Interview: Steve Bertamini
How can the banking sector maintain growth in the current fiscally restrained environment?
STEVE BERTAMINI: While lower oil prices and tighter liquidity are expected to result in slower growth in 2016, the sector should be able to maintain positive momentum overall, as evidenced by the industry’s results in the first quarter. The largest impact to the sector, and the economy, will arise from the recently announced Vision 2030. The major themes of privatisation, small and medium-sized enterprises (SMEs), localisation of defence industries, greater home ownership and the creation of a larger renewable energy industry will create new growth opportunities.
In the short term, we expect the focus on housing and SMEs to have the largest effect on the banking system. Today, SMEs represent over 90% of enterprises in the Kingdom. Many of them are not being leveraged and are seeking to expand. In the area of housing, more affordable housing programmes coupled with the introduction of support for 15% of the down payment for qualified buyers are expected to result in increased demand for loans from the banking and financial services sector. In the medium term, privatisation will increase the need for capital, including access to equity and debt markets. This will create opportunities for both banks and capital companies in the Kingdom, particularly given the desire to increase the number of listed companies.
What progress has Saudi Arabia made in its plans to become less reliant on cash transactions?
BERTAMINI: The Saudi Arabian Monetary Authority has a 2020 strategic plan, and one of its goals is to become a more cashless society. This has resulted in a focus on dramatically increasing points of sale. While the growth has been substantial, the focus is now shifting to utilisation, as cash is still a preferred method of payment, particularly for smaller merchants. Mobile banking, including peer-to-peer, contactless payments and online purchases will create further opportunities to encourage consumers to carry less cash and use other methods of payment. One key area that requires further work is enhancing the legal framework to allow acceptance of electronic signatures. This will make it much easier for consumers and businesses alike to conduct banking transactions in a more convenient and efficient way.
How is increasing customer sophistication transforming the retail banking segment?
BERTAMINI: The biggest driver is demographics. If you look at the population of the Kingdom, 60% is under 30 years old. Also, Saudi Arabia has one of the highest per capita penetrations of smartphones globally, while the most popular global mobile applications have Saudi Arabia in their top three in terms of usage per capita as well. This provides the basis for a very attractive digital offering that can integrate into people’s daily lives. Banking needs to fit seamlessly into their lives by providing the information and tools people require at their fingertips at all times. It is a major priority for the banking sector and an area we are investing heavily in across multiple platforms.
To what extent are we likely to see increasing issuances of sharia-compliant investment vehicles?
BERTAMINI: Around 45% of banking transactions are sharia compliant. If the government stopped expanding sharia-compliant instruments it would risk cutting out a big segment of the market. Recently, floating rate sharia-compliant notes were issued and have seen very high takeup by most of the banks. This is a great example of sector innovation to address a need for funds with multiple maturities, with an attractive proposition for the banking sector. Continued innovation by Islamic banks will grow the number of corporate and commercial products, narrowing the gap between the Islamic and conventional bank offering.
