'Saudi groups to hurt bank's profit'

Profit at Oman's Bank Muscat is likely to suffer from exposure to troubled Saudi groups Saad and Al Gosaibi, an analyst said yesterday, raising the spectre of bad loans hurting bank results in the Gulf. Sunil Dhall, Vice-President, Gulf Baader Capital Markets, said Bank Muscat is likely to book bad loan provisions during the second quarter due to exposure from its Bank Muscat International unit, based in Bahrain. A spokesman for Bank Muscat refused to comment. Banks in Saudi Arabia and Kuwait with their commercial ties to the groups as well as banks in Bahrain, a regional banking centre closely integrated with Saudi Arabia, are thought to have the most exposure to the two Saudi groups. Saad Group, a $30 billion (Dh110.1bn) empire chaired by Maan Al Sanea, is restructuring its debt, including that of its Bahrain-based subsidiary Awal Bank, after ratings agencies downgraded the group to default status. "There is a lot of unofficial information around and there are no reliable figures so far about the size of the loans," said Ibrahim Al Alwan, Deputy Chief Executive at Saudi investment bank KSB Capital. "What should happen is that affected [Saudi] banks will be impacted at the level of profitability as they will have to make provisions at the end of the second quarter for debts that are unlikely to be recovered," he said. Mardig Haladjian, General Manager, Moody's in the Middle East, said he believed banks' ultimate losses would be low, as Saad Group is a viable company with ample resources whose owners are thought to control billions of dollars. "We don't believe that the ultimate loss will be material to the exposures the banks have to the group. Banks have to provision but those provisions can be written back," he said. Dhall said that Bank Muscat International had exposures to Saad Group and Al Gosaibi, which the parent Bank Muscat needed to account for in its earnings. "Central banks are likely to ask them to classify that as bad debt. In case things improve, they can write it back." Dhall said he expects shares in Bank Muscat to fall below 0.7 rials if such an announcement is made. Saudi group Ahmad Hamad Al Gosaibi Group Brothers, which owns a majority stake in Bahrain-based The International Banking Corporation, is also restructuring its debt. One analyst said there could be more exposures. Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .