Saudi Arabia’s banking sector has come out strong from Covid-19 having managed to keep NPA ratios under a remarkable 2%. How do you foresee the banks coping with the volatility ahead?
Banks have internal processes (worry watch monitor) to identify deteriorating credits. It is important to remain vigilant and ensure risks are identified at an early stage. Another important factor is flexibility in approach with customers experiencing distress (one size does not fit all).
What are your strategies for managing the rise in corporate defaults. What measures have you deployed to keep NPAs in check?
Banks will have their individual approaches, though there are generalizations not all banks are the same. Strong credit functions are part of the way NPA can be minimized but being too restrictive can exacerbate problems for credits. Managing NPA requires deep understanding of customers financial position (we often rely on independent financial advisors). Sometimes, we need to provide ‘new money’ to mitigate risk of higher NPA, for example to ensure project completion of construction projects, receipt of retentions and release of bonds are required which may otherwise be called). Other important factors coming into play are solid decision making (based on good information), early intervention and strong dialogue/communication with our customers.
You’re joining the panel discussion focusing on driving successful corporate restructuring in the current volatile markets, at the Financial Restructuring MENA Conference. What are some of the key messages you aim to share through the panel?
KSA has clearly stated its ambitions (Vision 2030 … and beyond). This translates to massive opportunities for the Kingdom, accelerating growth and opening requirements for projects funding. The growth forecast for 2023 is strong. Nevertheless, the region like any other is vulnerable to the global economic headwinds. As a bank, we have our growth plans and the risk of default if part of the growth.
The bankruptcy regime in place supports the whole process. The KSA bankruptcy regime is still in its infancy but it’s regarded as a good framework and is becoming better understood. We are also seeing a greater level of cooperation between lenders to reach consensual solutions (non-court outcomes).
As a bank, we believe we are pioneering in our approach to restructuring within KSA. We are working closely with our customers facing financial difficulties. We are finding our customers are approaching us to understand bankruptcy options and are taking our guidance – we have an expert legal team, including former judges who understand the processes and the courts and the trustees. We have a reputation for being fair and pragmatic and solution focused. We are willing to consider ‘new money’ to facilitate enhanced outcomes where appropriate.