x Abu Dhabi, UAEMonday 22 January 2018

Saudi banks carry $5bn Saad-Gosaibi exposure

Two troubled Saudi conglomerates owe local banks US$5 billion, Standard Chartered bank estimated on Wednesday.

Two troubled Saudi conglomerates owe local banks US$5 billion (Dh18bn), Standard Chartered bank estimated on Wednesday. The problems at Saad Group and Ahmad Hamad Al Gosaibi and Brothers, which have defaulted on loans and are undergoing sweeping debt restructurings, have shaken the region's banking system and been the cause of much speculation as to what the full extent to which the region's institutions were exposured to them.

Banks have set aside money at a rapid clip this year to deal with a rise in defaults on loans. Together, publicly listed banks across the Gulf booked over $3bn in provisions for bad loans in the first half of the year, in part due to exposures to the Saudi groups. Wednesday's $5bn estimate of Saad and Al Gosaibi's debts to Saudi banks came as part of a Standard Chartered report on Saudi Arabia's banking system. The bank said that while it could not rule out further trouble at other large businesses in the country, the Saudi banking system was generally stable and could withstand defaults on loans made to both family groups.

"There has been limited disclosure from the banks to date; as such, actual levels of exposure and expected losses at the individual bank level are guesswork," said the report, which was written by the Standard Chartered analyst Victor Lohle. "In our opinion, most banks should be able to absorb their exposure to the Saad and Al Gosaibi groups." HSBC estimated in July that the kindom's lenders were owed between $4 and $7bn by the groups, and banks worldwide were owed $15.7bn.

And Standard & Poor's said last month that a sampling of 30 GCC-based banks it rated, revealed exposures of about $9.6bn, which it called "significant but manageable". The ratings agency said then it was premature to assess the level of ultimate losses that creditors would face. The firms owe at least $7.4bn to local and international banks in the form of syndicated loans, according to documents circulating among bankers. The exposure of Saudi lenders to the groups does not represent a significant threat to the country's banking system according to Standard Chartered.

"It appears that in the worst case, the Saudi banks should be able to withstand their exposure to Saad and Al Gosaibi," the report said. @Email:afitch@thenational.ae