A poor second quarter for large Saudi investment banks and muted M&A activity during the first half of 2010 suggests that the kingdom may in fact not be the best place for regional bankers to base themselves.

Arab National Bank, Samba Financial Group, Saudi Investment Bank, Riyad Bank and HSBC’s Saudi subsidiary SABB have all posted reduced earnings for the second quarter of this year. This is largely down to increased provisions for bad loans and reduced lending to the private sector. However, this combined with slow investment banking activity, suggests that the expansion drive over the last six months may have been premature.

In fact, it was Qatar that was the main Gulf centre for M&A activity during the first quarter, according to Thomson Reuters research. Saudi represented just 3.7% of Middle East acquisition targets during the second quarter and accounted for 16.2% of the region’s acquisitions.

“Banking recruitment has been heavily biased towards Saudi Arabia over the last 12 months, but more recently we’re seeing a wider geographical spread,” says Jonathan Gould, financial services consultant at recruiters iQ Selection. “Qatar is particularly active, and there are still a healthy number of roles being created within Dubai.”

Of course, it would be wrong to assume Saudi was unlikely to offer any employment opportunities going forward. International banks like Citigroup, Barclays and Societe Generale are all comparatively new entrants to the kingdom and will be keen to build their teams.

Similarly, HSBC has just poached Mohammad Al Tuwaijri – formerly head of Saudi Arabia at J.P. Morgan – as head of global banking and markets, MENA and regional investment bank, Al Mal Capital, has expanded its operation in the kingdom.

However, what’s open to debate is a) how swiftly banks will now want to expand their Saudi operations and b) whether hiring over the last year has been over-enthusiastic.

The lending slowdown has led the Saudi Arabian Monetary Authority to be more cautious about issuing new licences due to competition concerns.

And for existing players, both persuading talent to the kingdom and keeping it there – the average tenure for expat bankers in Saudi is just three years according to recruiters – remains a key obstacle. The recent problems in the banking sector will hardly prompt expats to overlook its reputation as a hardship posting.

“Recruitment in Saudi banks is a very mixed picture,” says Peter Jones, director of Middle East focused headhunters MRK Consulting. “Some have over-hired in anticipation of business that has yet to materialise and may be forced to reduce headcount. Meanwhile, others have been more circumspect and have the opportunity to grow going forward.”