| 05 Jul 2009 |
|
Saudi defaulters owe banks $40b
- Text size
JEDDAH - Saudi businessmen's defaulting debts to local banks are estimated at SR150 billion Saudi ($40 billion), Saudi-based Al-Riyadh daily reported on Saturday citing economists who blamed flawed lending procedures and the kingdom's central bank for the problem.
The banks' lending to these businessmen was based on the businessmen's "reputation" and this is a point of weakness, economist Khalid Al-Humaidan told the paper.
About 70 percent of the banks' employees dealing with lending operations are foreign expatriates whose first concern is to achieve the highest volume of lending regardless of the creditworthiness of the loan seekers, Humaidan added.
x
DISCLAIMER
Zawya is a distributor (and not a publisher) of content supplied by third parties and subscribers. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by those third parties, including information providers, subscribers or other users of the Service, are those of the respective author(s) or distributor(s) and not of the Company. The Company neither endorses nor is responsible for the accuracy or reliability of any opinion, advice or statement made on the Service by anyone other than authorized Service employee spokespersons while acting in their official capacities. The Company is not responsible for any infringement of intellectual property rights or breach of any applicable law or regulation, including regulation in relation to financial services or the distribution of financial products, defamation, data protection, telecommunications (including regulations relating to excessive use, spamming or other abusive activities) or obscene, offensive or illegal content). Under no circumstances will the Company be liable for any loss or damage caused by a member's reliance on information obtained through the Service. It is the responsibility of member to evaluate the accuracy, completeness or usefulness of any information, opinion, advice or other content available through the Service. Please seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
Read the full Member Agreement
http://www.zawya.com/legal/NewsLetter.cfm?name=disclaimer
Zawya is a distributor (and not a publisher) of content supplied by third parties and subscribers. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by those third parties, including information providers, subscribers or other users of the Service, are those of the respective author(s) or distributor(s) and not of the Company. The Company neither endorses nor is responsible for the accuracy or reliability of any opinion, advice or statement made on the Service by anyone other than authorized Service employee spokespersons while acting in their official capacities. The Company is not responsible for any infringement of intellectual property rights or breach of any applicable law or regulation, including regulation in relation to financial services or the distribution of financial products, defamation, data protection, telecommunications (including regulations relating to excessive use, spamming or other abusive activities) or obscene, offensive or illegal content). Under no circumstances will the Company be liable for any loss or damage caused by a member's reliance on information obtained through the Service. It is the responsibility of member to evaluate the accuracy, completeness or usefulness of any information, opinion, advice or other content available through the Service. Please seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
Read the full Member Agreement
http://www.zawya.com/legal/NewsLetter.cfm?name=disclaimer
Access to this article is subject to specific terms and condition.
More News in Financial Services
Loading ...Free Newsletter
Get the latest news from Financial Services and other Free newsletters.
Post a Comment
Community Comments (15)
Guys, Al-Humaidan is just tweaking your nose on the expat thing. Everyone knows the vast majority of officers in Saudi banks are Saudi nationals. We also know the vast majority of members of credit committees are Saudi nationals. These things are so obvious that we don't even need to discuss them. What's important is the process to make loans. Saudis are humans like everyone else. Loan committees don't need to be majority Saudi or majority expats to do stupid things. In every financial crisis I've lived through we witnessed loan committees start believing the hype in the market, and normally that meant real estate markets. When loan committees get the same news that developers get in their local press, they are subject to the same delusions: straight lines sloping upward forever. I lived in Washington, D.C., in the late 1980s and remember many local banks, with loan committees comprising typical white guys with MBAs, giving 105% construction loans. Why? Because they got infected with the same disease as everyone else. Unsophisticated and sophisticated alike, we are all prone to believing real estate will go up forever. The old adages "God's not making any more" or "It gets sick but never dies" gives all kinds of people false comfort that real estate is somehow immune to bad investing, and bad lending. I would guess that nearly all the bad loans in the Saudi banking system are tied to real estate failures, with dropping rental yields and association decreasing valuations. A hard slap in the face is what is needed to get lending back to normal standards, now in Saudi Arabia but exactly like London in the early 1990s, Japan in the early 1990s, Houston and Dallas in the mid 1980s, and on and on and on back in time to the days of Moses. Bad real estate lending is the oldest story in the book, well almost the oldest! John
Facts:
1. It is true that Banks in Saudi Arabia are highly Saudiized but the top functional heads are normally expats
2. The expats from the West are highly profit oriented due to their bonus structure
3. The fee / asset orientation is imbibed in to the lower levels of bank. This results on credit reports highlighting the good aspects and skimming over the negatives - I know since I have seen it happening in my bank
4. Round tripping of income / expenditure in accounting and in investment is suspected in the corporate sector
5. SAMA is effective provided there is a political will - same goes with CMA. CMA is stuck on the curve of the hockey stick
Therefore, there is a cause for being concerned about the state of the financial and capital markets in KSA.
