Banque Saudi Fransi has developed a strong franchise in its core area of corporate banking. Its ties to Credit Agricole mean it is well placed to capitalise on links to French businesses operating in Saudi Arabia. The bank’s strong project finance business will also benefit from a bulging pipeline of transactions as the kingdom continues its massive public spending plans.

Building the bank’s retail business could be more difficult, given customers’ reluctance to change their banks. While some growth will come from improved selling of products to existing customers, convincing customers to break existing relationships will be a challenge. Retail banking is potentially more lucrative than corporate lending, but it is an area that most banks in Saudi Arabia are now targeting for growth, making it fiercely competitive.

The biggest problem facing the bank is the low interest rates in Saudi Arabia. Until rates start to recover, margins will be thin. Its strong brokerage business will also help profits when the fragile Tadawul starts to recover.

The bank largely avoided the kind of name-lending transactions that have ended with huge defaults in the kingdom. As a result, it is well placed to meet demand as corporate borrowing picks up in 2011.

Competition will be intense, however, as most Saudi banks are highly liquid and eagerly seeking new customers and lending opportunities.

The bank’s bond issue should provide a dollar funding source and help it gain an edge over the competition, which still prefers to lend in the local currency. That will mean the bank will remain one of the top corporate lenders in the kingdom. Catching up with the competition on the retail side will be more difficult.