Saudi Arabia is undergoing widespread social and economic changes, which are already having an impact on trade. GTR speaks to four trade finance leaders from the country’s banking sector to better understand the impact of developments such as the emergence of Saudi Exim, trade finance digitalisation efforts, diversification of the kingdom’s exports, and the recent detente between Saudi Arabia and its long-time foe Iran.
Roundtable participants:
- Arup Roy, head of global transaction solutions, Banque Saudi Fransi
- Wasif Hasan, senior director global trade and supply chain, Alrajhi Bank
- David Leslie, general manager, global trade and receivables finance, SAB
- Anjum Mirza, head of trade finance, transaction banking group, Saudi National Bank
GTR: Saudi Exim has recently stepped up its operations – has there been any impact on trade and export finance in Saudi Arabia in terms of facilitating trade and exports? Has your bank used Saudi Exim’s products?
Roy: Saudi Exim is quite active and visible in the market. A team has been put in place and engagements are happening, both with the banks as well as with prospective clients. As a bank, we have already activated agreements and we are getting some insurance to support our exports. There are extensive discussions with Saudi Exim at this stage to expand the scope beyond insurance and into funding opportunities, syndication opportunities and bilateral deal opportunities, for example.
Hasan: We’ve been co-ordinating very closely with Saudi Exim, whose main aim is to facilitate exporters in the kingdom in order to boost Saudi exports internationally. In addition to insurance, it is also developing a lending product and providing dollar and other currency liquidity to banks. Alrajhi Bank is one of the first banks to be interacting with Saudi Exim in setting up this new product. Saudi Exim is likely to play a more and more active role in facilitating trade and hopefully we’ll see its impact growing.
Leslie: We are working with Saudi Exim on export transactions on key corridors and are actively seeking ways to scale up our partnership. We see the most value where Saudi Exim is able to extend the existing capacity of banks in high demand export markets at prices that meet market requirements.
Mirza: Banks are taking advantage of Saudi Exim’s credit limits for countries. There may be trade that is not entertained by banks, but is on open account terms and at certain times you have to take international corporate exposures and these are very difficult for Saudi banks because of the restriction of the mandate that they have of investing in, or lending to, companies outside Saudi Arabia. That’s where the Exim bank can come into play.
GTR: Diversification from oil exports is a big part of Saudi economic policy. Have you seen any interesting trends from your trade clients in terms of emerging export markets and trade channels?
Leslie: Using export letter of credit volumes as a simplified proxy for client volumes, we have seen the most significant growth in exports for industrial products and chemicals and plastics over the previous year. The highest volumes in exports have been within the Gulf Cooperation Council, to other Arab countries and increasingly to Asia and Western Europe. Looking ahead, there are several government initiatives that are aimed at supporting greater SME export growth in the future. These include free zones, new programmes to supporting SME working capital and the digitisation of trade through technology as well as the necessary laws and regulations to support the move from paper title to digital.
Roy: Non-oil exports remain a key focus area as part of the Saudi government’s Vision 2030 programme. There is a concerted effort, and an entire ecosystem is working towards boosting non-oil exports. Apart from petrochemical derivatives, we are noticing a growing level of exports of metals and minerals and food, such as diary and animal products, as well as services exports. Religious tourism and opening up of new sectors, such as tourism, sports and culture, are all contributing to export inflows. Large Saudi corporates are increasingly exploring overseas opportunities to support large-scale construction and infrastructure projects, including in the renewable energy sector.
We are also noticing growth in re-exports to neighbouring countries. Saudi Arabia, over the past few years, invested heavily in developing logistical infrastructure, such as roads, sea ports and airports, and this should further help in driving competitiveness and ease of access, which in turn positions the country as a re-export hub.
Hasan: The transformation that we are witnessing in Saudi Arabia is unprecedented and all-encompassing. Some of the focus areas in order to transition to a more diversified economy are industry and manufacturing, such as automotive, agriculture, natural resources and renewable energy. As an example of the country’s evolution in a trade and economic sense, look at the establishment of Ceer Motors [a partnership between the Saudi Public investment Fund (PIF) and Taiwan’s Foxconn], which is setting up an auto manufacturing plant for electric vehicles. This is an example of the tangible steps being taken to diversify non-oil income. Alrajhi Bank is actively facilitating trade for several PIF and other companies involved in such projects.
The kingdom is planning to quadruple containerised trade by 2030 and is rapidly expanding port capacity and efficiency while linking these to the growing rail and road network and building inland logistics hubs.
Mirza: Another part of the non-oil diversification under Vision 2030 is the aim for Saudi Arabia to become a re-export and trading hub. It has a strategic position between the three continents of Asia, Europe and Africa and a presence in the Red Sea, which gives the country that physical link, as well as the strategic link. And the country is also planning to have the free zones developed on the Red Sea, which will contribute to manufacturing for exports.
GTR: Do you expect there to be any short or medium-term boost to trade following the resumption of diplomatic relations between Saudi Arabia and Iran?
Hasan: The resumption of ties will improve the security situation in the region and that will automatically promote trade and co-operation in the region.
