With the Saudi economy touted for transformational change in the short-to-medium term, understanding the ‘lay of the land’ in its banking sector is critical for investors mulling a commercial entry to the Kingdom.

Currently, in the Kingdom, there are 13 local banks, and 14 foreign banks with licenses to operate. Given the low number of actors, it is not a common occurrence to open up shop in Saudi, and obtaining a license is generally a difficult process, even in circumstances where there is a concerted push to acquire one.

Further to this, an important distinction must be drawn between foreign investment banks and foreign commercial banks. It is more often the case that foreign banks hold investment banking licenses as opposed to commercial banking licenses. Importantly, investment banking institutions are accountable to the Capital Markets Authority (“CMA”) as opposed to SAMA, which is in charge of regulating the stock market and trading and investments. Foreign interests in commercial banking are usually done via shareholdings in the Kingdom’s local banks.

The Bank of Tokyo received a license in December 2016, which makes it the most recent foreign bank to obtain one (Reuters, 13.12.2016). This came amid booming relations between Japan and Saudi Arabia, with the former sourcing 30% of its oil and gas from Saudi. It also demonstrates that deepening ties in strategic sectors vis-à-vis the Saudi establishment will facilitate entry to the banking sector, should this be a priority for foreign investors.

Three Western banks are fully operational in Saudi’s investment banking sector, straddling both the lending and investing spheres. Namely, these are Deutsche Bank, J.P. Morgan, and BNP Paribas.

Deutsche Bank (“DB”) was granted a commercial banking license in July 2004 and opened its first branch in April 2006 in Riyadh. Subsequently, DB opened a securities branch in December 2007, which is regulated by the CMA, as per the relevant banking laws in Saudi. This gives it access to the sector in terms of offering current and/or savings accounts as well as investing in Saudi.

In addition to Deutsche Bank, J.P. Morgan is the only U.S bank to hold two licenses in Saudi (JPMorgan Chase Bank NA holding a commercial license and J.P. Morgan Saudi Arabia Limited a securities license) meaning that it also deals with both SAMA and the CMA (JP Morgan, 14.05.2014).

Finally, BNP Paribas completes the line-up of foreign banks. In June 2004, the Bank declared that the Council of Ministers issued it a universal license at the same time as Deutsche and JP Morgan Chase. Credit Agricole owns a 16% stake in BNP which bolsters the French connection to this particular bank.