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Blown billions, Part II

Blown billions, Part II

Banks in the Gulf and beyond are reeling from Saudi Arabia’s Saad and al-Gosaibi scandal. We look at the web of relationships behind a dispute that will change the way business is done in the region, reports Trend magazine. Part II

October 17, 2009 9:27 by

Back to basics

If properly addressed, the scandal’s exposure of inadequate risk assessment may eventually lead to more transparent business financing in the region. Saudi Arabia’s Jadwa Investment Company says the root of the problem – and it’s an issue that goes beyond these two groups – is short-term borrowing to fund long-term investments. That’s something that may not be unique to the region but is certainly more prevalent here.

Only 22 percent of total credit in the country has a maturity of more than three years, says Jadwa’s July report. Jadwa doesn’t see problems at family businesses posing a systemic threat to the banking sector, due to its strong fundamentals.

Non-performing loans were just 1.3 percent of total loans at the end of 2008, and provisions were sufficient to cover over 153 percent of these loans. That said, these traumatic events are certain to change the way business financing takes place in the region, especially in ultra-conservative Saudi Arabia. “This episode has decimated the name-lending paradigm that was so prevalent in the region’s banking sector,” says Humayun Kabir, the chief financial

officer of the National Bank of Oman. “The term ‘as good as gold’ used to describe such groups, but that has now been struck from the bankers’ dictionary.”

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