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Mon 28 Sep 2009 10:50 AM

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Outlook for Saudi banks stable, private firms a concern

Moody's says operating conditions remain tough, unlikely to downgrade banks.

The outlook for Saudi banks is stable, but a rise in bad loans among private sector corporate and family-owned businesses remains a possibility, Moody’s has said.

The ratings agency said it believes the kingdom’s banking sector will benefit from the government's expansionary budget and numerous infrastructure projects.

“The impact of the financial crisis has been contained, as Saudi banks are not significantly dependent on market funding. Moreover, any losses from structured products and other risky investments have been comfortably absorbed,” said senior analyst Constantinos Kypreos.

Moody's said operating conditions are likely to remain tough, with nominal GDP in 2009 likely to decline by 10 to 15 percent due to a fall in oil revenue.

However, the decline is unlikely to lead to a downgrade of banks' current ratings, it said

Downside risks include further deterioration in the macroeconomic environment and a worse-than-anticipated deterioration in asset quality.

“In particular, private sector corporate and family-owned businesses remain the most vulnerable loan category as the recent issues surrounding the Algosaibi and Saad Groups have demonstrated,” Moody’s said.

If those conditions do materialise, the outlook for the sector could be changed, it said.

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