BASEL/DUBAI, Switzerland // UAE banks have "significant" exposure to trouble Saudi groups Saad and Algosaibi, the UAE central bank governor told Reuters on Monday. Speaking in the Swiss city of Basel, Sultan Bin Nasser al Suweidi said the Saudi central bank could not keep its freeze on accounts linked to the two firms forever and that Gulf countries must find a common and transparent solution to this issue as they are all affected.
"It's a big issue everywhere. All GCC countries are exposed. (The UAE banks' exposure) is significant," Mr al Suweidi said, without detailing how much UAE banks were owed. According to bankers, the Saudi central bank on June 1 froze the accounts of the Saad Group chairman, Maan al Sanea. Mr Suweidi said he believed the groups' troubles were linked to the decline in asset prices as the global financial crisis hit.
"The real reason I think (is) that there is an issue of insolvency," he said. "During the crisis...loans stayed the same and assets went down in value and that is what has resulted in the situation where assets are less than (what is needed) to cover the liabilities." Banks across the Gulf Arab region have revealed various levels of exposure to the troubled business groups. In the UAE, Abu Dhabi Commercial Bank has at least $500 million exposure to the groups, according to a banking source last week.
Rival First Gulf Bank has a small amount of exposure, another banking source said, while Abu Dhabi's largest bank by assets, National Bank of Abu Dhabi has said it has "negligible" exposure to the Saudi groups. "It certainly sounds like he is suggesting there is greater level of exposure than I had assumed," said Raj Madha, banking analyst at EFG-Hermes. Mr Suweidi said the issue could cast doubt on all family businesses in the region if it was unresolved.
Asked what the Saudi Arabian Monetary Agency (SAMA) could do, Mr Suweidi said: "It is central to this issue. The freeze should not stay forever. It's not ring-fenced. This problem, if it stays unresolved, will throw doubt onto all family businesses across all GCC countries." Mr Madha said this could be the first of a number of such problems affecting businesses in the region. "The risk of something similar occurring for other leveraged high-net worth individuals may not be insignificant," he said.