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Saudi banks spur loss provisions; exposure ‘manageable’, says S&P

RIYADH - Two large Saudi banks sharply increased provisions for loan losses during the second quarter, official data showed on Wednesday, amid concerns over the solvency of some debt-laden private Saudi firms.
Banque Saudi Fransi booked SR120 million ($32 million) in provisions for loan losses during the second quarter, according to data released on the Saudi stock exchange. BSF’s audited financial statements show it booked a little below SR10 million in provisions for loan losses in the same period of 2008, 46.1 million in the first quarter of 2009, and 287.5 million in the fourth quarter of 2008.
The Saudi affiliate of France’s Calyon has posted a 10.6 percent drop in second-quarter profit.
Samba Financial Group, the country’s second-largest lender by market value, booked SR97.3 million in provisions for loan losses during the second quarter, against SR 37.8 million in the year-ago period, SR203 million in the first quarter and SR141.6 million in the fourth quarter of 2008. Samba posted a 1.6 percent rise in second-quarter net profit.
In recent weeks, several banks in the region have offered details on their exposure to Saad and another family firm, Ahmad Hamad Al Gosaibi Group & Brothers (AHAB), which are facing a debt crisis. Both firms are restructuring debt worth billions of dollars and a substantial chunk of it is owed to banks.
Standard & Poor’s Ratings Services found the exposure to the Saad and Algosaibi groups of 30 commercial banks it rates in Gulf Cooperation Council (GCC) countries to be significant but manageable, according to its report “Special Standard & Poor’s Survey Shows that Rated Gulf Banks are Significantly Exposed to the Saad and Algosaibi Groups.” The two prominent groups recently ran into severe and unexpected difficulties and have entered debt restructuring discussions with their respective creditors.
“Total exposure net of tangible collateral to the two groups is significant but manageable for sampled rated GCC banks,” said Standard & Poor’s credit analyst Goeksenin Karagoez.
Information related to each individual Gulf bank’s exposure is confidential, and as such can not be disclosed by Standard & Poor’s - but our survey enabled us to arrive at various opinions: Exposure to the groups varies significantly among the sampled GCC rated banks, from no exposure to net exposure of more than 20 percent of a few banks’ adjusted total equity.
Surveyed banks in Saudi Arabia and the UAE represent almost two-thirds of the total net exposure of the sampled banks.
GCC rated banks in the sample have taken what appears to be material levels of tangible collateral, in the form of cash and listed shares, against these loans, which covers about 30 percent of their gross exposure.
Syndicated loans, Sukuk, and working capital loans accounted for a large portion of the debt owed to GCC rated banks. From the data, these exposures appear to be mainly to nonbank entities of the groups. Noncash exposure (mainly through letters of credit) forms the rest of the exposure.
As part of its surveillance on rated bank credits, Standard & Poor’s receives detailed information on the banks’ largest exposures. The Saad and Algosaibi restructuring discussions suggest that high levels of concentration within GCC banks’ loan portfolios create significant credit risks for these banks, mitigated by GCC banks’ high earnings capacity, good capitalization, and high level of loan loss reserves. S&P’s believes that it is premature to assess the level of ultimate losses that creditors will face on their exposure to these two groups. – Reuters
 
   
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