National Commercial Bank (NCB), is set to invest billions of dollars in the kingdom's mega-projects sector as part of a plan to capture a 20 per cent share of the country's project finance market.
Abdulkareem Abu al-Nasr, chief executive officer of NCB the kingdom's largest bank by assets, says the project finance sector offers one of its biggest growth opportunities.
The first investments will be through a tie-up with US investment bank Goldman Sachs that is awaiting regulatory approval and is expected to be officially announced in the summer.
Traditionally, NCB has not had a strong presence in project finance but it has begun investing in building its capabilities.
"We are focusing on strengthening our project finance business to play a greater role in funding some of the megaprojects that are planned," says Al-Nasr.
NCB is in talks with international banks about securing deals to act as strategic partners in the Saudi Arabian project finance sector, he adds.
"Alliances could come in many forms," he says. "It could be with one bank or a few banks acting as preferred partners. It will depend on the industry.
"Some industries, such as aviation finance, require a greater degree of specialist expertise, so it could be wise to bring in a partner with that experience."
Al-Nasr says the bank eventually hopes to capture a market share that reflects NCB's size. "If you look at our other areas of operation in the kingdom, such as retail banking, we generally have a market share of about 20 per cent," he claims. "So we would like to capture our share."
However, the rise in the cost of dollar funding will make this a difficult task, he concedes.
"Most projects require dollar funding," he says. "It is not easy for a Saudi bank to source that, and there are international players that are more competitive.
"But I believe there is a role for the local banking system to play, and that is why we are looking at collaborating with inter-national banks."
NCB is also working with Goldman Sachs on a deal that will give the US bank access to the Saudi market through NCB's investment banking subsidiary, NCB Capital.
The deal will enable NCB to leverage the investment banking skills of Goldman Sachs in the Saudi market.
The two firms are seeking the final regulatory approval required for the deal and expect to announce the launch of the joint venture in the second quarter of this year.
"There is a possibility this deal could involve cross-shareholdings," says Al-Nasr. "That is one of the things we have put on the table."
The deals are part of NCB's strategy to expand the scope of the bank's operations. Other new areas it is expanding into include Islamic insurance (Takaful), private equity, real estate finance and auto leasing.
Earlier this year, NCB Capital bought a stake in Dubai-based private equity firm HBG Holdings as part of its wider regional growth plans (MEED 29:3:08).
The acquisition of HBG's management company was made through NCB Capital's Oryx Regional Private Equity Fund.
The investment makes Oryx a major shareholder and investor in HBG's own $200m private equity fund.
That fund is assessing investments in the retail, logistics, fin-ancial services and infrastructure sectors across the Middle East.