I do not see the point of saying that 70% of employees dealing with lending operations are FOREIGN expatriates. I lived 5 years in Saudi Arabia and i'm pretty sure that the situation is not related to the fact that employees are foreign (or locals). The BANKS are deciding on the policies, and the BANKS have to have to proper controls in place to ensure the creditworthiness of the lenders. Those who appy these policies (the employees) are just offering services based on the bank policy
The problem with name lending is obviously a big one in Saudi Arabia. However, Basel II was supposed to remove much of the historic reliance on name lending. About 7 years ago I met the head of a big Saudi banks' western region corporate loan division. I asked him about his loan book, growing or shrinking. He said, "John, we still lend to the same 15 families that we used to lend to for the last 20 years." We know that Basel II forced the banks to start collecting audited financial statements from these borrowers, then apply a risk matrix to the borrower, in order to reduce the capital set asides associated with nondisclosed borrowers in name lending situations. What was discovered by many Saudi bankers implementing Basel II was that family businesses not only don't like to disclose, but when it becomes clear they mostly all have a long history of removing as much cash as possible from their companies. Razor thin equity is normal among a lot of these businesses. So, of course when profits tumble the first thing to get hit is their credit lines, which the company's can't pay because they don't have the resources, itself because all possible cash was stripped out of the company long before. This itself has many reasons. One is that everyone wants to reduce zakat. Another is that families want to strip out cash as fast as possible for fear of someone taking over their business, the bank or someone else (somewhat weak legal system). Another is that families want to reallocate cash to many different destinations: their investments in Dubai, their new project in Mecca, their bank account in Switzerland, all outside the hands of the lender. None of this will change until Basel II gets fully and completely implemented in every nook and cranny of the Saudi banking system.
I think Mr. Al Humiadan is right , can you imagine if 70% of the lending officers were Saudis. How much would the amount of default would be 3, 4 or 5 times the amount quoted. The 30% of Saudis who approved the loans must be very proud. The banks management must have given them fat bonuses.
Lets not go overboard or get dramatic. Nobody is blaming expatriates for the "pirates" on the street. I think it is comments from people like yourself which tends to exaggerate the negative side of KSA.
"Gone are the days when this place used to be the center of tranquility"? I am sorry if you have been a victim of the bag snatchers recently, but this is not a new thing. Your choice of words make Riyadh/Jeddah seem like Harlem.
Please stick to the topic at hand when you send in comments.
Cheers
RAK
Asad, if your consultancy skills are anything like your opinions, then i assume you must work in a family business, as i'm not sure who else would hire you.
you are embarrassing.
If this is the quality of supposedly expert economist, i dread thinking about the rest of saudi experts. Pretty sad unthoughtful cheapshot.
Banks operate on committee approvals and not individual decisions.
I was waiting for someone to get started on this article.
