x Abu Dhabi, UAEWednesday 17 January 2018

UAE steps in for lenders exposed to Saudi firms

The Central Bank plans to publish information about bank lending to the two companies as "soon" as they move to restructure their debt.

The UAE is taking measures to deal with bank loans made to Saudi Arabia's troubled Saad and Al Gosaibi groups, as central bank governors warned that lenders across the region could be owed money by the two family-run conglomerates. The Central Bank plans to publish information about bank lending to the two companies as "soon" as they move to restructure their debt, the governor, Sultan al Suwaidi, said yesterday.

"We are dealing with it. Everybody is concerned," Mr al Suwaidi told reporters at the Arab Monetary Fund in Abu Dhabi. The financial turmoil surrounding the Saad and Ahmad Hamad Al Gosaibi and Brothers (AHAB) conglomerates has spread throughout the Gulf after the Saudi government ordered their local accounts frozen last month. Since then, regional governments have struggled to quantify the exposure of local banks to the two groups.

Last week, the UAE Central Bank instructed banks to offset any lending exposure they had to the pair against available assets, and warned against extending any new credit to them. Bank Muscat said last Thursday it had an exposure of about 49 million Omani rials (Dh467.2m) to the Saudi companies and a further 17m rials through its affiliate, BMO Bank of Bahrain. So far, Bank Muscat is the only major public bank in the GCC to disclose its lending to the groups. The bank's stock price dropped 6.2 per cent after it made the disclosure.

"Maybe there are many banks in the Gulf countries and in Saudi Arabia in particular that have great exposure, because I think this group was a very large conglomerate," said Hamood al Zadjali, Oman's central bank governor. "We follow a very transparent policy in Oman, so any bank that has shares being traded on the Omani stock market will have to declare any major impacts on their operations." Gulf banking analysts have been unable to predict what impact the debt restructuring under way at both groups will have among local lenders.

"I'm counting on the Central Bank to enforce more transparency on this issue, just to let people know what is going on," said Sofia el Boury, an analyst at Shuaa Capital in Dubai. "Transparency on this matter would really be useful." Mr al Zadjali said it was not yet known if other Omani lenders had indirect exposure to the Saad and Al Gosaibi groups: "We don't know yet. We cannot really say, because there are the dealings between banks and the customers. There might be some interbank dealings."

Despite moves by the UAE Central Bank to publish information relating to the two groups, Mr al Suwaidi said he did not expect to see defaults among regional family trading groups becoming a trend. "We don't know the circumstances which led to this freezing, but it happened," he said. Other analysts said that although there may be a concern that other large family-owned Gulf conglomerates could be facing similar problems, so far none had appeared.

"In this kind of environment, if there was smoke anywhere we would have heard about it. But we haven't heard any other names, so that should be encouraging," said Ali Khan, the managing director of Arqaam Capital in Dubai. "The concern right now is that we would start to see a consistent list of names with financial troubles, but so far these appear to be an isolated case." Last week, Al Gosaibi said it had undertaken an audit of its businesses as it worked to restructure its debt and had found "strong evidence that there have been substantial financial irregularities within the financial services arm". The company would not provide further details on the audit, but said it was in contact with government authorities and creditors and was keeping them up to date.