Banks to provide details of Saudi exposure

The Abu Dhabi Securities Exchange (ADX) has directed banks to provide details of exposure and provisions taken to troubled Saudi groups Saad and Algosaibi as part of regulatory measures, the bourse said on Wednesday.

The request led to a flurry of statements by listed banks and comes after the UAE central bank governor said this week that 13 UAE banks were exposed to the troubled Saudi firms.

ADX sent out a circular urging banks to provide any exposure details by September 30 or to let ADX know by what date banks can provide those details. There are 13 banks on the Abu Dhabi index.

"Banks have been responding to our circular but so far no trading has been suspended," Khaled Al Suwaidi, head of the listing companies department, told Reuters.

Following Abu Dhabi's lead, Dubai Financial Market also announced it had formally requested listed banks to disclose their exposure to the troubledi Saudi groups, in response to the Securities and Commodities Authority (SCA) circular.

"In this regard, DFM would like to state that finance risk is common in day to day business for banks due to extending loans and facilities to different sectors," DFM said in a statement on Wednesday. "Generally, banks disclose in detail their exposure and provisions through quarterly and annual statements.

"Consequently, Dubai Financial Market would like to emphasize that listed banks have to announce the provisions taken, if any, due to extending facilities to the two Saudi groups in their Q3-09 financial statements."

The two Saudi family businesses are undergoing a massive debt restructuring that has sent shockwaves through the regional banking system. Gulf central bankers on Tuesday warned commercial banks not to expect government bailouts of defaulting borrowers.

The central bank officials also played down risks to the Gulf region's banking systems from the debt debacle.

"It's good we have the policymakers saying the banking situation is good, but we have nothing tangible in dissecting what is going on," said Haissam Arabi, chief executive and fund manager of Gulfmena Alternative Investments.

"From an investor perspective the more information the better ... (the market) is overshadowed because of the lack of clarity on Saad and AlGosaibi. We would like to get a clearer picture on the banks."

Lenders have hiked provisions against loan losses as a result of their Saudi exposure, dampening second quarter earnings and raising concerns about full year profits.

Standard & Poor's estimates that 30 Gulf Arab banks have a combined exposure of $9.6bn.

In July, the UAE central bank directed banks to take provisions over a two-year period of 50 percent against Algosaibi exposure and 75 percent on Saad.

National Bank of Fujairah said its exposure to Saudi Arabia's Algosaibi Group was $10.2m and it also had $15.2m outstanding with Saad's Bahrain unit, Awal Bank.

The bank said it had taken provisions of $3.3m for Algosaibi and $6.5m for Awal Bank as of August 31.

Bahrain's central bank in July seized Saad's Awal Bank unit and a bank owned by Algosaibi, The International Banking Corporation, saying they had substantial shortfalls of assets relative to liabilities.

Meanwhile, Sharjah Islamic Bank said its exposure to Saudi Arabia's Algosaibi Group was AED55m ($15m), but it had no exposure to the Saad Group.

Three other banks – United Arab Bank, RAKBank and Bank of Sharjah – said they had no exposure to the two groups.

National Bank of Abu Dhabi reiterated its July announcement that it had $7.5m in exposure to Algosaibi and $3.4m in exposure to Saad.

Last week, Abu Dhabi Commercial Bank, the UAE's third largest lender by assets, said it held $609m in exposure to the Saudi conglomerates, the biggest official disclosure of potential losses against the groups.

ADCB has also filed a $30m claim in London against a Saad unit, joining a list of foreign and local banks that have filed lawsuits against Saad.

The ADX made the request of the banks in two circulars on Tuesday, initially instructing banks to provide the information before trading began on Wednesday. A subsequent circular sent later on Tuesday directed banks to provide the details or inform the ADX when banks could provide the required details. (Reuters)

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