S&P: Exposures to Saudi groups are "manageable"

The exposures of 30 commerical banks in the Gulf Cooperation Council (GCC) to the troubled Saudi conglomerates Saad and Algosaibi are said to be “significant but manageable” according to ratings agency Standard & Poor’s.

The two prominent Saudi groups have run into severe financial difficulties and entered into debt restructuring discussions with creditors.

Standard & Poor's credit analyst Goeksenin Karagoez comments: "Total exposure net of tangible collateral to the two groups is significant but manageable for sampled rated GCC banks,"

Information relating to each individual Gulf bank’s exposure is confidential and as such Standard & Poor can not disclose this information. However, a survey conducted by the ratings agency has revealed that exposure to the Saudi groups varies significantly among the GCC banks, from no exposure to net exposure of more than 20% of banks’ adjusted total equity.

The banks surveyed in Saudi and the UAE also represent close to two-thirds of the total net exposure of the sampled banks.

GCC-rated banks have taken what appears to be material levels of tangible collateral, in the form of cash and listed shares, against these loans, which covers about 30% of their gross exposure.

A large portion of the debt owed to the GCC banks are in the form of syndicated loans, sukuk, and working capital loans. Noncash exposure, mainly through letters of credit, forms the rest of the exposure.

According to S&P, the problems with the restructuring discussions between the Saudi groups and the banks and the high concentration of these exposures on GCC banks’ loan portfolios, has created “significant credit risks”, which are only mitigated by the banks’ “high earnings capacity, good capitalisation and high level of loan loss reserves.”
However, the ratings agency adds that it is too early to assess the ultimate level of losses creditors will face on their exposure to the two groups. It adds that only a few banks are going to allocate provisions against these exposures in the second quarter of 2009.

The Saad and Algosaibi groups are estimated to owe about US$20bn to many international and regional banks.