Sama must lift lid on Saudi families' debts

After a torrid six months marked by redundancies, the bursting of the real estate bubble, and liquidity problems in the financial sector, many observers are seeking signs of stabilisation, and perhaps even a recovery in the Gulf economies.

But the problems emerging at some of the region's largest family groups threaten to plunge the Gulf back into the midst of the financial crisis. Billions of dollars of debt is already in line to be restructured by some of Saudi Arabia's largest family businesses.

Ratings agencies have also raised concerns about other companies such as the UAE's Al-Futtaim Group, and its exposure to the slowing Dubai market.

The defaults at these family groups create a number of additional problems for the region. Firstly, the opaque nature of their operations makes it difficult to ascertain what caused these problems, and then to judge how systemic an issue they represent.

Secondly, as banks worry about defaults, they risk causing further problems by revoking credit lines to otherwise stable businesses.

Thirdly, the defaults damage the reputation of the Middle East, particularly the often-held assumption that large family groups will bail out under-performing parts of their portfolios.

The Central Bank of Bahrain has so far played an active role in trying to ensure confidence remains in its reputation as a regulator of some of the subsidiaries of these family groups, including of Saudi Arabia's Al-Gosaibi Group. It is right to pile pressure on lenders and borrowers to discuss the problems.

But it is the Saudi Arabian Monetary Agency (Sama), that country's central bank, which must act now.

Sama must pressurise firms that are struggling with liquidity to disclose how much debt is in distress, and what the cause of the problems is. Solving those riddles will go a long way to allaying mounting fears about more defaults occurring later this year.