Unexpected announcements from Saudi Arabia are nothing new (just ask golf fans), but the country’s latest move could change the shape of the regional banking sector. It has announced that any international firm that wants to work with the state is required to have their regional headquarters in Saudi Arabia in 2024.
The move stands apart from other Vision 2030 announcements. Where most of Saudi Arabia’s efforts in banking competitiveness have targeted its global competitors (such SNB’s ill-fated acquisition of a 9% stake in Credit Suisse and even its recent football endeavours), this move seems to be much more targeted at its neighbour, the UAE, where many banks and companies are domiciled.
It seems Saudi Arabia wants a bit of what the UAE has. The city of Neom, currently under construction and expected to be completed in 2030, is set to be a special economic zone much like Abu Dhabi and Dubai.
The HQ law doesn’t come into effect until January 2024; in the meantime, banks operating in the region are waiting to see what the small print could involve.
The Saudi state has several mega-projects in the pipe, offering attractive rewards for participating lenders and including the recently announced Mukaab cube-shaped skyscraper in Riyadh, which is set to hold 104,000 residential units, 9,000 hotel rooms and 980,000 square metres of retail space. Neom is expected to cost $500 billion.
Reasons to locate
For investment banks, the lure of capital markets business, much of it state-linked, is strong. The country is expected to continue its run of privatizations and their lucrative returns – recall the $1.7 trillion Saudi Aramco IPO or the opportunities that can come from working with PIF (as of the end of 2022, the sovereign wealth fund had a net worth of $607 billion, which is expected to rise to more than $1 trillion by 2025, according to local financial news provider Argaam).
Are these good enough reasons to relocate? It would change the dynamics of the banking industry in the GCC, with international banks moving their hubs away from Dubai to Riyadh, Jeddah or elsewhere in the Kingdom.
Or would rejigging tax domiciles be enough to carry on with business as usual?
The Saudi government is expected to issue further guidance on what a regional headquarters actually is; in the meantime, banks will have to wait and see what their future in the country looks like.
Some lawyers have suggested the designation could be based around the number of executives based there, or the number people employed in a Saudi office.
Some companies have already moved to the Kingdom, others may be hoping that new guidance will indicate that sending a couple of executives to the country will be enough pass the test. Others will stay put.
One spokesperson for a US international bank tells Euromoney: “Our EMEA regional headquarters are London. We won’t be moving from London to Riyadh.”