Saudi Arabia opens up its banking sector

In a surprise move Saudi Arabia announced that it would allow an international bank to begin independent operations in the Kingdom.

This will be the first time such a bank has opened since the 1970s, when the banking industry was nationalised. The Saudi Arabian Monetary Agency has approved a license for Deutsche Bank AG, Europe's second-biggest bank by assets, to open a branch.

Jammaz al-Suhaimi, the central bank's deputy governor, told newswires in a telephone interview that `we are studying other applications from
international banks and are likely to approve some of them.'

Sceptics will question how quickly Deutsche will be allowed to set up operations or whether the move takes place at all. But the announcement on its own is an important symbol of Saudi Arabia's
current desire to bring about economic reform.

Liberalisation of the banking system has historically been one of the sticking points for WTO membership, entry to which Saudi policy makers are now talking about being a serious possibility within the next twelve months.

From Saudi Arabia's perspective Deutsche's presence will be an important vote of confidence in the economy, especially at a time when international press headlines are focusing on political pressures.

It also reflects a shift in Saudi policy towards strengthening its economic and political ties to Europe, which it sees as a balance to its historic partnership with the US.

A bilateral trade deal with the EU was signed in September. Given the current demographic pressures in the Kingdom, and our view that the medium term outlook for oil prices is down, the announcements on reform are welcome but implementation is needed quickly.