SAMA Governor Denies Saudi Bank "Settlement Deal" with Saad

In an interview with the Saudi Newspaper, Al Iqtisad, HE Dr. Mohammad Bin Sulayman Al Jassir, Governor of the Saudi Arabian Monetary Agency denied that there had been any settlement among the Saad Group and Saudi banks.

Continuing he noted that since AlGosaibi and Saad were commercial enterprises SAMA had not right of supervision - either directly or indirectly.  Thus, it had to rely on the banks for information.  They told SAMA that they had offset the collateral they held against their loans.  The article does not  contain any comment on how much of the exposure was collateralized/offset.   Governor Al Jassir noted that this was something that foreign banks had been doing as well.  His point being that offsetting collateral is a normal banking practice.

He also said that the uncovered portion of both local and foreign banks' exposure remained a problem and that as far as SAMA knew there had been no settlement between Saad and its creditors.

Some observations:

1. Banks get to choose on what basis to lend their clients:  secured or unsecured.
2. Lenders with security (and properly drafted legal documents) have the right to take possession of and realize the security upon the occurrence of certain defined events.
3. It may be that Saudi banks were relatively more collateralized then foreign lenders.  As a side note, one of the interesting patterns in lending is that often foreign lenders impose fewer conditions on borrowers than local lenders.  Generally, those foreign lenders, often Western, justify this by their greater sophistication in underwriting and their more developed risk management skills.  Of course, competition plays a role.  Pricing and requirements are the two ways to compete for a borrower's business.