Saudi central bank says system safe from Saad, Algosaibi problems

September 1, 2009

Muhammad al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA), gestures during a news conference in Riyadh September 1, 2009. Saudi Arabia's central bank sees no risk to the country's banking system from two troubled conglomerates but it has set up a panel to examine the two and take appropriate action, the bank's governor said on Tuesday.    REUTERS/Fahad Shadeed    (SAUDI ARABIA POLITICS BUSINESS) By Souhail Karam
RIYADH, Sept 1 (Reuters) – The head of the Saudi central bank said on Tuesday the financial troubles of two private conglomerates could hurt the profits of the banks involved but posed no systemic risk to the nation’s banking system.

In his first public comments on the issue, Muhammad al-Jasser said a government panel is examining how to deal with problems stemming from the massive debt defaults of Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB).

Banks across the region have been hit by the fallout from debt restructuring at the two family-owned conglomerates in what amounts to the biggest financial fiasco to hit the Middle East in the economic crisis.

“There is no systemic risk on (the) Saudi banking system from the debts of these two firms. Profitability, however, could be affected,” Muhammad al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA) said at a news conference.

Saad and Algosaibi are embroiled in a legal battle in the United States after defaulting on debts, with some bankers warning the total cost of writedowns may hit $22 billion and affect around 120 banks.

The problems at the two groups came to light in late May when the Saudi central bank froze the accounts of Saad’s Chairman Maan Al-Sanea, a decision which Jasser has not confirmed nor commented on.

“The government has taken a decision since these two firms may affect the business sector in the kingdom, and its reputation and position,” Jasser said.

“The government has set up a special committee to look into the two firms, follow the situation of these two firms and take appropriate action.”

The committee would submit its reports to “the higher authorities in the government”, he added.

He did not disclose additional information. “These two firms are family-owned, they are not banks licensed by the central bank or the Capital Market Authority. So it is not up to us to deal with the issue of these two firms”.

Algosaibi is suing Maan Al-Sanea for fraud in a case involving allegations of $10 billion in loan irregularities. [ID:nLH286690]

“We have not noticed any financial irregularities within the kingdom. We are not responsible for what happens outside the kingdom,” Jasser said.

Several regional and international banks including Citigroup <C.N> and BNP-Paribas <BNPP.PA> are exposed to the two conglomerates.

The Saudi banking system is strong, lends mainly to the private sector and the supervisory regulations guarantee that lenders get their money back, Jasser said.

Saudi banks themselves have not said anything about their own exposure, which HSBC estimated at up to $7 billion.

When asked by a reporter about a shareholders right to more information about Saudi banks’ exposure to the two firms, Jasser defended their silence.

“The banking secrecy in the kingdom was not born today and we have not implemented (it)… after problems with Algosaibi or Sanea. It has been a policy for the Saudi banking system for decades and we are not going to change this today.

“We have not spoken in the past and we are not going to speak in the future about this customer or that family … If a client defaults, then the bank will deal with it through provisions and the laws are strict on these (provisions)”.

Jasser criticised moves by other Gulf Arab countries to publicise writedowns their banks face as a result of the defaults, saying they did so because those defaulting were from Saudi Arabia.

“Do they declare their exposures when a family defaults in other countries? We have never seen that. I think the attempt to use this to distort the reputation of the kingdom is not appropriate,” he said.

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