SAUDI COMMERCIAL SAGA NEARING CONCLUSION?

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 001340 SIPDIS DEPT FOR NEA/ARP, EEB E.O. 12958: DECL: 10/07/2019 TAGS: ECON EINV ETRD EFIN SA SUBJECT: SAUDI COMMERCIAL SAGA NEARING CONCLUSION? REF: A. DHAHRAN 168 ¶B. RIYADH 976 Classified By: Deputy Chief of Mission Susan L. Ziadeh for reasons 1.4 (b) and (d) Summary -------------- ¶1. (C) Maan Al-Sanea and his company, the Saad Group, recently settled several of their outstanding domestic loans, leading some bankers to speculate that the dispute between him and the Gosaibis may be drawing to a close. Other bankers are not convinced. The central bank maintains that it is only peripherally involved and that most outstanding international loans are owed to Al-Sanea and the Gosaibis' Bahrain-based banking arms, and therefore are not their problem. Regardless of whether the situation is resolved in the near term, it will continue to have ripple effects on bank lending in the Kingdom and therefore the larger economy. For the moment, this seems to be a cautionary tale about the dangers of over-leverage rather than a portent of broader problems. We, like the rest of the Kingdom, will continue to watch it closely. End summary. Some Debts Repaid, Others Remain -------------- ¶2. (C) International media have widely reported that the Saad Group, owned by Maan Al-Sanea, and at the core of a recent commercial dispute between two prominent Eastern Province families (Al-Sanea and the Gosaibis) involving defaults on up to $20 billion in loans to Saudi and international banks, has paid off some of its loans in the Kingdom. A local bank CEO recently told Econoff that this involved the banks agreeing to accept $0.90 on the dollar for their outstanding loans, involved some, but not all, of the domestic Saudi banks that were owed money, and required Al-Sanea to sell some company assets. ¶3. (C) On October 6, three local bankers provided Econcouns with three different views of the situation, ranging from "it's almost resolved" to "no one really knows what's going on or how long it will last." One added that the dispute had resulted in a substantial slowdown in bank lending in the Kingdom and that this slowdown, coupled with provisions his bank had to take out on the Saad Group and the Gosaibis' company (AHAB),had cut sharply into his bank's profits for ¶2009. Central Bank Comments on the Situation -------------- ¶4. (C) During an October 7 meeting with Econcouns, Vice Governor of the Saudi Arabian Monetary Agency (SAMA) Dr. Abdulrahman Al-Hamidi said AHAB and the Saad Group are private businesses rather than banks and, as such, are not supervised by SAMA. He said TIBC and The Money Exchange, their respective banking arms, are headquartered in Bahrain and are therefore subject to the Bahrain central bank's oversight rather than that of SAMA. Furthermore, according to Al-Hamidi, most of the debt owed to international banks is owed by these banking arms rather than by AHAB and the Saad Group. ¶5. (C) Al-Hamidi continued by suggesting SAMA had been unfairly blamed in the media for not doing more to address international banks' concerns regarding AHAB and the Saad Groups' defaults, saying SAMA "never" manages the relations between the banks they supervise and those banks' clients. He said the banks understand SAMA's regulations on provisioning and if they are required to take out provisions against a certain client, they will do so. He reiterated comments by SAMA Governor Muhammed Al-Jasser that this situation poses no systemic risk to the Saudi banking sector. He did indicate that several Saudi banks have taken steps to increase their loan loss provisions on domestic loans. He also suggested that this provisioning could end up wiping out bank profits for 2009 (a comment some commercial bankers have also made). According to Al-Hamidi, SAMA's only role in this situation is to carry out the orders of a government committee chaired by the Saudi Minister of Justice set up to respond to accusations of malfeasance made by one group (the Gosaibis) against the other (Maan Al-Sanea) and that to date that had only consisted of freezing the personal bank accounts of the two families. Comment -------------- RIYADH 00001340 002 OF 002 ¶6. (C) Based on private comments made by bankers and other businessmen, we believe SAMA is playing more of a role than that of technocrat enforcer. Nevertheless, it seems unlikely that they are taking sides in the dispute, as some of the more outlandish local rumors have suggested. SAMA's main interest in this matter is to ensure the banks remain well-capitalized, that liquidity in the financial sector is maintained, and that the dispute is resolved as quickly as possible. While the immediate dispute may be close to a settlement (as indicated by Al-Sanea's settling many of his domestic debts),its impact on bank lending will continue for at least several months, and could continue to depress bank profit well into 2010. SMITH