1. SAR 150 billion in defaults? We will find out soon
2. 70% of the banks' employees dealing with lending operations are expats? Banks are highly "Saudiasized" perhaps with the exception of advisory/capital markets. Blaming the problems on the expat workers is a cheapshot. Bit like Bush blaming Asians for the increase in food prices last year
A statement from a seasoned banker looks hilarious to me.
Mr. Humaidan did not mentioned that most big family members are directors on banks board wherein the loan disbursement becomes easy to their own company.
The posiiton of every big size loan is reviewed in Treasury Committee which is represented also by local people at senior management level.
With 90% saudisation being achieved there are very expats left which are not at decision making leaving level. Except where there is foreign ownership ( which follow strict lending norms).
Also its a Saudi Family which has taken a loan and defaulted for their personal benefit Mr. Humaidan did not mention this aspect of personal gain on the cost of national wealth.
I will appreciate if articles like this are not published and expat blame game is avoided.
Also SAMA should see that the Family whose member is a board members is not given any loan by the Bank. .
Come and see what is happening on the streets of Riiyadh. Gone are the days when this place used to be the center of tranquility. Pirates are roaming on the streets on Riyadh, Jeddah and other cities to snatch mobiles, purses, money, documents and any thing they can put there hands on. Police are silent observers. Who are to be blamed, expatriates. Saudi banks are almost 95% Saudized but when there are bad loans, whom are to be blamed: expatriates. Well it is so easy to point fingures at others forgetting that the other four fingers are pointing towards yourself.
Banks in Saudi Arabia are well organized, loans approval cannot be by one manager responsible for the clients, it is management committee which approves the loan. there are hardly very few decision making cadre held by expatriates.
further it is not easy to get loans from Saudi Banks without cover of guarantee of 150% of the loan amount. this is atleast the plight of medium and small enterprises in the kingdom.
the big money loans involved is thru wasta and recommendations of the elite, maybe these loans face problem.
I do not agree with Mr. Humaidan about the two statements he made as caused for the problem i.e., the lending based on reputation and the lender's officers are expats.
This was the case in the late 70's and early 80's. However, with the current situation, lenders were given loans based on collaterals that were not adequte and the lending decision was on the hands of credit committees.
The crisis is due to the fact that the business owners wanted to benefit from the liquidity available and there were banks competing to get a piece of this business.
Now the authroities have to be transparent in giving information about clients that are at default and or going into default.
Thanks
I wonder the quality of the exposure banks maintain???
I am so surprised that Credit Committee approved such speculative transaction!!!!
The question is: How much bounce they made out of it?
If this is the level of 'experts' then I am not surprised at the current situation.
Majority of the credits extended in the GCC have a certain degree of name lending involved - though it might be small. Even a reputation of a businessman or a business is built on certain premises. Unfortunately, the business empires lacked transparency and thus misleading and incorrect information led to bad credits.
These sort of 'experts' sit on various boards to fudge the numbers and influence lending decisions. To top it all, frequently and constantly changing contradictory laws further aggravated the situation.
Almost all major financial institutions are being controlled by locals within and decisions to lend (specially large lending) usually rest with these knowledgable gentlemen.
The law of nature has actually struck on the very core - greed of the locals. Rental market in UAE is a perfect example. For the past few years local banks were on a rampage making extra ordinary returns. Would'nt the nature strike?
1.1 Contain any material which is libelous or defamatory of any person, is obscene, offensive, hateful or inflammatory or causes damage to the reputation of any person or organisation.
1.2 Promote sexually explicit material, violence, discrimination based on race, sex, religion, nationality, disability, sexual orientation or age or any illegal activity.
1.3 Be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence.
1.4 Be threatening, abuse or invade another's privacy, or cause annoyance, inconvenience or needless anxiety.
1.5 Be used to impersonate any person, to misrepresent your identity or affiliation with any person, or be likely to deceive any person.
1.6 Give the impression that they represent Zawya.
1.7 Advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse.