Doubts persist after Saudi banks book more provisions

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BOOKING PROVISIONS: HSBC's Saudi affiliate, SABB bank, booked SR351.5m ($93.7 million) in bad loan provisions in Q3 compared to SR314.4 million during the previous quarter. (Getty Images)

Saudi banks booked more provisions for bad loans during the third quarter but a veil of secrecy over the level of their exposure to troubled private firms is keeping investors guessing over their adequacy.

Stock exchange data showed that five Saudi banks booked more provisions for loan losses in the quarter, raising by at least 183 percent their total amount this year compared to the first nine months of 2008.

The provisions had been widely expected amid concerns over the solvency levels of heavily indebted Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB) which are at the centre of an estimated $22 billion debt implosion.

Unlike peers in the region, Saudi banks have not disclosed the level of their exposure to these two firms and this keeps analysts wondering whether any newly booked provisions would be high enough to fully cushion them against anticipated losses.

"We don't have a clear idea about exposure ... If you don't know the level of exposure, then it will be difficult to say if these provisions are enough," said Ibrahim al-Alwan, deputy chief executive of KSB Capital.

Standard & Poor's says banks in Saudi Arabia and the UAE account for almost two-thirds of the total net exposure to the conglomerates of the 30 commercial banks it rates in the Gulf.

A Saudi government panel last month brokered a deal between Saad Group and Saudi lenders but neither party disclosed the details of the agreement adding further mystery to its significance for holders of Saudi banking shares.

"Officials say banks are well-covered," KSB's Alwan said. "Banks here are generally conservative when it comes to lending and provisions but they are not transparent enough".

SABB bank, HSBC's Saudi affiliate, booked 351.5 million riyals ($93.7 million) in provisions for bad loans during the third quarter compared to 314.4 million riyals during the previous quarter, bourse data showed on Saturday.

This brings to 782.2 million riyals its total provisions made over the nine months to end-September.

In comparison, Riyad Bank has put aside 601.8 million riyals in the same period.

Samba Financial Group, the second-biggest Saudi lender by market value, has put aside 377.2 million riyals compared with 127.6 million a year ago, while Banque Saudi Fransi, the Saudi affiliate of French Calyon, booked 223.5 million riyals. (Reuters)

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