Institutions unwilling to provide credit after family businesses default on debt
Saudi businessman Khaled Olayan has called for international banks to resume lending to Saudi family businesses that are suffering from a lack of credit as a result of the credit crunch and debt defaults by two major Saudi family businesses.
“We have noticed a retrenchment among international banks lending to family businesses,” said Olayan at a seminar about Middle East prospects in Istanbul before the start of the annual International Monetary Fund (IMF) and World Bank meetings on 4 October.
“Of our non-oil gross national product (GNP), more than 50 per cent is produced by family-owned businesses. I think it is a wrong step for international banks to retrench now. There are good family businesses which are doing well and don’t need to be treated like this.”
Olayan is chairman of the Olayan Group of Saudi Arabia. He is also chairman of the board of directors of Saudi British Bank (Sabb), the Riyadh-based joint venture that is 40 per cent owned by HSBC.
Henry Azzam, chief executive officer (CEO) for the Middle East & North Africa at Deutsche Bank, says the credit committees of international banks are increasingly unwilling to provide loans to Gulf businesses.
“Not all family businesses are the same,” said Azzam. “I want credit people to visit (them) and do what local banks are doing. We need to work together with local banks to provide local credit.”
“But (international banks) were burned by lending to one of the best families in the region,” said Azzam. “They won’t lend until there is more transparency. It would be very helpful if family businesses became more transparent and started to differentiate between what is family and what is business.”
Units of Ahmad Hamad Algosaibi & Brothers and Maan al-Sanea’s Saad Group owe at least $15.7bn to more than 80 regional and international banks.
On 6 September, Mohammad al-Jasser, governor of the Saudi Arabian Monetary Agency (Sama), said the central bank would not buy the two businesses’ debts.
Economists say they cannot quantify the extent to which international bank lending to Saudi Arabia has changed since the Algosaibi/Saad Group controversy emerged, but they estimate there has almost certainly been a fall.
“There has been a reduction in international bank lending in Saudi Arabia because there has been a reduction in cross-border lending across the world,” says Brad Bourland, Riyadh-based chief economist at Jadwa Investment, a Saudi bank.
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