NCB takes stock following $6 billion IPO, the largest ever in the Arab world

Saudi Arabia claimed one of the biggest floatations of 2014 as National Commercial Bank (NCB) presented its IPO, marking a new high for investment in the region’s banking sector and a massive vote in confidence for the company itself.

The $6 billion IPO came at a time when interest in investment banking was still struggling to return following the global financial crisis that began in earnest in 2008. Yet it was those very events that caught the eye of investors, who were keen for a sustainable approach after the volatility swirling around Western banking institutions.

Part of that steady outlook is down to the region’s Islamic banking principles; something that Sarah Jammaz Al Suhaimi, Chief Executive Officer of NCB Capital, admits has cemented the reputation of Saudi banks as dependable investments.

“The crisis was in part the result of insufficient regulation and a lack of transparency,” she explains. “The global focus on addressing these shortcomings has been helpful to our region, with enhanced regulation on reporting and disclosures by listed companies, new requirements on the composition and quality of boards, and more independence for control functions and their board counterparts. 

“There has been a dual impact on the investment banks: we have benefited from these enhancements as corporates, and we also play an important role in educating our clients and implementing regulations on behalf of our regulators. Having said all this, the Saudi investment banking sector did not and will likely never represent the type of systemic risk that we saw in the West. It has never offered the types of products that were at the heart of the financial crisis, there is negligible leverage in the system, and investment banks are subject to high capital requirements relative to their proprietary trading activities.” 

NCB Capital is one of a number of players within the Saudi banking sector that is watching local developments carefully for opportunities, not least the opening of the Saudi Stock Exchange, which is set to develop financial economic integration.

Ms Al Suhaimi says the development is the “continuation of a long-term strategy” and will provide more opportunities for foreign investors who will benefit as firms ensure they are “more focused on clients, service and quality as they have to compete with more markets.” However wholesale changes, such as investors taking places on boards, are not likely on a widespread basis in the near-term but the changes are expected to deliver improved transparency and governance, she adds, and a better general market environment. 

NCB Capital is also well placed to offer services to investors eyeing up the region, after the company launched its research division in 2007, giving the firm a head start as more multinationals look to enter the market.
Part of that local knowledge is gained from NCB’s initiative that focuses on employing talented young Saudis and training them up within the organisation so they gain from the company’s long experience of offering mutual funds and products such as the world’s largest Sharia-compliant fund. 

“The more we focus on people and providing them with the environment and the tools to excel, the better the quality of products and services for our clients. That is what keeps us going and makes us successful,” she says.
Saudi Arabia’s increasingly active private sector is also providing opportunities to banks such as NCB, with job creation and investment helping to develop a more diversified economy that is less reliant on oil revenues.

“The banks in general have an important role to play, by directing capital to growth opportunities,” Ms Al Suhaimi says, who expects NCB to become “a major financier” of the future private sector growth. 
There is also considerable opportunity for the likes of NCB to expand the banking options available to the Saudi population, which Ms Al Suhaimi states is best achieved through increasing education around financial products and services.

“We believe that everyone can benefit from better decision making with their assets,” she says. “Saudi families and businesses have a trillion riyals sitting in current accounts earning nothing. While the banks may benefit from this, the opportunity cost for the average Saudi family is high. We want to help them make better decisions, and our internal research suggests that education is the key.” 

Given NCB’s successful float last year, both local investors and international firms already seem aware of the potential that Saudi Arabia’s financial services industry offers. 

“The level of demand shows the depth and liquidity of the Saudi capital markets,” she adds. “Our market has strong regulation, deep investor interest, large and established brokers, and increasing research coverage.” 
Such a combination of factors should ensure a sustainable future for Saudi’s banking sector and increasingly attractive services for global investors and the kingdom’s local population.