The shine of Saudi Arabia's banking industry may have dimmed recently, but this hasn't stopped investment banks setting up in the kingdom this year in anticipation of what many view as inevitable future growth. The Japanese bank Mizuho is the latest to set up shop there, but it faces challenges securing a foothold in the largest Arab economy.

Japan's third largest bank has officially opened a Saudi office today, following reports on Bloomberg that the move was imminent. Mizuho says that it plans to offer advisory services to the 80 Japanese companies in the kingdom as well as asset management advice to local investors.

Though the bank hasn't outlined its hiring plans for the new office, it faces some stiff competition for both business and talent.

There remains a shortage of investment bankers locally, and as we noted recently, expats are still slightly reluctant to make the move to the kingdom.

"Whoever is a candidate, and we interviewed in Dubai or Saudi...will choose Dubai," Omar Al Jaroudi, chief executive of the Saudi unit of Dubai-based investment bank Shuaa Capital told the Reuters Middle East Investment Summit.

If it's hoping to capitalise on Japanese companies' expansion plans in the kingdom, Mizuho also faces competition from its domestic rival Nomura, which kick-started its Saudi office in May 2008. Bank of Tokyo Mitsubishi has also been expanding its GCC presence.

Then there's the fact that the investment banking fee pool has been shrinking and being shared among a growing number of players. Saudi companies have also traditionally favoured domestic investment banks.

For example, although Shuaa Capital said it has recently secured four investment banking mandates in Saudi, Al Jaroudi said it remained a difficult environment to operate in.

"We're waiting for the situation to settle down so companies have more visibility ... The market is tough," he said.