SAUDI Investment Bank (Saib) has had to make a virtue out of its changing fortunes during the two decades since its inception. Established as an investment bank, Saib now provides a full range of commercial banking services. Originally set up to finance Saudi Arabia's nascent industry, the bank now targets only the largest corporates and wealthiest individuals. And, in spite of possessing one of the broadest articles of association of any of Saudi Arabia's 12 commercial banks, it is the second smallest in terms of assets.

History and structure: The institution began life in 1976 as the Saudi Investment Banking Corporation, set up as one of the pioneer joint-venture banks to provide medium-term financing for industrial projects. At this time the kingdom had few local institutions providing the services required by the armies of international contractors then descending on the kingdom to snap up lucrative infrastructure projects. The bank's remit was to complement the activities of the government agencies, such as the Saudi Industrial Development Fund. In addition, it was to provide experience of international financing to other local institutions that figured among its shareholders.

But the corporation quickly found it could not compete with the concessionary financing offered by the government agencies. And the corporation soon found itself outpaced as the local banks built up their capabilities. So the bank sought a new direction, and in 1983 was granted a commercial banking licence. The corporation label was dropped.

Through the 1980s the bank spent much of its time clearing up loans it had taken on before being granted a commercial licence and coping with the difficulties of being a latecomer to the commercial banking scene. 'Since then the bank has taken great steps in reviewing its philosophy,' says general manager Saud Saleh al-Saleh. By 1988, the bank had embarked on its latest phase of development.

Saib's ownership structure, the broadest of any joint-venture bank, reflects the bank's various stages of development. Originally four foreign bank's held 35 per cent of Saib. Chase Manhattan held a 20 per cent stake, and Industrial Bank of Japan, the London-based J Henry Schroder Wagg and Germany's Commerzbank each held 5 per cent. Saudi Arabia's General Organisation for Social Insurance, National Commercial Bank and Riyad Bank each held an 8 per cent stake, and Bank al-Jazira held a 5 per cent stake. The remaining 36 per cent was owned by local investors.

In 1988, Commerzbank sold its holding and Chase reduced its stake by 5 per cent, at the same time as the US bank's management contract expired. The balance was taken up by the local National Industrialisation Corporation.

Jack Knippenberg, group head of business generation, says the diversified share structure is unique among the joint-venture institutions, and is more a reflection of the past than of the bank's present direction. However, he says such diversity has its advantages. 'By virtue of affiliation, as the smallest bank in the kingdom it does help to say we have contacts in the world's biggest financial centres of New York, London and Tokyo, and to say we are related to the biggest banks in the kingdom.' This share structure may change over time, as the bank's capital is increased and the present shareholders' stakes are diluted, he says.

Knippenberg himself worked with Chase Manhattan for about 25 years, before joining Saib, first as part of the US bank's management team, then as its representative on the board, before being appointed to his present position in 1991.

Saud Saleh al-Saleh is a more recent appointment, taking up his position as general manager in July 1994. He joined the bank in 1987 after four years with Arab National Bank.

Strategy: 'The focus of the bank is now really to utilise our size to provide the quality services the Saudi market requires and demands,' says Al-Saleh. This in practice means building up corporate banking activity, and offering a full range of retail services to Saudi Arabia's wealthier citizens.

The bank now claims to have a highly rated loan portfolio, with industrial loans making up 38 per cent of the total. On the retail side, the bank has not tried to compete with the larger institutions which extend their services to all levels of the community.

'We don't have 100 branches, and we don't want 100 branches,' insists Al-Saleh. In fact, the bank only has 10 branches with as many automated teller machines (ATMs). And the bank employs about 270 people, down from its 1986 high of 360.

Al-Saleh says the bank is concentrating its efforts on a select range of services, such as share trading. In its Riyadh head office, the bank operates a trading room which is open until midnight, or later on occasions, for customers who trade on the New York exchange. It has also given over most of the ground floor to space for customers to track the Saudi share market.

With this relatively small operation, the bank can put more effort into enhancing the quality of its customer services. But the services available, ranging from the spotless branches to sophisticated financial products, come at a price. 'We are no McDonald's hamburger take away, we are a more like a French restaurant,' explains Knippenberg. 'You get a good atmosphere, good food, good service, and you have to pay for it.'

Performance: Fee income has been one of the main growth areas in Saib's earnings. In 1994, fees rose by 45 per cent, to SR 25 million. This was one of the main contributing factors to the bank's 11 per cent increase in profits during the year to SR 67 million. Last year was the ninth successive year of profit rises. By comparison, assets rose by only 6 per cent to SR 6,598 million in the same period. Saib does not expect to see those assets grow much further during 1995.

But one issue which does need to be addressed during 1995 is increasing the capital base. 'We are very much leveraging capital to the maximum,' says Al-Saleh. 'Raising the capital is not an option, it is a must now if we want to grow and compete effectively.'

This is unlikely to be by public offering while the current poor market conditions prevail. It is more likely to be a case of continuing to retain earnings, Al-Saleh says. Shareholder's equity was SR 428 million at the end of 1994, and the ratio of equity to assets was the lowest of any of the banks in the kingdom. The bank's target for shareholder's equity during the next four years is SR 1,500 million.

The bank has not issued a dividend for several years, and is unlikely to do so until the shareholding base is expanded, says Knippenberg. In the meantime, the bank has built up reserves against bad loans in excess of 5 per cent of the loan portfolio, one of the most conservative ratios among Saudi banks.

Outlook: The bank plans to continue to take a conservative attitude to new loans, while concentrating on building closer relations with its selected individual and corporate clients. Al-Saleh is confident that this year the bank can turn in a further healthy increase in profits. In April, Saib announced an almost 4 per cent increase in first quarter profits for 1995. But a return to dividend payments appears to be some way off.

The intimate atmosphere of its head-quarters and ease of access to senior management suggest a private bank but Saib wants to avoid being branded as a specialised institution. The bank plans to continue offering a wide range of services to those who are ready to pay for it. 'Private banking in the kingdom is still at the level of a messenger service and shoe shining,' says Al-Saleh. 'We are not going to be labelled as specialised.'