes place – some recessions are longer than others – but at the end of the day it is a cycle. Countries go through it and one way or the other those countries, whether the Europeans or the Americans, are known for knowing how to come out of it. It may take longer than we expect. Some officials in Europe at the beginning of the recession thought that it would take six months; some economists were saying it would be longer. We are obviously still living through it.

SBRIS: At the Saudi-European Economic Forum you and others spoke about the attractive business opportunities that were open to foreign investors in Saudi Arabia. Talk about those presentations?

AlKhattaf: For investors interested in investing in developing countries with no deep knowledge about those targeted countries, investors tend to search for issues like corporate governance, social norms, history of expropriations and civil disturbance; do people in that country have a habit of breaching agreed upon contracts? That’s to name a few issues. And investors get their information from different source.

There are developing countries that have history of some of these negatives, in one form or another. To a large extent the Saudi experience has been anything but that.

SBRIS: Why?

Khaled AlKhattaf, CEO Nomura Saudi Arabia at the Saudi-European Economic Forum in Ghent, Belgium
Khaled AlKhattaf, CEO Nomura Saudi Arabia at the Saudi-European Economic Forum in Ghent, Belgium (Photo: SBRIS)

AlKhattaf:  Because the Saudi economy was built on foreign investment, and to be specific the oil industry story. We invited foreign partners in the United States, Europe and elsewhere. If we had shown a history of some of those negatives, whether it was expropriation or what have you, you would not have seen the level of FDI coming into our major industries like petrochemicals and the infrastructure in such big numbers.

We realize, however, we are in the neighborhood of the Middle East and for many investors they label us because of that. Some investors that I meet think of the Middle East as one country. But it is a group of countries and each one differs from the others — different political system, society, history, ideology, etcetera. In the case of Saudi Arabia, and since the creation of the country we have not changed.  We stick to what we promise, we are willing to listen and work with others. And we have worked hard to become active part of the international financial forums; Saudi Arabia is active in the World Bank, the IMF and the WTO, and we are present in most of the United Nations groups. We are also a member of the Group of Twenty, the G20.

SBRIS: Many observers have noted that Saudi Arabia has emerged to become more assertive, more active in foreign affairs. Is that the case in the financial sector?

AlKhattaf: I think so. Saudi Arabia has the most robust banking sector in the region; the numbers attest to it. We have developed institutional “know how,” in the regulatory body and in the financial sector itself, and we have a good history.

We don’t have the hundreds of years experience of some countries, but in 80 years of financial industry history we have built and accumulated a good expertise and leadership. We developed the ability to absorb new technology and to develop new ideas. We have invested heavily in manpower in the commercial banking industry and in the investment banking industry. We took it to another step in 2003 when the government actually separated the investment banking operation outside commercial banking. It was a way to add even more understanding, transparency and control of the risk within the banking sector in Saudi Arabia.

Saudi Arabia has created the body of the Capital Market Authority, the CMA. It has been very active in engaging with the investment community. They have proven to be very influential in providing a transparent market that makes sure that if you are there to invest, you are protected by laws and regulations.

SBRIS: Lets talk about the challenges that lie ahead. What are the next hurdles for the economy and business people in Saudi Arabia?

AlKhattaf: Challenges can be opportunities. One of the challenges comes from the demographics of Saudi Arabia, the youth. The economy has to make sure that the youth, as they come to the workforce, they come prepared either through higher education or vocational training. We want to make sure they are ready for current and future jobs. Youth need to be willing to work anywhere in Saudi Arabia. We would love to see more labor mobility within Saudi Arabia. We have had very good success in the industrial area of the Eastern Province, where we have people from all parts of Saudi Arabia. But we have to make sure that this is an ongoing process. That is the challenge. We just have to increase the capacity to absorb those youth.

SBRIS: Nationalization of the work force has been talked about for quite a few years. How is it different now? Are you optimistic that it is going to have better success?

AlKhattaf: Yes. I think this time the process has a different approach than the previous time. The approach now is to ask a businessman the question; what business needs in terms of manpower. If businesses want to hire A, B or C, what are the expectations. Hence, the government has put this serious and huge investment in human development, in education, and training. There is even the role of the industrial cities that are being created that will serve to absorb the youth into the labor market.

Will it take time? Yes, it will take time but the investment in those youth started a while ago, it is not a new thing, it’s a continuation. But this time it is a more focused process. We are all products of that investment in manpower and we are seeing the benefit of that investment.

I think Saudization is going to take place, it’s not only about quotas. It’s going to take place because the quality of youth that is now emerging into the workforce is competitive, is trained to have high ambition and they love a challenge. They have better ability to deal with technology, with languages, it is just much different.

SBRIS: What are the last thoughts about the Saudi economy you would like to share?

AlKhattaf: I think the Saudi marketplace is evolving. I wouldn’t say it was the only unique case, as some note there are the “BRIC” countries. [Brazil, Russia, India and China] But it is a gate for the MENA region. If you invest in Saudi Arabia to produce and to meet the demand in Saudi Arabia you will reach such a large capacity that you will end up selling to other GCC countries and to some other countries in the MENA region. You can see that now in many industries. The food processing industry in Saudi Arabia, for example, when they built the capacity to provide for the Saudi market they ended up selling to the others because of the sheer size of the economy and demand.

So Saudi Arabia is a gate. It is a very good gate for the region. The recipe for creating a successful business is there, The rules and regulations, the incentives, whether it is the tax holidays, whether it’s the land or the industrial cities, the financing to mention some incentives, it is all there. And most importantly, the market access to other countries is there. Saudi Arabia has access to the Arab Common Market, the GCC and the rest of the region.

From a risk – reward point of view, I think it is well positioned. Investors tend to have reasons for being optimistic, they look at different positives and negatives, look at different success factors, look at the inputs and outputs.  In Saudi Arabia, most of the factors are pointing toward success.

SBRIS: Thank you so much.

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About Khaled AlKhattaf

Khaled AlKhattaf
Khaled AlKhattaf, CEO Nomura Saudi Arabia

In recent years, Khaled served as the CEO and Managing Director of Nomura Saudi Arabia and has more than 20 years of international markets experience ranging from international trade while representing Saudi Arabia during the country’s accession process to the World Trade Organization (WTO), international finance while serving in the World Bank, and international capital market and asset management while serving at The World Bank Treasury and SAMA.

Prior to joining Nomura, Khaled was the CFO of the Saudi Stock Exchange (Tadawul).
Khaled obtained a Masters of Science in Finance and Accounting from the University of Colorado and a Graduate Certificate of Applied Economics from the American University, Washington DC.

About Nomura Saudi Arabia

Nomura Saudi Arabia, “NSA”, was established with the intention of creating a fully licensed entity to provide investment banking and capital markets advisory services in the Kingdom of Saudi Arabia. NSA is one of just a handful of foreign investment banks, incorporated in Saudi Arabia as a closed joint stock company and is owned 99% by Nomura Investment Banking (Middle East) B.S.C., registered in the Kingdom of Bahrain.

NSA was incorporated as a Saudi Closed Joint Stock Company in April 2009 and commenced operations in July 2009. NSA is licensed by the CMA to deal as principal and as agent for overseas securities (except margin trading), managing investments funds and corporate portfolios, arranging as a corporate finance advisor, advising as an investment advisor and securities custody services.

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