x Abu Dhabi, UAESunday 23 July 2017

Gulf banks warned 'no more bailouts'

Central bank governors agree that financiers must learn lessons from the Saudi family-owned conglomerates.

Gulf finance leaders have warned the region's banks not to expect any more government bailouts in the event of future financial catastrophes created by defaulting borrowers. Lenders must learn lessons from the continuing fallout of the troubled Saad and Al Gosaibi groups by bearing the risks from loans extended to customers who may default, said Hamood Sangour al Zadjali, the executive president of the Oman central bank.

Mr al Zadjali made the comments following the annual meeting of GCC central bank governors in Abu Dhabi yesterday. "Each bank has to take responsibility for their actions," he said. "Any credit they offer has to be on a well calculated basis; risks should be known very well and no one should expect that governments should bail out the borrowers." Mr al Zadjali said Gulf banks had to "set aside enough provisions so that the savings of the public is protected".

Several Gulf states have injected cash into the banking sector since the onset of the financial crisis last year. In the UAE, the Government put in Dh120 billion to prevent a freeze on lending and announced a restructuring of its two largest home finance companies, Tamweel and Amlak. The warning comes as banks across the region write down billions of dollars from loans connected to the Saad and Al Gosaibi groups of Saudi Arabia. Regional banks are among a number of financial institutions suing the companies, which defaulted on payments after borrowing at least US$15.7 billion (Dh57.65bn) from more than 80 regional and international banks,

Financial regulators in the region have agreed to co-ordinate their supervision of the financial sector to ensure the banking sector remained financially resilient, said Mr al Zadjali, acting as spokesman for the Committee of Governors of Central Banks and Monetary Agencies in the GCC. Dr Nasser Saidi, the chief economist at Dubai International Financial Centre Authority, yesterday echoed the need for the region's banks to take greater responsibility for their financial risks, saying lenders should incorporate financial vulnerability indicators into their decision making.

"The unprecedented volatility in financial and money markets and increased economic uncertainty caused by the global economic crisis makes it critical for banks and financial institutions to identify, measure and monitor their vulnerability to a range of factors and to extreme variations or outcomes of those risk factors," he said. Mr al Zadjali said there had been "no disagreements" between the Saudi Arabian Monetary Agency (SAMA) and other central banks on SAMA's handling of the repayment of the debt of the Saad Group and Ahmad Hamad Al Gosaibi and Brothers. A Saudi government panel is believed to have brokered a debt deal between the Saad Group and Saudi Arabian creditors to settle about $2.59bn in loans, appearing to leave out non-Saudi banks.

Sultan al Suwaidi, the Governor of the UAE Central Bank, said on Monday 13 local banks had exposure to the two conglomerates, with the regulator set to announce the degree of provisions each bank had to take to cover the risks involved. Despite suggestions from some economists that SAMA may intervene to help affected Saudi banks cover their losses, the agency has insisted it would not buy up assets from the Saad or Al Gosaibi groups.

Between them, the two family-owned conglomerates owe an estimated $3bn to banks in the UAE and $5bn to those in Saudi Arabia, according to Standard Chartered. Mr al Zadjali said a recent stabilisation in the price of crude would help the oil-reliant economies of the Gulf to "move forward". Asked what he believed to be a fair price for oil, Mr al Zadjali said: "Any price between $80 and $100 will be good for producers and importers."

He said GCC governments were taking measures to co-ordinate data on consumer price index indicators in an effort to reduce the chance of high inflation returning in the region. "We have discussed steps to realign our statistics in order to ensure there is a common ground to determine what is the inflation rate in the GCC countries," he said. Before the start of the financial crisis, the Gulf was weighed down by double-digit inflation, which drove up food prices and put pressure on companies locating staff in the region.

tarnold@thenational.ae