Roy: This is a significant and interesting step, involving two large economies within the region. Subject to the normalisation of diplomatic ties, there is an opportunity for Iran to use Saudi Arabia as a platform to source its goods, particularly once trade agreements are facilitated. The flow of tourism in both directions and corresponding growth in sea and air transportation will be another benefit. In terms of relationships between financial institutions in both countries, that needs to be worked upon and we expect that to naturally come as a result of demand from customers and central bank guidelines.
Leslie: Iran remains subject to international sanctions and therefore there is no change from a banking perspective.
Mirza: Geopolitically, this is one of the biggest developments of the year. I think economically, it will make some impact and be a positive impact for the region.
Trade might happen very quickly or take some time, but the role of China in playing the pivotal role in the deal is significant as it’s a major trading partner of both Iran and Saudi Arabia.
GTR: Are there any significant developments in trade and trade finance digitalisation in Saudi Arabia?
Leslie: Trade finance digitalisation continues at pace in Saudi Arabia. Vision 2030 focuses on the interconnected goals of being a digital government and banking ecosystem, making Saudi Arabia a trade hub and supporting growth in the SME sector, encouraging entrepreneurialism and creating a broader-based economy. Digital government initiatives are supporting banks in injecting liquidity into the SME sector by creating transparency in terms of onboarding and financing. SAB, for example, is already connecting to government know-your-customer platforms to support expedited onboarding of clients and is exploring government-backed digital invoicing platforms to finance against digital trigger points rather than on a typical credit approval basis.
Similarly, the Saudi Central Bank is encouraging development in fintechs through its sandbox initiative, which has already seen the rollout of two digital solutions, Bwatech and Tabadul, for the previously paper-intensive guarantees business. Solutions such as these aim to reduce the use of paper through digitalisation of guarantees – a huge business in Saudi Arabia given the unprecedented infrastructure development currently underway. To move this forward further and reduce friction in trade to help support Saudi Arabia as a trade hub, there is engagement across key stakeholders in the government, including the ministries of transport and commerce and the port authority, co-ordinated by the Digital Government Authority and National Competitiveness Center to create foundational rules for e-transactions and ultimately allow for electronic transferable records.
Hasan: Digitalisation is not only in progress, but a lot has happened already. Back in 2021, Saudi Arabia was one of the earliest countries to launch digital promissory notes. Last year Alrajhi Bank launched three major digitalisation initiatives. We were the first bank to launch an end-to-end digital letter of guarantee (LG) service in partnership with Tabadul, so not only the issuing but the advising to the beneficiary was fully digital. This process used to take one to two days, but with digitalisation we cut it to one or two hours. We also partnered with a local fintech to offer LG advising via a B2B interface, which we first deployed with the Saudi Electricity Company. We have also partnered with Contour to offer a fully digitalised cross-border letter of credit service for our customers, involving a local auto dealer and one of its suppliers in China.
Roy: There is an ongoing digitisation in the supply chain space. Apart from investments being made by banks in the supply chain finance space, large customers are also developing their own platforms in collaboration with fintechs. There has been an exponential growth in fintechs in Saudi Arabia, and banks like us are partnering with them to offer new solutions to clients. Apart from banks and fintech, the government remains a major driver in facilitating and promoting digitalisation, which also covers trade solutions.
Mirza: I’ve seen a lot of attention paid to supply chain finance solutions for MSMEs. That is the flavour of the year again – not only is it being brought about by fintechs mushrooming in Saudi Arabia and the broader region, but also by the banks themselves. It’s not only single proprietary digital platforms being made available, but multi-funder platforms have also started appearing.
GTR: The Saudi National Bank recently closed a yuan-denominated facility with China Exim. Do you think yuan-denominated – or other non-US dollar or euro – trade is a phenomenon that is likely to grow?
Mirza: These developments are driven by business requirements and the growing speed at which transactions can be concluded on digital platforms. Faster payments are also becoming available for corporate users. Anybody can be onboarded to a platform, payments can be made, escrow accounts are now available, and central banks are giving approvals for those kinds of solutions. Currency will become a choice, not of the bank, but of the customer, which is a very interesting development.
Roy: We expect to see an increase in trade settlement happening in Chinese yuan. That’s an indication which is becoming very clear now, especially with the relationship between China and Saudi Arabia getting stronger day by day. This is likely to be most common for oil settlement and inter-government payments.
We do see some invoices in yuan. We have started seeing that in sectors like automobile and spare parts imports – but these are trickling through, they are not in big numbers. This will also require a good foreign exchange support system to make it easily available to the customers who want to buy Chinese yuan. But that will come with demand; banks normally take actions based on demand, and that’s exactly what is happening.
Hasan: We are certainly looking at yuan as a currency. Many countries are now going for export or import in the currency of the buyers – that is indeed a trend that is happening and growing. However, when the risk is higher, the tendency is to go back to the US dollar because it’s still the most reliable currency.
Leslie: SAB has a strong capability in trade and FX, including renminbi. In the event that the oil sector shifts to yuan-denominated trade, SAB is well-placed to support through its HSBC network strength with the group’s offshore renminbi hub. Notwithstanding the readiness of banking capabilities, real growth in yuan-denominated trade in the sector will need to come from the major players involved.
