Thirteen UAE banks have exposure to the troubled Saudi Arabia-based Saad and Algosaibi groups, UAE Central Bank Governor Sultan bin Nasser Al Suwaidi said. The Central Bank has told the banks to make provisions to cover the bad debts. The percentage differs from bank to bank according to the degree of exposure.
Abu Dhabi Commercial Bank (ADCB), the UAE's third largest lender by assets said it holds more than US $609 million (Dh2.24 billion) in exposure to two Saudi conglomerates, the biggest official disclosure of potential losses for any bank since trouble erupted at the family businesses. ADCB expects to book additional provisions in the near future to cover its exposure, according to a debt prospectus published by the lender and dated 17 September.
The two businesses are undergoing a massive debt restructuring that has sent shockwaves through the regional banking system.
ADCB has already set aside Dh430m to cover its exposure to Saad and Algosaibi based on the information it had on 30 June, but warned the amount of ultimate losses may significantly vary and will be updated in the future.
The Abu Dhabi Securities Exchange and Dubai Financial Markets issued a warning on 30 September to banks to fully disclose details of their exposure to the two groups.
29 September 2009
Analysis and forecast: increasing risk
The exposure of GCC banks to the Saad and Algosaibi family businesses is becoming clearer, almost by the day. No reliable data on the exposure of banks is available, but GCC, Arab and international banks are thought to be exposed. Political Capital has reported on the risks the collapse Saad and Algosaibi will have on the GCC banking sector, and this seems to be widening. Besides the risk posed to lenders, further large family business collapses are inevitable as the global financial crisis put further pressure on businesses that are often run with very little transparency. The increasing exposure of the UAE banks demonstrates that the risks taken by those banks particularly when lending to local large family businesses, are larger than anticipated. Without preemptive steps taken to addresses this exposure, the survivability of some of those banks without government help is questionable. This may not be easy to achieve given the close relationships between the large family businesses, and the ruling families, many of whom have large family businesses as well.
In the case of the Saad and Algosaibi group, previous estimates of an exposure of AED 3 billion dirhams have been overtaken by estimates of an exposure well over AED 4.5 billion, equivalent to 3.75% of the UAE’s government bailout of UAE banks.
The figure below shows the exposure of the banks that have announced an exposure and the size of it, in US dollars. Other banks, including RAK Bank and Dubai Islamic Bank have said that they are not exposed. The figures below are almost certainly bigger than acknowledged.