Saudi exposure forces banks to slow lending

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The ongoing financial crisis followed by the SaadSaad-AlgosaibyAlgosaiby multibillion-dollar crisis involving almost all the 'who's who' in the region's banking industry, are bound to force the banks to go slow on their lending for some time, said leading bankers.

Incidentally, the default crisis of the Saudi duo is exactly a decade after the billion-dollar Madhav Patel scam shook the GCC's banking industry in 1999.

It is more than six months since any noticeable syndicated deal was concluded in the country. This doesn't mean that large corporates and family conglomerates do not need funding. Though several entities have put on hold many of their projects, many family business groups are now planning to raise debt in the form of sukuks or conventional bonds to fund their expansion or new projects.

"Banks are increasingly getting away from the large lending business and taking the role of organisers and sellers of bonds," Michael H Tomalin, Chief Executive of National Bank of Abu DhabiNational Bank of Abu Dhabi (NBADNBAD) told Emirates Business. He said the bank balance sheets are much tighter than they were earlier.

"Banks are unable or unwilling to lend on their own balance sheet. But companies need to raise money in fund their projects. One way of finding funds is through the bond market. Tomalin said NBADNBAD has played an active role in the recent fund-raising exercises of Abu Dhabi Government, Mubadala, Aldar Properties, etc. "And a lot more are in the offing."

He said the country could witness tens of billions of dollars of such deals this year and next if conditions turn favourable. Contrary to lending, these assets will not come on the balance sheet of banks, but rather on the balance sheets of investors. "The investor is happy and we get a fee for organising and selling the product," he said.

Islamic banks also seem to be following the trend. Chief Executive of Badr Al Islami, the Islamic banking division of Mashreqbank, Mubashar Khokar, said banks have now gone to the next level of prudence. "This means lending will be tight."

He said a lot of family conglomerates will issue sukuks. They will also do IPOs and private placements. "We are geared for that," he said.

By CL Jose

© Emirates Business 24/7 2009