Page 95 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 2 Entrusted Stewards 79

Extensions of Banking and Core Financial Services

As private wealth in the GCC has grown, so has the need to provide
financial services to local clients. Expanding prosperity in the region
has enabled financial institutions to provide not only basic banking
products like savings accounts and personal loans, but also private
banking and wealth management solutions for wealthy clients based in
the region. Investment services have become a key proposition of GCC
financial institutions and can be a key contributor to banks’ overall
profitability. Although many of the Gulf’s wealthiest people keep
assets in offshore accounts with global banks in the United Kingdom,
Switzerland, Hong Kong, and Singapore, there is also a sizable demand
for investment services within the region. In the 1970s and 1980s, for
example, Bahrain emerged as a major banking hub for the region,
largely because it was a trusted and nearby haven for newly wealthy
Saudi investors.
In many ways, the rise of private investment houses is a natural
extension of core banking and financial services. There are, however,
important differences between the investment services customarily
provided by banks and those provided by specialist investment
houses, as shown in Table 2.9.
Investment houses specialize in marketing funds to investors
and generally do not provide financial services such as daily banking
and basic credit services. While many banks offer their clients invest-
ment products, they generally do not manage funds directly—they
work with external fund managers or feed assets into existing funds

T ABLE 2.9
Investment Houses Differ from Banks along Several Dimensions

Banks Investment Houses

Provide investment services as part of a Relationship with clients is focused on
broader client relationship investment services
Offer a range of savings and investment Customarily focus on
“products” marketing investment funds
Often act as a distribution channel for Have internal management capabilities
external fund managers and generally manage funds directly
Service retail, commercial, high-net-worth, Focus on high-net-worth and
and institutional clients institutional investors