'Saudi banks have lent $7bn to troubled groups'

Saudi Arabian banks have probably lent between $4 billion (Dh14.6bn) and $7bn to Saad and Algosaibi groups, which have borrowed about $15.7bn and plan to restructure debt, said HSBC Holdings.

"Almost half of the debt" of the two troubled Saudi groups "is owed to European and US banks with the rest shared between Middle Eastern" lenders, HSBC, Europe's biggest bank by market value, said in a research report yesterday.

The recent decline in share prices of Saudi banks, triggered by fears that their "bad debt exposure to Saad and Ahamd Hamad Algosaibi and Brothers Co" is about $1bn, "is too pessimistic, in our view, and ignores any potential recoveries", analyst Aybek Islamov, said in the report.

Saudi Arabia's bank index has fallen 19.3 per cent since May 9.

The two groups borrowed at least $15.7bn from more than a 100 regional and international banks, including BNP Paribas, Citigroup and Arab Bank, according to documents provided by lenders.

The loans may add to the losses of global banks that have reported about $1.5 trillion of credit losses and write-downs in the past two years. Banks provided at least $64bn to Saudi borrowers in the past five years as record oil prices spurred economic growth for the world's biggest crude exporter, according to data compiled by Bloomberg.

Many of those lenders now risk losses as the country's first recession in a decade threatens the wealth of some of the kingdom's most powerful families. HSBC also upgraded Samba Financial Group, the second-largest bank in Saudi Arabia by market value, and Arab National Bank, citing the recent sell- off in Saudi banks. Both stocks were raised to "overweight" from "neutral," according to a research report dated yesterday. HSBC has a price estimate for Samba at SR63 and for Arab National Bank at SR49.

Samba has trimmed its decline from this year's high in May to 32 per cent.

Arab National Bank rose 1.4 per cent to SR37, after closing yesterday at a three-month low.

Saudi banks have retreated from highs in May on concern Ahmad Hamad Algosaibi and Brothers Co and Saad Group, Saudi family holdings that are restructuring their debt, may not meet their obligations.

Algosaibi said last month it had discovered "substantial irregularities" within its financial services arm after its Bahraini bank defaulted, while Saad Group said it was planning an "orderly restructuring" of its debt after being affected by a "short-term liquidity" squeeze. The concern that Saudi banks face potential debt defaults is "overblown", said Islamov.

"The recent sell-off appears to assume an exposure of $15bn. This is too pessimistic." Saudi lenders only face a "potential exposure of $4bn to $7bn," he wrote in the report.

Saudi's Samba Financial Group will distribute SR0.90 per share dividend for the first half of the year, it said in a statement on the kingdom's bourse website yesterday.

The bank will begin to pay the dividend on July 22, it said.

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