Financial Regulatory Forum

EXCLUSIVE – UAE central bank tells lenders to raise provisions over Saad, Algosaibi

By Reuters Staff
July 23, 2009

By Stanley Carvalho
ABU DHABI, July 23 (Reuters) – The United Arab Emirates central bank has directed banks to take provisions over a two-year period of up to 75 percent of their exposure to a pair of troubled Saudi firms, bankers told Reuters on Thursday.

The central bank met bankers on July 16 to review lenders’ reports on their exposure to Saad Group and Ahmad Hamad Algosaibi & Bros.

In recent weeks, several regional banks have given details of their exposure to the debt-ridden Saudi conglomerates and Standard & Poor’s said on Thursday that 30 Gulf Arab banks had a combined exposure of $9.6 billion.

“According to the guidance of the central bank, banks should take provisions of 50 percent over two years on exposure to Algosaibi and 75 percent on exposure to Saad,” a banker who attended the July 16 meeting said.

“Basically, banks are required to take 25 percent provisions on AlGosaibi and about 37 percent provisions on Saad this year, and the same next year,” he said, declining to be named due to confidentiality reasons.

Another senior banker confirmed the central bank’s guidance.

The central bank declined to comment.

“A provision of 50 to 75 percent could be a reflection of the probability of default or losses,” said Raj

Madha, senior research analyst at EFG-Hermes.

Privately held Saad Group ran into difficulties in June, prompting the Saudi central bank to freeze the accounts of billionaire chairman, Maan al-Sanea [ID:nN0167288].

Algosaibi, which is also restructuring its debt, has said it discovered evidence of substantial financial irregularities within its financial services arm but did not offer any specific information.
The Saad Group and the Algosaibi family borrowed at least $6.3 billion in syndicated loans, Reuters LPC data showed.

Regulators and bankers are grappling with the fallout from the debt restructuring, seen as the biggest blow to hit the Middle East since the start of the financial crisis.

Directing banks to take provisions of 50-75 percent of exposure suggests the remainder is recoverable from the troubled Saudi groups.

“As time goes, either they will recover that or if they don’t, they make have to make more provisions,” said Abdulla Al Otaiba, head of corporate banking, National Bank of Abu Dhabi.

Comments
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“Directing banks to take provisions of 50-75 percent of exposure suggests the remainder is recoverable from the troubled Saudi groups.”

Banks used to have the right to issue receipts for the gold they held in reserve in warehouse.
This right was taken away from them by the institution of central banks.
(Roland Leuschel and Claus Vogt, “Das Greenspan Dossier, Wie die US-Notenbank das Weltwährungssystem gefährdet. Oder: Inflation um jeden Preis”, http://www.finanzbuchverlag.de, 2006, 3rd ed., p. 299}

And now it is the UAE central bank which takes the sovereign decision as to how much the banks will be able to recover from the troubled Saudi groups.

In Saudi Arabia, it is however up to the banks to take that decision, said this New Agency also on 23 July 2009.

Kingdom’s banks increase provisions for loan losses
Souhail Karam | Reuters
Thursday 23 July 2009 (30 Rajab 1430)
http://www.arabnews.com/?page=6§ion=0&a rticle=124811&d=23&m=7&y=2009
If the link does not work, try
http://www.arabianbusiness.com/562730-sa udi-banks-up-q2-loan-loss-provisions
SNIP
RIYADH: Two large Saudi banks sharply increased second-quarter provisions for loan losses compared to a year ago, official data showed on Wednesday, amid concerns over the solvency of some debt-laden private Saudi firms.

 

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