In what ways are banks preparing for future lending growth as demand increases in the private sector and government projects are implemented?
VAN LINDER: The Kingdom’s banks are in good shape. Many of them have recently strengthened their already strong capital positions through the issue of subordinated Sharia-compliant instruments. Given their strong capital positions, solid coverage of non-performing loans and excellent liquidity, Saudi banks are well equipped to support the growth of the Kingdom across all segments of the economy. Credit supplied by Saudi banks to the private sector grew by some 15% last year; I expect to see similar growth this year.
To what extent will small- and medium-sized enterprises (SMEs) lending only take off with a greater commitment to offer underwriting to banks?
VAN LINDER: In many countries, small- and medium-sized enterprises are the key creators of jobs. This has also been recognised within the Kingdom, and the government, the regulators, and the Saudi banks have all come together in order to stimulate further growth of the SME segment. One example of this is the Kafala guarantee programme, where there is already strong support from the government. Exposure under the Kafala programme has increased substantially, and banks are keen to further increase this.
Of course, there are areas for improvement. Changing Kafala into a portfolio guarantee scheme rather than an individual loan scheme would increase efficiency and take-up. Moreover, different capital treatment for diversified SME portfolios would make the segment even more attractive to Saudi banks. Both of these changes would be relatively easy to implement.
What can be done to help facilitate the development of securitised products and other vehicles for debt issuance?
VAN LINDER: The new mortgage law contains various provisions that may facilitate the development of debt capital markets. This includes establishing special purpose vehicles for debt issuance as well as measures to support the creation of securitised products, particularly in the mortgage and wider asset-backed space.
More fundamentally, however, the market requires both more issuers and investors before securitisation can really take off. With the continuing growth of lease financing companies, I expect they will become more active issuers of securitised products. Alongside this, pension funds, insurance companies and mutual funds are developing an interest as investors. Although this may not happen overnight, placing these developments together has made me very positive about the potential of this new market in the medium term.
How concerned should consumers be by security issues, especially around electronic services such as mobile banking and ATM offerings?
VAN LINDER: Saudi banks are well aware of their responsibility when it comes to ensuring the safety and security of their customers who use any of the varied channels that are available. This is further reinforced by the clear and robust regulation that is in place. As long as customers do not share their confidential information with anyone, and take the normal precautions when using these alternative channels, their banking experience should be both easy and safe.
To what extent will the new mortgage law alter the relationship between banks and their clients?
VAN LINDER: One thing that has already changed is the prominence of home finance as an anchor product in the relationship between banks and their customers, who increasingly select their “house bank” on the basis of what mortgage products are on offer.
Customers increasingly conduct most, if not all, of their banking business with this chosen bank. The implementation of the mortgage law is likely to act as a catalyst for the further growth of the home finance business and this will embed the house bank trend.
