Fitch Ratings, a New York and London-based authority on credit ratings, recently pronounced Saudi Arabia’s banks relatively safe from harm while the kingdom’s Draft Law on the Resolution of Financial Institutions undergoes a standard review.
“The Saudi Arabian Monetary Agency (SAMA), which supervises the banks, has a strong tradition of supporting the banking sector and, to date, no depositors or creditors of banks have lost money,” Fitch said from its Dubai branch.
The Financial Stability Board (FSB), a consultative group that oversees banking practices in Middle East and North Africa (MENA) nations, first introduced the concept of regional banking approaches in an April 25 meeting in Riyadh. While FSB stated that SAMA believes its jurisdiction to be adequate, Fitch said that current Saudi laws lack clarification in the area of shareholder and creditor rights, potentially opening the door for legal action in some cases.
Fitch suggested that a formal framework could be constructive and spell out when it is appropriate for SAMA to take action. At present, no Saudi laws provide a system for creditor claims - if lenders wish to quantify risk and be able to estimate losses, Saudi Arabia needs to update its bankruptcy laws.
The international credit rating agency’s ratings are used as a guide for investors to determine which investments are most likely to yield a return. Criteria include factors such as how small an economic shift would be necessary to affect a bond’s standing and how much debt the company holds.
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