Saudi Arabia's banks are not big by global standards but all of them have big grins on their corporate faces this year. Last year, all 10 Saudi banks reported strong earnings growth: in fact, the worst performer grew profits by a reassuring 10 percent. All of them also saw their total assets grow. The first-half interim results for this year suggest that the good times are continuing to roll: all but one of the players posted six-month earnings growth in double-digit territory.

That this is in stark contrast to other regional markets is the product of a number of factors: under Dr Hamad Saud Al-Sayari, the central bank is widely regarded as one of the best regulators in the region; the Saudi economy is booming and the retail banking market, long left untouched, has shown a remarkable capacity for sustained growth.

It is difficult to find a senior banker in the Kingdom who can stop himself smiling when asked about the growth of consumer banking, and the potential for future growth. "We want to become the premier consumer bank in the Kingdom, and basically we have chosen this vision because we believe that it holds the biggest opportunity," says Abdullah Bahamdan, chairman of National Commercial Bank, in terms of assets the largest bank not only in Saudi Arabia but also in the whole Arab world.

"We are a youthful country — 60 percent of our population is below the age of 20, as such there is a growing middle income market in the Kingdom, and these are usually very lucrative for consumer banks to take advantage of and I would say all consumer related activities are poised to grow in the future." Such thinking, which would meet with little disagreement in the boardrooms of most other banks, has been backed up with action on a number of fronts. Over the last year or so, a number of the institutions have launched sophisticated online banking services, and those that haven't are in the process of preparing to do so. But these platforms have not been launched for the sake of it.

"We have yet to see a successful model, where an e-bank exists alone," says Bahamdan. "In our case, I think we have a mix of 'clicks and bricks', we have an internet offering with a variety of functions, and also we have a physical presence, supported by the call centre and the ATM network."

While meeting the needs of the consumer market has driven the industry forward over the last couple of years, there is also a rich seam of corporate and project finance to be mined. Since the last oil price crash, and the subsequent recovery, there has been a longer time-lag than usual in the re-launching of a string of infrastructure and industrial projects. One of the impacts this has had on the banking sector is that they have had to manage their books in an environment of limited loan demand. It is not surprising that the balance sheets of most have a considerably more conservative profile than their chief executives would like: loan/deposit ratios at many are hovering just above 50 percent.

However, relief will soon be on hand as there are a string of major projects on the verge of turning to the bankers for financing. The full benefits of increased corporate credit demand are unlikely to be felt before the end of this year, but 2002 looks set to be boom-time for the banks. In the context of already strong performances, it is not surprising that the country's bankers are growing ever more excitable.

And with the pickings as rich as this, it is predictable that imminent Saudi membership of the World Trade Organization and the impact it will have on the banking community is one of the more hotly debated subjects. At some point the barriers preventing international banks entering the market will crumble.

"Of course there will be more competition, but although we might at first glance say that the banking sector is closed to foreign competition, we are actually in competition with them every day, because Saudi American Bank is a joint venture with Citigroup and Saudi British Bank is a joint venture with HSBC," says Bahamdan.

"When others come, there will be new arenas of competition, areas like investment and private banking. We believe that competition will be intensive, but also we believe that it will be difficult for foreign competitors to come and acquire distribution capability, and credibility, overnight," he says.

There is also the possibility that the equation might be inverted. When the barriers come down, the large Saudi banks might choose to be the giants striding into the other regional markets. And that would open up even more opportunity.

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