DUBAI // Ratings agencies are starting to scrutinise the balance sheets of UAE banks as the extent of their exposure to two troubled Saudi family conglomerates emerges. Fitch Ratings, one of the world's largest agencies, yesterday confirmed the "C" rating of Mashreqbank, based in Dubai, saying its "sizeable" exposure to the Saad and Al Gosaibi groups was "manageable".
"Mashreqbank should be able to absorb potential credit losses stemming from the exposure given its current profitability and capitalisation levels," Fitch said. The finding was part of a broad review of all UAE banks rated by Fitch, said Mahin Dissanayake, an analyst at the agency. "We see this [exposure] as an issue," Mr Dissanayake said. "Starting with the sizeable and larger exposures, we review all banks in terms of their exposure to Saad and Al Gosaibi."
Meanwhile, Moody's Investors Service said it was making a review of all "name lending", or lending to companies based on reputation and long-standing relationships, at UAE banks. The ratings agency said it was not limiting its internal review to Saad and Al Gosaibi. The Saad Group ran into trouble last month, when the Saudi central bank froze the accounts of Maan al Sanea, its billionaire founder and chairman.
Before that, The International Banking Corporation, a Bahraini bank owned by Ahmad Hamad Al Gosaibi and Brothers, defaulted on some loans in May, which led to a formal debt restructuring at its parent company. Saad has also launched a formal restructuring. "We must assume higher levels of stress," said Mardig Haladjian, who heads the GCC banking team at Moody's. "This is more than Al Gosaibi and Saad. We are closely looking at any positions on a bank's balance sheet we consider name lending. The whole notion is about banks conducting name lending. In a down cycle this will come back to bite them."
Standard & Poor's, another global ratings agency that has a strong presence in the Gulf, could not be reached for comment. Ratings agencies are key players in the global economy, as their evaluations affect how easily and cheaply firms can borrow in international markets. Ratings also serve as measures of financial stability and investor confidence. As part of a broader global initiative, Moody's, which rates 16 UAE banks, is running a stress test on the banking sector in the Emirates.
It may place individual banks on review if it expected their books to be affected by too much exposure to name lending, Mr Haladjian said. It will complete the general review in a few weeks' time. More than 10 UAE banks have revealed exposure to the troubled Saudi groups totalling US$767.5 million (Dh2.81 billion), according to a document obtained by The National. With an exposure of $250m in four syndications, only Abu Dhabi Commercial Bank (ADCB) is more exposed than Mashreqbank, which has $210m in four loans, according to the document.
Other affected UAE banks include National Bank of Abu Dhabi, Emirates NBD, First Gulf Bank and Union National Bank. So far, First Gulf Bank, ADCB and Mashreqbank have revealed exposure without giving amounts. In total, 88 banks around the world are believed to have a total exposure of more than $7.4bn. Last week, John Iossifidis, the head of international banking at Mashreqbank, said he felt "the dimension to this workout is manageable, relative to our size and strength".