Problems grow for foreign lenders in Saudi Arabia
How much does the Kingdom care about foreign investment?
Saudi banks’ third-quarter results might have been much worse given that the reporting period closely followed two of the most shocking credit events ever seen in the Kingdom. Aggregate net income of the seven Saudi banks covered by Credit Suisse fell 5% on the second quarter.
In the second quarter, debt repayment troubles at two of the Kingdom’s biggest businesses – the Saad and Al Gosaibi groups – raised concerns about what HSBC estimated was a total of between $4 billion and $7 billion owed to Saudi banks by the two groups. Afterwards, there was a general shying away from Saudi family businesses, exacerbating an earlier debt payment crisis among smaller private groups.
Provisions in the third quarter were around three times as big as in the same period in 2008 yet roughly equal to the provisions in the second quarter. The banks did not signal whether the provisions were related to the Saad and Al Gosaibi groups’ problems. But considering the pile of potentially distressed debt, it might appear that some Saudi banks were quietly confident that they would recoup their lending to the Saad and Al Gosaibi groups.
Market participants believe Saad took an important step towards clearing its debts in September.