Saudi Arabia's banking sector has traditionally been a closed market for the 10 banks licensed by the Saudi Arabian Monetary Agency (Sama). In 1999 the Kingdom opened its doors to Bahrain-based Gulf International Bank (GIB), which is 22.2% owned by Sama. In recent months, a number of banks headquartered in the GCC have applied for licences to operate in Saudi Arabia under the 1982 GCC Unified Economic Agreement, which has been implemented only on a piecemeal basis by the six GCC states over the past 20 years.
This year three more GCC banks received approval to open branch operations in Saudi Arabia: Emirates Bank International (EBI); National Bank of Kuwait (NBK); and the National Bank of Bahrain (NBB). EBI received its approval in February and is expected to receive its commercial registration to operate a branch office by November 2002. EBI's licence to operate in Saudi Arabia is only the second new banking licence issued (after GIB's) since the 1980s. NBK and NBB received their respective approvals in late September 2002, but will need to obtain commercial registration certificates before they can formally open offices in Saudi Arabia.
Some observers view these developments as a means to strengthen Saudi Arabia's negotiating position with the World Trade Organization by breathing more life into the GCC as an economic bloc. These moves also come in advance of the long-awaited Capital Markets Law in Saudi Arabia, which is expected to open the Kingdom's financial markets to international banks and other financial services companies. By allowing GCC banks into Saudi Arabia now, these banks are likely to be better positioned when the Kingdom opens its doors to other international banks.
Stephen P Matthews and Nabil A Issa