Saudi, Bahrain banks well covered for bad debt

Local Saudi banks are taking enough provisions for doubtful debt, the kingdom's central bank governor said on Saturday, adding it was too early to consider removing stimulus from the economy.

Muhammad al-Jasser made the remarks to reporters on the sidelines of the Gulf Cooperation Council meeting in Oman's capital.

An estimated $22bn debt implosion at Saudi family conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros has sent shockwaves through the region and forced numerous banks to boost provisions against their exposure to the pair.

"Rest assured they (banks) will have all the sufficient provisions for any doubtful debts, be it Saad/Algosaibi or any other borrower," Jasser said. "We're very conservative when it comes to these things."

When asked if there would be a deal for international banks on the debt restructuring of the two Saudi conglomerates similar to a reported agreement by local banks, Jasser said: "There was no deal with Saudi banks whatsoever. My understanding is Saudi banks set off whatever in bilateral agreement with Saad/Algosaibi."

The reported deal last month, which would see Saad repay syndicated and bilateral loans, has left international creditors in the cold.

International creditors affected by the troubles at Saad and Algosaibi include BNP Paribas and Citigroup.

Meanwhile, Bahrain's central bank governor also said local banks are well covered against the impact of debt troubles at Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Brothers

"As far as we're concerned we're happy. Banks are well-covered and there's nothing to worry about," Rasheed al-Maraj said on the sidelines of the Gulf Cooperation Council meeting in Oman's capital.

Asked if there had been any developments on Saad/Algosaibi involving local banks, he said: "Nothing has changed."

The Central Bank of Bahrain (CBB) assumed control of The International Banking Corporation (TIBC), owned by Algosaibi, and Saad's Awal Bank in July 2009 and appointed external administrators to protect creditors' claims.

Jasser, who heads the Saudi Arabian Monetary Agency, also said on Saturday that it was too soon for Gulf states to consider mopping up the huge amounts of stimulus pumped into the economy in the wake of the global financial crisis.

He said such moves would have to be coordinated by the Gulf states and take into account the pace of recovery in each one.

"The pulling out depends on the pace of the recovery in each country and the pace is not the same in all countries," he said.

"This is what the IMF is saying and this is what we are saying and this is rational economic management."

Saudi Arabia has cut benchmark interest rates, lowered bank reserve requirements and poured $3bn in long-term deposits to combat the effects of the credit crisis. The kingdom forecast a rare budget deficit for this year as it boosted spending, including for infrastructure, to spur economic growth.

Banque Saudi Fransi said in a research note last week that Saudi Arabia, which launched a $400bn, five-year domestic spending programme, will spend over a fifth more than was projected in its budget this year.

"Our stimulus is mostly for oil production capacity enhancement and also large devleopment projects we're implementing," Jasser said. "When these projects are finished, then we will reassess the need for additional spending."

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