The number of affluent high net worth individuals is forecast to grow by 39 per cent over the coming decade
Region's economic diversification gives way to resurgence of wealth managers
Private bankers are making a beeline to Saudi Arabia, beefing up their presence following the tanking of oil prices, the largest drop since the 2008 financial crisis, on hope that a wide scale reform programme may reap dividends.
Some of the biggest names in private banking – UBS, Credit Suisse and Julius Baer – are bullish about wealth creation in the region’s largest economy, which has increasingly been opening up to the global economy; allowing foreign investment and selling off stakes in state assets such as Aramco, the world’s biggest oil producer. As they vie to increase their market share of the business, banks are hiring more relationship managers to meet the uptick in demand for wealth management services.
At stake for banks is one of the highest concentrations of wealth per capita in the world. Wealth in the Middle East grew at an average of 17.5 per cent a year from 2010 to 2014, doubling to US$2.2 trillion from $1.1tn, according to the consultants Strategy&. Almost half of the GCC’s wealth resides in Saudi Arabia. Together with the UAE the two countries controlled 74 per cent of the region’s wealth in 2013, compared with 71 per cent in 2009.
That trend has continued. The number of millionaires with a net worth over $100 million increased 49 per cent between 2006 and 2016, according to the 2017 Knight Frank Wealth Report. Billionaires increased by 41 per cent during the same period. The number of affluent high net worth individuals (HNWI) is forecast to grow by 39 per cent over the coming decade.
Luxury investment and spending trends have increased in parallel to the rise of affluent individuals
“Credit Suisse is further expanding and investing in its business in Saudi Arabia, a key growth market and of great importance to international wealth management,” said Bruno Daher, a senior Middle East executive at Credit Suisse.
“We consider the onshore private banking presence as a natural progression to further build our local footprint.”
UBS, the biggest Swiss bank by assets, said that Saudi Arabia’s economy appears to be stabilising ahead of its possible inclusion in the MSCI Emerging Markets stock index despite volatile oil prices and regional conflicts.
Economists at UBS are predicting that GDP growth for the country’s economy will stabilise at about 1 per cent this year and that its currency, will retain its peg to the US dollar at 3.75 Saudi riyals.
Luxury investment and spending trends have increased in parallel to the rise of affluent individuals with car manufacturers like Maserati, Porsche, Rolls-Royce, Mercedes, Audi and BMW reporting healthy sales figures from the region. The region was the third largest market for Rolls-Royce in 2016.
Despite the uptick in wealth, newcomers to the market have stiff competition. The number of banks chasing affluent clients is rising. There are more than 60 private banks operating in the Gulf, the majority of which are based in Dubai.
Swiss private banks especially are sprinting to the region. Recent fines for a number of banks in Switzerland have increased costs they may incur to ensure their compliance with rules and regulations. That has made many of them keen to tap growth in high-yielding emerging markets.
“Saudi Arabia is a key market for UBS and we are clearly committed to our clients in the country,” a UBS spokeman said.
“Our long-standing established footprint and local presence put us in a privileged position to meet our clients’ present or future needs.”
Still, even at the projected growth rates, banks have their work cut out as wealth is not growing as fast as it was during periods of higher oil prices and the Saudi economy, though moving in the right direction, with economic diversification and privatisation plans, is expected to contract slightly in 2017 before rebounding next year, according to the Institute of International Finance.
Despite the challenging macroeconomic conditions, diversification and privatization programmes as set out by crown prince Mohammed bin Salman in the kingdom’s Vision 2030 plan “will see the country limit its reliance on oil exports and strengthen its economic growth over the medium term,” said Daniel Savary, head of eastern Mediterranean, Middle East and Africa at Julius Baer.
“This is expected to lead to a surge in wealth and as such, increase the opportunities tremendously in terms of wealth management,” said Mr Savary, adding “Julius Baer is keeping a close eye on opportunities in KSA while continuing to offer its services to its clients and help them grow and preserve their wealth for coming generations.”